There are currently about 175 real estate startups on the market. Unfortunately, up to 90% won’t be around five years from now. Instead, they will litter the real estate startup graveyard with their failed business plans and pissed off investors. Here are a few who have flat-lined already:
This online brokerage was once the high flier of real estate tech. Founded in 2000, Your Home Direct (a.k.a. YHD.com) hit the market like an atom bomb with their “2% commissions”. During their first week, both the call center and website crashed because of the overwhelming response.
Foxtons, the U.K.’s largest broker, bought YHD.com, altered the name, and plowed millions into the company. After two and a half years, YHD/Foxtons was selling 400 some weeks in just the northern New Jersey and New York metro area. Traditional brokers thought they were doomed. However, things started to unravel for the startup. Customer service and transaction management were horrible and the word got out. Business suffered. The 2007 real estate meltdown was the last straw and they shut down after losing $40 million.
This Texas-based tech startup appeared to be doing well in the early 2000’s. After all, the giant Prudential Real Estate, with over 63,000 agents nationwide, showed an interest in acquiring them. That happened in 2004. However, Prudential wasn’t buying them for their robust cash flow or unique business model. By those metrics, they were a failure. Prudential bought them primarily because of their supposed cutting edge technology.
Apparently, the folks at Prudential didn’t do a thorough job of due diligence because they never used any of eRealty.com’s technology or anything else for that matter. Some would say eRealty.com wasn’t a failure because, after all, they did sell their company. However, the founders hardly saw any money because Prudential did some clauses that effectively denied the founders any big financial windfall if things didn’t work out. One founder did get a job at Prudential, however, but was fired several years after the takeover.
Private Sales Partners
This failed For Sale By Owner (a.k.a. FSBO) online startup failed in a spectacular way some 10 years ago. A Manhattan private equity group invested $5 million in startup capital to get this off the ground. Things started to go haywire from the start. Apparently, the CEO didn’t use email which, on its face, is bizarre for a person leading a tech company.
After countless months of creating the website, at no small cost, the brand was launched. Over a period of a year or so, Private Sales Partners did not list or sell a single house. The management was fired and replaced by a veteran from ForSaleByOwner.com, the nation’s leading FSBO website. The new team promptly folded the company, changing its model, and its name. However, the investors were still out $5 million.
This tech startup copied the Foxtons.com discount broker model. In fact, it was almost a direct lift. But what’s astonishing is it was financed by Realogy, the largest residential real estate franchiser in the country whose revenues are generated, in part, from agent commissions. They own the Coldwell Banker, Century 21 and Sotheby’s brands, among others.
In 2001, Realogy hired the Boston Consulting Group (BCG), the powerhouse business consulting company. They were tasked with helping figure out this new tech-driven real estate phenomena that was hitting the market, quite frankly, scaring the Sh** out of everyone. BCG approached Foxtons.com – which, at the time, was called YHD.com – and claimed they were helping Realogy acquire tech startups. YHD.com was on the top of their acquisition list they said. According to the Vice President of Marketing “We pulled our dresses up and pretty much showed them everything.”
Shortly afterward, Blue Edge hit the market, paid for and created by Realogy. However, it didn’t last long. They watered down the discount commission offer and just didn’t have their heart in it, not to mention they weren’t getting very many listings. They closed after less than two years in business.
This California-based tech startup hit the market with a bang, only to sputter out with a whimper. They offered sellers a 1% commission. To make up lost commission revenue, the model planned to generate income through ancillary offerings such as mortgages, inspections, insurance, and appraisals.
ipayOne went on a marketing spending spree going so far as signing a five-year, $2.5 million contract which renamed the San Diego Sports Area after their brand name – ipayOne Stadium. Everyone knew they were in trouble when the arena’s owners started advertising for another sponsor because ipayOne had stopped making their payments. They closed shortly afterward.
Many real estate startups’ dream of being acquired by Zillow. This happened to BuyFolio, the maker of online collaboration tools that were supposed to make it easier for agents to speak with their clients.
Zillow bought them in 2012, but, less than three years later; they announced that BuyFolio was being shut down because their customer-base was too small to justify keeping the doors open.
This New York-based startup raised $5 million in seed funding but closed in 2015 after five years in service. RetailMLS attempted to create an MLS for New York City, the only place in the country that, at the time, did not have a centralized database of homes for sale.
RetailMLS planned to offer their service for free initially, and then as they gained a large market of users, start charging for the service. Until that time, however, they needed to rely on investor funds to stay afloat. Those funds never came.
This San Francisco-based startup was launched in 2013 and began life renting small, college dorm-like residential units in New York and San Francisco. Despite a lot of attention in Silicon Valley, Campus couldn’t cut it and folded. As their 23 year old founded stated at the time,
“We couldn’t make it into an economically viable business.”
No doubt, in the coming years, the mortuary of failed real estate startups will become more crowded. However, for every eight or nine that crash and burn, there will be a winner. And in a business that throws off billions in revenue every year, we’re likely to see new one’s popup and die with regularity.