A Melbourne, Fla.-based startup called Deedcoin wants to create a system that will slash agent commissions to 1 percent and dramatically reduce brokerage overhead–and it’s planning on using virtual currency tokens to do that.
The company, an offshoot of the local investment brokerage Momentum Realty, aims to sell 70 million “deedcoin” tokens on its website for $1.50 to $3.00 each, through an Initial Coin Offering (ICO) scheduled to take place on January 25 (after several delays). In total, the company is hoping to raise $150 million.
ICOs are a hot new crowdfunding format for enthusiasts of digital currencies. Basically, a company creates its own unique digital currency (many are based on existing digital currencies such as bitcoin and ethereum) for a specific purpose.
In Deedcoin’s case, the currency is designed to allow homebuyers and sellers to hire real estate agents through an online network at drastically reduced rates, paying them in tokens as a way to reduce commissions to as low as 1 percent (down from about an average of 5 percent commission today). Depending on the price of property, the buyers and sellers can negotiate the commission with their agent, and that would still be paid out in U.S. dollars.
The company will offer its Deedcoin tokens for sale to the public through a website, where home buyers and sellers can pay for them with Bitcoin, Ether, Litecoin, or US dollars, according to the Deedcoin whitepaper, a document most ICOs issue to explain the structure, timing, and purpose of their fundraising.
Brokers and agents will be allowed to join Deedcoin’s platform free of charge, giving them low-cost access to a pool of buyers and sellers, or optionally spread Deedcoin to their existing clientele at a cost of an estimated $300 (paid to the state government of Florida to register as a brokerage, which Deedcoin does not recommend).
“Most importantly though, Deedcoin does not charge the brokers anything,” Deedcoin co-founder and lead coordinator Charles Wismer, also a Realtor at Momentum Realty, said in an email to Inman. “No referral fees, no franchise fees, no memberships fees; we simply need them to offer a better price and treat the customers right (score high on customer service and competency reviews).”
Deedcoin estimates each token can save consumers $190 if the typical commission is 6%–a pretty nifty return on $1.50, assuming all goes according to plan. Deedcoin founders would fare brilliantly: 15 percent of Deedcoin goes to the founders (locked up for six months) and another 15 percent to a reserve.
In general, startups have raised over $3.6 billion year-to-date through ICOs, up from $96 million in 2016. However, real estate-specific ICOs have been bit players, raising a measly $35 million this year–about one-third of what Deedcoin alone aims to raise.
Deedcoin hopes to avoid this fate, claiming it is compliant with U.S. securities law due to some legal due diligence. But the SEC just said last week said even so-called utility ICOs may need to register, a move that Deedcoin says it is actively working to address.
“We have pushed the clock back a little on our live pre-sale, with the SEC releases lately we wanted to stay compliant so we are having our law firm take another look through everything to make sure we are doing things right,” Wismer said in an email sent out to Deedcoin’s newsletter subscribers.
Wismer elaborated in another email to Inman, writing: “Delays have been due to a company choice to make the platform entirely useable across the US before launch, we have chosen not to sell any Deedcoin token until they are useable.”
Still, he thinks Deedcoin will be a hit with home shoppers and agents alike. “The real estate industry is bloated,” Wismer told Inman. “It’s not good for the consumer.”
There are too many real estate agents —1.3 million members at the National Association of Realtors vying for about over 5 million transactions–which means they are averaging only four sales yearly, Wismer said.
However, not all NAR members are agents or brokers; only 444,100 are. And residential specialists closed on a median 7 transactions. But, okay, we get the larger point. The Deedcoin founders are banking on a reservoir of frustration with the status quo among agents, buyers, and sellers to rally around its platform. Indeed, even Deedcoin’s marketing materials accuse NAR of “prevent[ing] savings through unseen market control.”
Deedcoin is far from a sure thing. So far, in addition to the founding brokerage Momentum Realty (25 listings on its website, not all active), Deedcoin says it’s signed on another 12 brokers in major cities. The website notes of strategic partnerships with Fintech companies and real estate developers, but Deedcoin declined to name any to Inman. A recent NASDAQ interview on Twitter’s Periscope livestreaming platform with CEO Matthew Herrick probably won’t sway doubters:
— Nasdaq (@Nasdaq) December 6, 2017
And Adam B. Levine, CEO of a separate digital currency software startup called Tokenly, warned Inman that building a network is “super-duper hard.” In his experience, consumers resist using wallets for cryptocurrencies. “If you lose the credentials (passwords) to the wallet, you can’t get them back.” The technical part of building the platform – with enough money – is the easy part, he said.
That isn’t stopping others from trying. Many more real estate ICOs are now on the calendar–including Realisto, Skye Properties, and Squarex. But Deedcoin’s Wismer told Inman that his company’s ICO is the only token based on the Ethereum smart contract to attack the cost structure of home sales by involving all the main parties– reps, sellers, and buyers.
Just in case things don’t work out for Deedcoin, Wismer told Inman that refunds for his tokens are possible. “That said, I am confident based on the partnerships we have made and feedback we have received that people will be using Deedcoin agents nationally by this time next year.”
“Last week we got a dozen calls,” he told Inman back in November. “We got eight the previous week.”
One hundred five million. Even $35 million. A moonshot? Maybe. But then, Melbourne is only a 40-minute drive from Cape Canaveral.
Updated to correct and clarify how agents will be paid through the platform–via a combination of USD and tokens, as well as to clarify the $300 is for state registration fees.