Editor’s note: In this three-part series, we talk to some new entrepreneurs on the real estate block, and find out what they’re doing, what they’re doing differently and how the industry has reacted to them. They’ll talk about what it takes to launch a real estate company and barriers to innovation the industry puts up along the way. (See Part 2: Up at 3:30 a.m. and Part 3: Roadblocks to innovation.)
One Percent Realty, a discount brokerage that opened for business in July 2002, was inspired by a tardy real estate agent. A law firm owner’s success in Web-prospecting for personal-injury business led to the development of Propertiez.com, an Internet portal established in October 2003 that links home buyers with real estate agents in selected markets.
The founders of these two companies say there is still room for entrepreneurs in the real estate industry, but it takes more than ideas to succeed.
Steve Malachowski, a real estate broker with experience in commercial real estate management and investment, said his foray into the residential real estate market was a direct result of a personal experience. “I never had much of a taste for the residential industry. I had no interest in being involved with it,” he said.
Malachowski was selling his home, and he hired his mother-in-law to serve as the listing agent. While working at his home-office one day, an agent dropped off a prospective buyer, who toured the home without the agent. Three weeks later, he received an all-cash offer for his home. “The agent showed up 20 minutes late for a 25-minute closing,” Malachowski said, but still earned $51,700 in commission for the transaction.
“At that point in time I said, ‘There has got to be a better way,'” Malachowski said.
Steve Malachowski and other entrepreneurs will speak during the Inman News Audio Conference “Alternative Real Estate Business Models” on Thurs., Sept. 23. Click here for more information.
His solution: One Percent Realty, a brokerage based in Austin, Texas, that offers reduced real estate commissions to home buyers and sellers.
Under the One Percent Realty system, home sellers pay a 1 percent commission in a real estate transaction, or a minimum $2,000, to post their homes on the local MLS search engine and on Realtor.com. They also receive representation from agents, an analysis of the home’s market value, a for-sale sign and a lockbox. Sellers can choose whether to pay 1 percent or the traditional 3 percent to the buyer’s agent in a transaction. Sellers also can choose from additional marketing packages that range in cost from $500 to $1,000.
Home buyers who use One Percent Realty can decide on a 1 percent commission package or a 2 percent commission package. For the 1 percent commission package, One Percent Realty provides a consultation, a listing of properties, a value analysis and recommendation on priority properties, negotiations with sellers, assistance with basic property inspection services, and negotiations for any necessary post-inspection contract amendments.
Does the real estate industry make it difficult for entrepreneurs to succeed? Take a survey.
The company also provides a detailed closing-cost estimate, reviews settlement statements prior to closing, and coordinates the transaction with the title company. One Percent Realty conducts viewing appointments for up to 10 properties and writes up to three purchase offers for its buyers.
The 2 percent commission package features all of these services, plus viewing appointments for up to 30 properties and up to five purchase offers.
Of course, tinkering with the traditional 6 percent rule in real estate commissions split by the listing agent and buy-side agents did not make One Percent Realty particularly popular with traditional brokerages, said Malachowski. It was a battle at first in working with the local MLS board, he said. “It was really like an indictment,” he said of the initial process.
Perseverance is par for the course in creating a new real estate business model, he said. “You have to be well-capitalized, which I was and am. You have to have thick skin, and you have to be prepared to fight.”
Despite the struggles, new real estate business models are not going to go away, he said. “I would guarantee you that very few people are sitting around strategizing about how to start up a full-service traditional real estate brokerage.” Malachowski refers to new, unconventional real estate business models as “alternative delivery systems,” as they provide real estate services in a different way than traditional companies. “Everyday I seem to hear about a new company. I see and I welcome competitors coming in – I think that only benefits everyone in this space.”
Financing is key for any business venture, Malachowski said, and it can take time to build income. He suggested that entrepreneurs with startup ideas “try this part-time and keep your day job. It does take a long time to build up income.”
After self-funding One Percent Realty for a period of time and then raising money from friends and family, Malachowski then secured $1 million in venture capital funding. One Percent Realty has expanded from the Austin market into San Antonio, and the company has plans to expand into the Houston and Dallas markets, too.
Money will find you, Malachowski said, if the business plan has a promise of growth and income potential. Malachowski said he has found comfort, too, in the group of individuals who have established alternative real estate business models. These entrepreneurs have been “very open and willing to share information and ideas. I have found very much a willingness to help and share information, like a band of brothers or a fraternity of sorts – that has been very much a positive.”
Jerrold Parker, president and founder of Propertiez.com, a real estate broker, and a partner in the New York law firm Parker & Waichman, said he views the real estate industry as a frontier for entrepreneurs. “The real estate industry is for the most part untapped,” said Parker. “I think that the climate for startups is wonderful.”
Parker first began a Web-marketing campaign for his law firm in 1996, growing that effort to dozens and dozens of Web sites that encompass a broad range of legal topics. These various topics are united under the YourLawyer.com site. Parker said he saw an opportunity to apply a similar formula to the real estate industry.
“What we tried to do – we tried to take our experience in marketing for personal-injury cases and move it over to the real estate market,” he said. He acquired the Web site address for Propertiez.com, which serves as the umbrella site for a number of location-focused property Web sites, such as www.premiermiamihomes.com and www.premierfortlauderdalehomes.com.
These Web sites attract prospective home buyers – most of them seeking to purchase a second home or move to a new area – and staff at Propertiez work to develop leads and match prospective home buyers with agents who specialize in these areas of interest. Propertiez so far targets several major Florida markets, including Miami, Ft. Lauderdale, Boca Raton, Jupiter, Tampa, St. Petersburg and Sarasota, with plans to launch in Orlando, Jacksonville and Key West. There are about 100 real estate agents now affiliated with Propertiez, Parker said.
“We market to people who are interested in properties in a particular domain,” Parker said. Site visitors can provide information to help Properties staff place them with a real estate agent. “When we get that lead in we then call that lead and pre-qualify them on the phone.” This verification process is intended to produce high-quality leads, Parker said. “We just don’t want to refer a crappy lead because we end up burning out the agents.” Propertiez, based in Bonita Springs, Fla., receives 25 percent of the affiliated agent’s commission at the time a real estate transaction is completed, Parker said.
Parker said he spent about 11 months to plan the launch of Propertiez.com. “I don’t think it was really that difficult to break in this new idea. We’ve had a lot of planning before we went into the venture. We did a lot of work in that 11 months. We were able to use seven years of prior experience marketing on the Web.” Parker’s latest real estate-related endeavor is a customer relationship management software package that will help Propertiez manage its leads and automate the communication process with clients.
Entrepreneurs with the right planning, thought process and financial backing will have the best chance to succeed, Parker said. “They need to have a business plan…and they need to have the proper personnel who are able to carry out those goals.”
Tomorrow: The life of a real estate entrepreneur.
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