Technology

New crop of real estate innovators out to disrupt brokerage business model

Next generation of disrupters looking for piece of commission pie

Real estate startup SOLOpro had a big week: It raised $1 million in funding and was named a finalist at Realogy’s “FWD” pitch competition. Founder Tommy Sowers believes technology can save consumers time and money.

Here is the twist: His online platform is a limited-service offer, allowing homebuyers to hire agents for specific services on an a la carte basis.

And SOLOpro is not alone in this mission. A raft of new well-funded startups have descended on the real estate scene with lofty ambitions. The big question: Could one of these firms break out and reduce the role of real estate agents or eat away at their commissions?

Along with home-flipping platform Opendoor, end-to-end real estate firm Xome, national franchisor Redefy, small brokerages Houwzer and Quill Realty, and broker tech platform SQFTx, SOLOpro represents a new generation of firms rethinking the brokerage business model, promising to streamline transactions, minimize agents’ workloads on each deal and offer discounts to consumers.

Disrupting real estate agents, however, is no easy task. Presented with new ways to do real estate, consumers time and time again turn to a full-service real estate agent to tackle the complexities of a huge, infrequent transaction.

Both Redfin and ZipRealty started out with bold visions to shake up the real estate model but over time moved closer to a traditional model. And the startup trail is littered with other failed attempts to shake up real estate.

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Nevertheless, these newly minted firms are looking not just to tweak but completely modify the broker business model. Their ideas are driven by venture capitalists who are looking for disruptive technology and get behind initiatives that promise to turn real estate on its head.

“For traditional online real estate sites and services, this funding growth means more competition from startups that have the financial backing to take innovative risks, hire well, and develop new technologies,” according to the Classified Intelligence Report.

The newest crop of hopeful disruptors have looked at the real estate tech landscape, the habits of a growing tech-savvy generation of homebuyers and sellers, and believe the time is ripe for a brokerage model in which the role of the agent is slimmed down.

New brokerage models include diminished roles for agents

Firm Model
Houwzer The Philadelphia-based brokerage charges sellers $345. Agents are paid a salary. (Story)
Opendoor Opendoor helps consumers buy and sell homes online and employs salaried listing agents to facilitate the process. (Story)
Quill Realty The small, Seattle-based brokerage plans to pull out of its MLS to avoid paying MLS-mandated commissions to buyer’s agents. (Story)
Redefy The Denver-based franchisor with a national scope lists homes for a flat fee of $2,500 (for properties under $1 million). Some agents are paid a salary, while others are paid a flat fee for listings they drum up. (Story)
SOLOpro The online platform connects homebuyers with agents who provide unbundled real estate service. (Story)
SQFTx Other full-service brokerages across the U.S. leverage SQFTx’s tech platform to offer a limited-service alternative to their sellers. Agents don’t have to be involved. (Story)
Xome The national brokerage sends referrals to agents who agree to cap their commissions at 2 percent. (Story)

Zillow, Trulia and realtor.com make it easy for consumers to find loads of information about listings themselves and for agents to broadcast their sellers’ homes to millions of buyers at no cost. In addition, the rise of digital platforms like dotloop, SkySlope and DocuSign eliminate the time-intensive steps of the paper age.

The technology, and consumers’ growing comfort with it, partly fuels this crop of real estate innovators’ belief that their model will take root.

In five years, real estate will reflect the dramatic shift technology is having on culture in general, said SQFTx co-founder and CEO James Simpson, who believes consumers will choose to lean heavier on technology than on agents to complete a deal. Agents could earn less on each transaction and may need to up production to make a living.

Many agents earn between a 2 and 3 percent commission for helping consumers buy or sell a home, but the bulk of the discounts in these firms’ new models come from either shaving that agent commission rate or from eliminating it altogether by paying agents as salaried employees.

For example, Redefy, which has over 100 agents at 10 affiliates, employs both salaried agents and “field” agents. It pays its field agents a flat fee for every listing they bring in. Sellers pay a flat fee of $2,500 to list with Redefy (for properties under $1 million) and get full service.

Consumers will ultimately decide if these new technologies take hold, but traditional real estate firms are not sitting idly by. With pitch competitions and accelerators, they are beginning to participate in the innovation and seemingly embrace new business models

Consider that Realogy made SOLOpro a finalist in its competition this week.

Email Paul Hagey.


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