David Walker and Philip Lang decided to launch a real estate startup for a reason cited so often by other 20-something real estate tech entrepreneurs that it has become something of a cliche among some industry observers.
“God I hate working with real estate agents,” friends would tell them. “I should be able to do this by myself.”
So to cater to their exasperated peers, Walker and Lang, both former champion rowers at Yale, launched Suitey.
The company enables consumers to perform much of the home search process on their own, matching them with a salaried real estate professional who earns a bonus based on customer satisfaction, rather than a traditional commission.
If that sounds like a business model that you’ve heard of before, that’s because it is.
Suitey represents a crop of tech-focused brokerages that appear to be drawing much of their inspiration from Redfin, following the unconventional brokerage’s successful incursion into the real estate market over the last nine years. The companies’ emergence seems to both validate Redfin’s alternative brokerage model as well as potentially portend a new wave of competition for traditional brokerages.
“It’s great to see other folks in the industry really picking up that banner and saying, ‘Hey, the consumer is the one that’s really important here, let’s focus on that,” said Adam Wiener, Redfin’s vice president of analytics and new business, about companies like Suitey and Urban Compass, another new real estate site that bears some of the trappings of Redfin.
Walker is quick to acknowledge that Suitey’s template is “definitely inspired by Redfin.”
“One hundred percent Redfin is a pioneer in the tech real estate space,” he said. “We give them so much credit for that and always will.”
Suitey, which is in beta and covers only New York City, is positioned to snatch up customers because it is competing only against traditional brokerages, Walker said.
Redfin doesn’t have a presence in most of New York City, though it does operate in Long Island, including parts of NYC boroughs Queens and Brooklyn.
Suitey enables users to search for-sale properties in a map format, and schedule appointments online, both signature services of Redfin. After being shown a property by a Suitey agent, the consumer works with that agent to close on that home or hone in on another.
Suitey calls its agents “neighborhood specialists,” and unlike traditional agents, they are paid a salary and earn bonuses that are based on customer satisfaction. So far, the company has recruited four full-time agents and 16 “partner” agents, Walker said.
Suitey’s compensation model is one that was popularized by Redfin and constitutes much of its appeal to consumers, as well as some agents.
“The pure commission model leads to a lot of pain points between client and agent, as well as mistrust,” Walker said. “We want to change the way the process is done. We think it’s a huge and inefficient market.”
A model that has taken hold
The arrival of companies like Suitey, which claims to have raised $500,000 so far, is an indication that Redfin’s “model has shown its ability to take hold,” said Marc Davison, a founding partner of real estate consulting firm 1000watt.
Their emergence also highlights a growing interest among consumers in exercising more agency in buying and selling real estate, as well as a distaste for working with people whom they may perceive to be incentivized to exploit them, he said.
“Working with someone who isn’t being paid commission in the traditional sense just feels more comfortable,” Davison said of that group.
While Redfin seems to have demonstrated the effectiveness of its business model, developing it was no cakewalk.
After the company launched in 2004, it struggled for years to gain acceptance in the industry. Many agents and brokers “loathed them,” Davison said.
That’s largely because Redfin was, at least by its own account, the first company to wrest in-depth listing data from the hands of a multiple listing services and the agents that had exclusive access to them, and display the data publicly on a map.
Initially, Redfin was just a software company. But it later concluded that in order to offer consumers a superior buying or selling experience, it needed to add a human touch to its services, Wiener said.
So in a concession to the traditional brokerage model, the company began to hire agents in 2006.
“We decided that if we really wanted to change the real estate industry to help shift people more towards thinking about the consumer first that we needed to become a brokerage first to become insiders and really help people all the way through the transaction,” Wiener said.
He noted that since then the company has steadily beefed up the hands-on services that those agents provide to consumers.
Not a brokerage ‘where agents are basically renting space’
In offering salaries, benefits, leads and a basket of devices and tools to agents, Redfin has managed to lure some agents away from traditional brokerages, “where agents are basically renting space,” and earn money only on commission, Davison said.
“When you go to work for Redfin, that’s a job,” Davison said. “And for better or for worse, they probably built the best of best stuff for agents.”
Brokerages that follow Redfin’s lead may be able to offer the same appeal to agents who might otherwise join old-guard brands.
Indeed, through trial and error, the company appears to have managed to pinpoint a balance between high-tech self-service and hands-on support, serving up a model that other companies may adopt with a degree of confidence in its potential to attract both consumers and employees.
“They’re better than what they were five years ago,” said Kevin Lisota, CEO of Seattle-based brokerage Findwell. “Five years ago they were definitely an assembly line. Your ability to meet with [agents] was seriously limited.”
Findwell, founded in 2008, is another brokerage that’s followed in the footsteps of Redfin.
Like Redfin, Findwell pays its agents salaries, and markets itself as tech-focused. It also offers a rebate to buyers and a reduced commission to sellers, two other hallmarks of Redfin’s service.
“I saw what Redfin was doing as a potential trend,” said Lisota, who founded Findwell with fellow Microsoft alum Shannon Ressler. “They were a partial inspiration.”
But Lisota claims Findwell places more of a premium on hands-on customer service than Redfin.
Because it pays agents salaries, Findwell is able to offer up to a 1 percent rebate of the sales price of a home to a buyer and charge only a 1.5 percent commission to a seller, instead of the industry norm of about 3 percent.
Redfin provides a buyer’s rebate calculated on a sliding scale and based on the list price of the home that can exceed 1 percent, and it also charges a below-market listing commission that is usually about 1.5 percent.
Suitey, which for now is focused mostly on serving buyers, similarly offers a rebate equal to 1 percent of a home’s value.
The discounts offered by next-generation brokerages as well as an emphasis on consumer-empowering technology could help them draw in certain consumer demographics.
A next-gen brokerage with ‘fuel to fund that engine’
But Davison noted that tech and discounts are not all that’s helped Redfin carve out a foothold in real estate.
“Redfin was able to be really successful … because of the fact that they were capitalized,” he said. “They had a lot of fuel to fund that engine.”
Urban Compass, another brokerage that employs a model that seems to run in the vein of Redfin’s, enjoys the same benefit.
The company, whose launch was announced by New York City Mayor Michael Bloomberg in May, is reportedly armed with $8 million in seed funding from investors including Goldman Sachs, Founders Fund and Thrive Capital as well as a group of CEOs from companies including American Express and ZocDoc.
Urban Compass touts a sharp focus on tech, claiming to make the rental process easier through services that enable consumers to search for homes, schedule showings and apply for homes online.
The impressive backing the company has already attracted may also be attributable to the track records of its founders. Urban Compass co-founder and Executive Chairman Ori Allon sold his first business to Google and his second to Twitter. Co-founder and CEO Robert Reffkin is a former White House fellow and Goldman Sachs alum.
The startup’s launch might have spelled trouble for the leaner Suitey, if not for the fact that Urban Compass, at least for now, is focused exclusively on the rental market.
More NYC ‘neighborhood specialists’
Like Suitey (and Redfin), the startup has agents who are paid salaries and bonuses based on customer satisfaction. These agents even have the same name as Suitey’s agents: “neighborhood specialists.” Urban Compass has hired 40 of them so far, according to Gordon Golub, chief residential real estate officer at Urban Compass.
“They are able to specialize more in their roles because the technology that we’ve created allows them to be more nimble” and to “introduce things to the consumer that a traditional real estate agent cannot at this point,” Golub said.
That’s a strategy, of course, that Redfin has attempted to execute on ever since it brought on agents seven years ago. Redfin claims that, thanks to an adrenaline shot’s-worth of innovative tools, its agents are six times more productive than the average agent.
Gordon said that all neighborhood specialists will use a special app “that has every single detail that you need.” Urban Compass says the app will give specialists real-time access to listings to help clients on the fly.
As for tools that assist clients, the company’s website features a search tool that uses a map format and enables individuals to drill down to individual listings by clicking on bubbles.
The map-based search tools employed by both Urban Compass and Suitey bear a distinctive resemblance to Redfin’s, which also uses a bubble feature. Major listing portals realtor.com, Zillow and Trulia do not use a bubble feature.
Urban Compass (left) and Suitey (right) use map-based search tools that closely resemble Redfin’s (center).
Urban Compass also offers an appointment-scheduling feature, and a tool that enables clients to apply for a home loan online and even make initial payments for it.
Golub, a former executive vice president at NYC-based brokerage Citi Habitats, was less inclined than Suitey’s Walker to offer a hat tip to Redfin for blazing a trail that Urban Compass seems to be headed down.
“Our model is inspired by our two founders,” Golub said, when asked if Urban Compass had taken some of its cues from Redfin. “The pure inspiration came from trying to fix a problem in New York City that all their friends face.”
Regardless, Suitey and Urban Compass aren’t rip-offs, Davison said.
While Redfin has traditionally favored suburban areas, many of them relatively affordable, Davison noted, Suitey and Urban Compass are attempting to tackle a pricey urban market, and appear to be more overt than Redfin in courting younger consumers.
Davison thinks the ambitious startups’ “neighborhood specialists” — trained to focus on particular neighborhoods — also set them apart from Redfin. In addition, Urban Compass is gunning only for the rental market, which is currently outside Redfin’s bailiwick.
“Redfin is partly responsible for showing these entrepreneurs that a model like this can be done, but I don’t think the reason for doing this is to simply clone a Redfin model,” Davison said. “They are more or less looking at what the young consumer would be interested in.”
Brokerages like Suitey and Urban Compass could potentially present challenges to traditional brokerages by chipping away at their hold on certain age demographics.
But Davison said that the fact remains that, after jockeying for market share for nearly 10 years, Redfin has managed to claim only a small fraction of it.
“I think its easy to look at disruptive ideas as potential game changers; it’s easy to look at these things and believe that they perhaps undermine, but the truth of the matter is, Redfin has only been able to grab a very small percentage of the marketplace,” he said. “It doesn’t appear to be putting a whole lot of pressure on the traditional brokerage to change their current model with agents.”
Either way, Wiener said Redfin is proud to see a crop of brokerages emerge whose business models seem to closely resemble its own.
“Imitation is the sincerest form of flattery,” Wiener said. “It’s validation.”