PropTech roundup #7: Justifying real estate (com)missions & portal taxes

Justifying your (com)mission

This is a great book I read and valuable for any business owner, especially in the real estate space. It can help estate agents better understand how to communicate their (com)mission to clients by focusing on highlighting the key differences they offer. If you provide the very same service as your competitor and price is the only difference, you are opening yourself for disruption. This is also highlighted in this book review about the dangers of real estate becoming commodified, and this market research that highlights increasing differentiation to compete with low cost rivals.

A good point the author makes is that a large percentage of new businesses fail, and often ends up in a downward spiral of cutting prices. You are effectively competing with businesses going out of business, and killing your own business in the process:

No matter what your real estate model is, either traditional or low fee, you need to differentiate and step up the quality and speed of your service if you want to survive, and not only focus on the price.

You need to focus on the (com)mission: mission 1st, commission 2nd. People will pay for quality service and products.

Rize of the iBuyer

Opendoor, the iBuyer company that can instantly buy your home, has secured $325M in funding and is planning to expand to 50 US states by the end of 2020. Wall Street investors love them and will continue to pump money into the company. Technology 1st real estate companies and portals noticed the opportunity, including the Redfin Now and Zillow Instant Offers (although applying their version with a twist). I see iBuyers expanding and refining their model more over time and increasing their market share, but let’s face it: you need a whole lot of cash to make the iBuyer model a success. So far Opendoor has achieved:

…and they are having fun at the way we normally buy/seller houses:

But forget iBuyers, how about a model that raffles your home?

Could you win a home for £5? Entrepreneur starts Raffle House platform

Average commissions

The average commissions charged by a (traditional real estate model) estate agent vary from around 1.4 percent in the U.K., 2 percent in Australia, 2.8 percent in New Zealand to 6 percent in the U.S. (covering both seller and buyers agents). In South Africa you can work on about 5% although top agents command higher 7.5% rates. Key differences between South Africa and the USA is that most listings are MLS based and buyer and seller is each presented by (usually) different agents. Quite a different model to the mostly sole mandate, single agent focused model in South Africa. Is no one seeing the opportunity of servicing just the buyer or seller?

Real Estate companies sell a service, not a product

The reality is that real estate brokerages sell a service, not a product, so they cannot simply become a technology company overnight. Customers see agents as advisers to help guide them through one of the biggest decisions of their lives, and they don’t want to be treated like just another data point fed into an algorithm.

The only way to keep your brand differentiated during this time of disruption is to harness technology in ways that allow you, as an expert and real estate professional, to further own your speciality to deliver a bespoke and unmistakable brand experience.

If technology can replace your role in the value chain, be warned.

~ Anthony Hitt is the CEO of Engel & Völkers Americas

Expensive portals “a tax on sellers”

I watched these live public workshops from the Federal Trade Commission and Department of Justice that explored competition issues in the residential real estate brokerage industry. A panel of industry experts discussed current trends in MLS, pocket listings, iBuyers and low fee commissions:

• “MLS is the biggest gift given to consumers from agents in the US, in place for over 100 years. Real Estate is conducted different in US than most other countries but more countries are eyeing the US MLS model, according to the panel. The MLS system is getting better, getting consolidated and the dynamics are working. MLS is not sexy but it is important and future is” . (In South Africa MLS is isolated and perhaps have some negative association with agents ‘dumping overpriced stock’ through it. I believe there is opportunity to improve this model).
• Zillow, Redfin and Realtor.com agrees competition is good and keeps everyone (including portals) on their toes. In South Africa more (portal) competition is needed, and agents need to support them.
• Redfin argues agents are passing expensive cost from portals to consumers, a portal tax. Some agents paying $5000-$6000 per month to portals just to “connect with clients”. Glenn Kelman says “For us, we view the portals as a tax we have to pay. Every dollar we have to pay the portals is a dollar we have to charge the consumer.” I have to agree here, some portals are quite expensive due to a monopoly/duopoly created and agents are basically stuck in a Stockholm Syndrome.
• Redfin says prices for portals go up if there is only a few major players, and they would actually love to avoid portals and drive consumers to their website. Their 1% low fee (listing agent side) marketing is done outside portals . (Redfin doing a great job, they are the most visited Brokerage website in the US. They are focusing on their own website and not the portals. In SA, I see daily posts of agents promoting their listings from links from the portals rather than their own websites.

I’m looking forward to an exciting 2 weeks ahead, our team is busy finalizing our next big launch which is going to be pretty amazing. We aimed for 3 big product launches for the first half of the year and so far have succeeded in 2:

1. Base CRM system, with full listing syndication integration
2. Flex Template Language, a development platform for real estate websites