The success of online real estate brokerage ZipRealty’s initial public offering has buoyed other companies with alternative business models, boosting their optimism about prospects for 2005.
ZipRealty, a full-service brokerage that rebates part of its sales commission to home buyers and sellers, made its IPO of 4.55 million shares of common stock at $13 per share in November. Net proceeds totaled $61.3 million, higher than the company originally predicted. ZipRealty’s stock also has continued to do well since its IPO, trading between $14 and $19 a share in the first month.
“We are just in shock – there’s no other word for it – at the success of their IPO,” said Lyle Martin, co-founder of Assist-2-Sell, which sells houses for a flat fee. “It just demonstrates there is public support of an alternative model and that the investors apparently see that as a trend in the future. Otherwise, why would they risk their money on the stock? It lends credibility to the idea that the old traditional way is not necessarily the best way.”
Martin and others believe 2005 looks bright for those companies offering an alternative to the full-commission model. While they aren’t predicting any major developments in the real estate discounter channel for 2005, they anticipate continued interest in the business from consumers, real estate professionals and investors.
Martin anticipates that more traditional brokerages will respond to the growth of discount services by offering some type of menu of services that will enable consumers to choose and pay for only the services they want. Traditional firms may not reduce their fees, but instead will feel the need to increase the value of their services in exchange for their commission, he added.
Brian Yui, CEO of HouseRebate, which rebates part of its sales commission back to its customers, believes next year will bring continuing competition in the discount space, from other discounters and traditional brokerages. ZipRealty’s IPO will further cement the discount business model in the industry.
Yui said ZipRealty’s successful market debut “validates that the discount model works in today’s market.”
Consumer interest in discounted services likely will remain strong as home prices continue to rise at a brisk pace. Consumers are becoming savvier, Yui said, and want to know what real estate agents are doing to justify their commissions.
Yui believes the growing consumer awareness and interest may lead to more growth in franchising of discount realty brokerages. He said HouseRebate is considering franchising and believes other discounters will more seriously consider expanding next year.
Technology also will play a role in expanding alternative real estate businesses in the coming year. Technology advancements are making the entire real estate transaction easier and allowing more consumers to search online themselves for houses, Yui said. That means the cost of transactions will decrease, opening the door for more brokerages that offer discounted commission structures.
Assist-2-Sell already is expanding. It sold 155 new franchises this year, a 61 percent increase over 2003. Next year will likely be the company’s best year ever, Martin said, adding that he anticipates more agents from traditional brokerages seeking out Assist-2-Sell franchises.
“We don’t see an overnight revelation where 80 percent of the market is going to shift over to us, but it’s just getting progressively stronger,” Martin said. “We’re not in a hurry. What’s most important to us is that we build a strong group of successful franchises.”
Change is on the horizon next year for one well-known alternative business model in real estate: Foxtons North America. The company plans to publicly debut its revised business model, which will offer full service for a 3 percent total commission, up from its current 2 percent commission model.
Foxtons North America CEO Van Davis said next year the company’s model will be put to the test.
Foxtons plans to focus on refining its model in its current market of Tri-state New York. After that, the plan is to take the company national, Davis said. The model’s success next year, he believes, will help propel alternative business models further along in the industry.
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