California-based flat-fee real estate company Home Bay just raised millions of dollars and has plans for a major expansion, marking the latest development in the cut-throat world of disruptive low-cost brokerages.
Home Bay announced Tuesday it has just raised $13.5 million during its latest funding round, CEO and chairman Ken Potashner told Inman. The money came from Signal Peak Ventures, Serra Ventures and E15VC, the latter two of which had participated in Home Bay’s previous funding rounds.
Potashner said Home Bay will use the money to beef up its marketing efforts, hire new software engineers and real estate agents and expand into new states. The company currently operates in six states — including California, Texas and Florida — and will likely expand into 10 more in 2019, though Potashner would not say which markets Home Bay is currently eyeing.
“So far we’ve been progressing linearly,” Potashner added. “These funds enable us to move it from linear to exponential. You’ll see us announcing many states in parallel and amplifying our hiring our ability.”
Housing Wire reported news of Home Bay’s funding and expansion plans.
Home Bay’s business model resembles that of other flat-fee brokerages. Rather than charge sellers a traditional 3-percent agent commission, Home Bay collects a flat-fee ranging from $2,000 to $7,500. The fees are higher for more expensive properties, though Home Bay believes that the service still translates into significant savings for sellers.
On a $300,000 home, for example, Home Bay would charge $2,500 — significantly less than the $9,000 it says a traditional Realtor would collect.
Sellers using Home Bay are encouraged to pay buyers’ agents the traditional 3-percent commission.
Though low-cost sales are Home Bay’s bread and butter, the company has also expanded into other services as well and last year acquired a 50-percent stake in a title company.
Potashner said his company’s approach to selling houses is unique because it relies heavily on automation. Whereas some companies spend dozens of hours on transactions, Home Bay typically only has to devote 1.5 hours per transaction, he said.
Potashner added that his company is the “most automated, full digital” real estate transaction company in the U.S.
“With that said we’re full service,” he added. “We just do it through an automated platform.”
Home Bay is just one of many flat-fee and low-fee companies actively trying to slash agent commissions and let consumers pocket more cash. In recent years U.K.-based Purplebricks, for example, has garnered headlines as it steadily pushed into the largest population centers in the U.S. The company was founded in 2012 and is one of the highest-profile businesses in the sector.
However, competitor Reali — which launched in Palo Alto — has been expanding as well and is now available across all of California. Homie now operates in its home state of Utah, as well as Arizona, where it infamously ran a mock political campaign. And Denver-based Trelora has urged customers to ditch their Realtors.
Each company offers a somewhat different experience, but the underlying idea behind most of them is that they can gobble up market share by appealing to directly consumers and by leveraging both technology and venture capital.
How these business models might fare in a cooling market remains to be seen, but the investors in Home Bay at least believe the concept works.
“The method of buying and selling a home has been stuck in the past for decades,” Scott Petty, managing director of Signal Peak Ventures, told Housing Wire. “Our firm has looked at several attempts to change this model. When we saw Home Bay’s approach, we knew it had the solution to change the residential real estate industry forever.”