In June of 2014, many of the big names in Hawaii real estate flocked to a party honoring the state’s top 100 agents. The venue was “Vintage Cave,” an upscale restaurant with a prix-fixe menu that starts at $300 (wine and beverages not included) and an antique-brick interior designed to evoke the “underground architecture of ancient Rome.”

  • SRE Matrix has used technology, discounts and salaried agents to make inroads in Hawaii and plans to generate much of its revenue by charging vendors for exposure on a proprietary end-to-end platform.
  • The brokerage expands to Los Angeles, Las Vegas, San Diego and Phoenix on January 1, and has plans to hire an unlimited number of agents who will work as contractors and earn a 94-6 percent commission split, not just salaried agents.
  • Founded by a billionaire who views the business as "his baby," SRE Matrix has raised $100 million since launching a year and a half ago.
  • SRE Matrix plans to have carved out toeholds in 14 states by July 2016. San Francisco and Sacramento are the next markets on its expansion roadmap.

In June of 2014, many of the big names in Hawaii real estate flocked to a party honoring the state’s top 100 agents.

The venue was “Vintage Cave,” an upscale restaurant with a prix-fixe menu that starts at $300 (wine and beverages not included) and an antique-brick interior designed to evoke the “underground architecture of ancient Rome.”

The event may have been sponsored by a local business magazine and escrow company, but the restaurant’s owner, the billionaire real estate developer Takeshi Sekiguchi, seemed to take on the role of host, according to Bryn Kaufman, broker-owner of Kailua, Hawaii-based Sitting at a table, Sekiguchi chatted with a handful of agents and, at one point, raffled off artwork, said Kaufman, who said he attended the event.

Takeshi Sekiguchi

Takeshi Sekiguchi

Yet when Sekiguchi addressed attendees to congratulate them on their accomplishments, he was met with boos, according to Rob Young, sales and marketing executive at SRE Matrix.

That’s because Sekiguchi had recently launched the brokerage SRE Matrix. Fueled by $50 million in seed funding from Sekiguchi, the Honolulu-based startup was providing brokerage services for free at the time — an offer that had predictably irked many local agents.

Vintage Cave had offered to host the party at a “price we couldn’t refuse,” an organizer told Kaufman, and attendees got the sense that Sekiguchi orchestrated the event to build goodwill with industry heavyweights and promote SRE Matrix. Kaufman said Sekiguchi’s assistant handed out brochures that promoted SRE Matrix when the event wrapped up. (Young denied that any brochures were distributed.)

“The feedback was pretty negative,” Kaufman said, speaking of agents’ reaction to Sekiguchi’s alleged promotional efforts at the event. “It was really kind of an odd situation, to say the least.”

Many attendees “indicated that they lost clients to SRE because of our opening promotion,” Young said, referring to SRE Matrix’s 100-percent-commission rebate offer. “Funny thing is, the agents who booed still accepted and ate the free meal.”

SRE expanding in 2016

That night may offer a window into the path ahead for SRE Matrix as it expands to four U.S. mainland markets on Jan. 1 with plans to carve out toeholds in more than a dozen states over the next six months. It shows how the brokerage can tap Sekiguchi’s resources to shake up markets, but not without ruffling feathers.

SRE Matrix (SRE stands for “Smart Real Estate”) is probably the next big “hybrid brokerage,” a term that refers to tech-powered discount brokerages. The firm has raised $100 million and used salaried agents, technology and discount pricing to make inroads in Hawaii.

While many hybrid brokerages have sputtered, SRE Matrix may stand a better shot at gaining traction than most because of its deep pockets, use of full-service agents and a revenue model that will rely on charging vendors for visibility on a proprietary technology platform, rather than brokerage fees.

“SRE will be unique because of the way we utilize IT (information technology) to lower industry commissions,” Sekiguchi said in an email. “Combined with our salaried agent system we are creating a human assisted e-commerce model.”

An SRE Matrix agent mans the service counter at the brokerage's Honolulu office.

An SRE Matrix agent mans the service counter at the brokerage’s Honolulu office.

SRE Matrix will eventually evolve into a “one-stop shop,” he said. “The goal is to make home ownership more affordable to help consumers keep more of their hard-earned money.”

On Jan. 1, the brokerage opens its doors in San Diego, Las Vegas, Phoenix and Los Angeles. It’s also recruiting agents in San Francisco and Sacramento. By July, SRE Matrix plans to have set up shop in 14 states, including Hawaii.

Free service, then rock-bottom fees

After providing free service to buyers for nine months, SRE Matrix began charging rock-bottom fees in August of this year.

Young said SRE Matrix doesn’t consider itself a “discount brokerage,” because unlike many discount brokerages, SRE Matrix’s agents provide the same range and depth of services as traditional agents, not a limited number.

“SRE does not consider itself to be a discount brokerage any more than traditional brokerages consider themselves to be ‘over-priced,'” Young said.

Today, when buyers purchase homes with SRE Matrix agents in Hawaii, SRE Matrix pockets a 1 percent commission from the compensation paid to SRE Matrix by the listing broker and rebates the remainder to buyer clients.

For example, if a buyer represented by SRE Matrix purchased a $500,000 listing offering a 2.5 percent commission to buyer’s brokers, SRE Matrix would keep $5,000 (1 percent of $500,000) and rebate $7,500 (1.5 percent of $500,000) to the buyer.

To list properties, SRE Matrix typically charges sellers a 2 percent commission. It keeps half of that fee for itself and offers the other half to buyer’s brokers for bringing a buyer to a sale. Sellers can choose to offer more than a 1 percent commission split to buyer’s brokers, which is less than half the typical rate, but most do not, Young said.

Confused buyer’s agents will sometimes call SRE Matrix agents after seeing the brokerage’s 1 percent commission offer to be told that, yes, they should believe their eyes, he said.

“Usually, there’s a long pause after that, and inevitably they say, ‘OK when can I show it,’” Young said. “We’re not seeing the pushback from it.”

SRE Matrix’s low rates, which are less than those offered by many full-service discount brokerages, not to mention traditional firms, helped the startup close a claimed 103 transactions in 2015. That’s a tiny fraction of the total number of residential properties that sold in Hawaii in 2015, but not small enough to escape the notice of some brokerages.

“They are definitely cutting into our business,” Kaufman said. “We are like a small Mom and Pop store with our real estate culture, and right next to us comes a competitor who gives everything away for free. It is not easy to compete against that.”

Focus on growth, not profit

Rob Young

Rob Young

SRE Matrix’s funding is the wellspring of the brokerage’s low rates, allowing the startup to focus on growth rather than profits. (Sekiguchi told Pacific Business News in August 2014 that he expects SRE Matrix to operate in the red “for at least the next couple years.”)

Jumpstarted by Sekiguchi’s initial $50 million investment, SRE Matrix has since raised an additional $50 million, bringing its total funding to $100 million.

Young declined to name any investors who contributed to the brokerage’s most recent funding round, but said that Sekiguchi’s partner in the venture is an American company “considered to be one of, if not the, biggest real estate investors in the world.”

“This is his baby,” Young said about how Sekiguchi views SRE Matrix. “He’s really just wanting to make housing more affordable.”

Young said SRE Matrix employs some of the “biggest and brightest names in the technology end of the real estate market.” He wouldn’t name any of these individuals, but said that many of them “were on the creative team that developed IDX (Internet Data Exchange).”

This team has been hard at work developing a technology platform that will equip agents and consumers with all the resources they need to complete a real estate transaction, Young said. The brokerage will unveil the first iteration of the platform as part of its expansion to the mainland.

Proprietary consumer-facing listing search, suite of agent tech tools

One component of the platform will be a consumer-facing listing search tool that links together “multiple live MLS feeds” with other real estate information resources. Notably, Young said that the listing search tool will be powered by proprietary technology, not Internet Data Exchange (IDX) feeds.

The platform will also host a marketplace that offers consumers access to a wide range of non-brokerage services, including lenders, as well as property management, staging, furniture, insurance, escrow, appraisal, relocation and remodeling companies.

Vendors will pay for exposure on SRE Matrix’s platform, Young said. The brokerage will make use of marketing services agreements (MSAs) to offer advertising to lenders, among other vendors, he said. He later added that vendor participation on SRE Matrix’s platform could be “collaborative or via paid advertising.”

This revenue model sets SRE Matrix apart from many other hybrid brokerages. SRE Matrix’s “big money maker” will be the brokerage’s technology platform, not brokerage fees, Young said.

The final piece of SRE Matrix’s platform will be a suite of tech tools for agents, including proprietary lead generation, marketing, customer relationship management and transaction management systems.

Young conceded that SRE Matrix’s current website is “horrible,” but “served its purpose here in Hawaii.”

The listing portal the brokerage will launch in January, on the other hand, will be a powerful and dynamic platform “unlike anything seen in the real estate industry,” he said.

Following in the footsteps of discount brokerages like Redfin, SRE Matrix is using salaried agents who earn bonuses based on both customer satisfaction and the number of transactions they close. These agents will receive a stream of leads from SRE Matrix, allowing them to focus on closing transactions, according to Young.

The brokerage has also taken a page out of Keller Williams Realty’s book by offering agents who have been with the company for two years the ability to earn a slice of the brokerage’s annual profits (assuming those profits materialize).

‘Alliance agent’ contractors

In addition to employing agents, SRE Matrix is also seeking to bring on “Alliance Agents.” They will be traditional agents who work as contractors and earn 94-6 percent commission splits.

“Initially, each office will hire a handful of salaried agents until volume dictates otherwise,” Young said. “At the same time we intend to bring on as many Alliance Agents as possible — no limit.”

By offering agents the option to hang their license with SRE Matrix as “alliance agents,” SRE Matrix will be able to attract top-producing agents who may have faced a pay cut if they joined the brokerage as employees, according to Young. In the long run, SRE Matrix anticipates that falling commissions will enhance the appeal of salary-based compensation.

“Eventually, we believe strongly that everybody is going to have to be on a salary to survive the system long-term,” Young said.

A winning formula?

Only time will tell if SRE Matrix has hit on a winning formula.

Even the most successful hybrid brokerage, Redfin, which has raised $166 million since launching more than 10 years ago, hasn’t carved out a dominant position in any market. The brokerage’s CEO says the firm has discovered that offering discounts doesn’t actually increase demands for its services.

Yet SRE Matrix has the advantage of being able to learn from its predecessors. The startup has cherry-picked what it believes are the best business practices from hybrid and traditional brokerages.

Rather than seeking to automate real estate brokerage services, SRE Matrix’s agents provide the same type of hands-on care as traditional agents, Young said. The brokerage’s willingness to hire agents as contractors, not just salaried employees, also reflects an appreciation of the traditional brokerage model.

Ultimately, the firm’s success may depend on the appeal of the firm’s technology platform to consumers, vendors and agents.

Young doesn’t see potential resistance from competitors as a challenge to growth. Regardless of how buyer’s agents may view SRE Matrix, buyers will find all listings that match their search criteria online, and will want to see them, with or without an agent.

One might expect some buyer’s agents to choose not to represent clients if it means accepting a steep pay cut, raising the possibility that SRE Matrix’s listings might attract a disproportionately high number of unrepresented buyers. That might offer the firm ample opportunity to represent both the buyer and seller in a transaction, a practice that is frowned upon by consumer advocates.

SRE Matrix doesn’t double-end transactions more often than a typical brokerage, Young said. But he acknowledged that it’s possible this could change as the brokerage expands.

“We believe most real estate agents are people of integrity and our experience so far supports that,” Sekiguchi said. “If an agent is not showing one our listings because of a commission percentage, then you have to question that agent’s integrity. Real estate agents have a fiduciary responsibility to do what is best for their client, not what is in the best interest of the agent.”

Email Teke Wiggin.

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