If, like us, you’ve been keeping up to date with the American real estate industry you might have noticed some strange new agencies, with strange new business models, popping up all over the place. You might have also noticed a strange new fear emerging. That the future of real estate is not agents.Probably more so than the rest of the world (thanks to Silicon Valley), America is going tech-mad – and it’s certainly changing the way plenty of business is being done. It’s not just taxis, either. It’s everything; Netflix has overthrown paid TV, Facebook has taken the place of any actual human interaction, and Amazon is helping people achieve their dreams of never having to leave the house to buy toilet paper ever again. Thematically, now they’re having a go at shaking up real estate.Scary, huh?Maybe not. Traditional agencies probably aren’t under any immediate or significant threat with the advent of these fancy new hybrids. You can stop that handwringing. While these new agencies are certainly innovation personified, they're not necessarily disruptive. In fact, they actually have plenty to teach us about the direction of our industry. We thought it would be worth taking a closer look at how some of these new agencies operate. Who knows, maybe we’ll learn something?In this (lengthy) post we’ll be covering a few things;
- The different business models these new kids on the block are adopting
- Who these companies are, and what they’re up to
- Some of the ways they’re bettering service quality and ramping efficiency – as well as some things you might like to try within your own agency
Let’s start with the business models.There are two different categories that we can shunt the vast majority into:
- Discount brokerages, and
- Online platforms.
Discount brokerages have been around for a while. In the past, there were plenty of agencies offering flat fees, cheaper commissions and refunds. They all aimed and claimed to reduce costs - then pass the savings onto consumers by refunding a portion of their commission to buyers and/or charging a discounted listing fee. They hardly ever lasted very long.But now, thanks to new technologies, discount brokerages aren’t quite as far-fetched as we might think.One of the best discount brokerage examples is Redfin. On average, sellers that work with Redfin pay around half the commission that they would normally pay to other conventional agencies. This, in turn, attracts business. Pretty straightforward - and the tactic apparently works.Here’s a successful discount agency a little closer to home. While most New Zealand agencies usually charge around 4-5%, Mike Pero charge much less. Their commission structure works differently to Redfin’s – but still offers huge savings (consequently attracting plenty of vendors and buyers). They charge 2.95% commission for house sales up to $390,000 – then reduce that to just 1.95%.Because their commission structure comes in well below other competitors, like Redfin, Mike Pero has achieved a great deal of success. To date, they’ve helped over 80,000 clients, and that figure is only increasing as their business rapidly gains momentum. They were recently listed on the Deloitte Fast 50 as one of New Zealand’s fastest growing companies. Not too shabby at all, if you ask us.
Online platforms generally focus less on cost reduction and more on convenience.The Internet and convenience go hand in hand. Just about everything is moving online for precisely that purpose. You can buy your clothes and groceries, watch a movie and bet on the horses all without leaving the warm glow of your computer – it was really only a matter of time before real estate followed suit. xome.com, opendoor.com, owners.com and auction.com are just a few of the newbies setting this trend. As they say, they’re out to make real estate ‘less complex’ for consumers.Opendoor in particular have a pretty nifty way of doing this. They’ve been described as a ‘big-data house flipper’ in the past, which is a reasonable approximation of how they operate. It’s the closest we’ve ever been to drive-through real estate. Vendors can jump online, follow the steps, and sell their house in as little as 72 hours.
We’ll go into further detail on Opendoor in a minute. For now, let’s take a closer look at Redfin.In order to be able to afford to offer their massive discounts, Redfin need to be able to do two things:
- Attract a lot of clients
- Manage them all with extraordinary efficiency
The low price of their service looks after the first part of the equation - and their service is spectacular so there’s no doubt they’re also receiving a fair bit of referral business. But in order to look after so many clients so well - in a time frame short enough to make the commission worthwhile - they’ve kept abreast of (and even created) some of the newest and best technology available.
Redfin are a self-proclaimed ‘tech-powered real estate agency’. They focus so much on technology they could probably get away with calling themselves a software company that sells houses on the side.Perhaps the most famous example is their 3D virtual property tours with Matterport. This allows potential buyers to ‘walk’ through the home from their own computer and get a much better feel for it than they would have before. Not only is this better for customer service, but it means agents spend less time at open homes with no result. If someone isn’t one hundred percent sure they’re interested in making an offer – why check out the house at all?Their technologies empower clients while pushing higher efficiency: online lead generation, a fancy mobile app, automated valuations and CMA tools, free downloadable resources to educate clients, a schmick website and property search - the list goes on. They build and utilise tech that helps agents and offers a better quality of service simultaneously.But technology is only half the story. Redfin’s business model is equally important.
Alternate payment schemes
Redfin also have an alternative payment scheme for agents: they’re paid a salary. On top of that, they receive a ‘customer satisfaction bonus’ based on client reviews - discouraging them from growing complacent in the face of a steady flow of cash.These client reviews are used for more than just calculating bonuses, though. All of them are posted online, allowing clients to pick the agent best for them.
Bringing clients in
Vendors want to find an agent perfect for them – and with so many agents looking for listings, they’re spoiled for choice. While prospecting is an essential part of a traditional agent’s workload, vendors are looking for someone who has recently sold a house like theirs, in their area, at (or preferably above) the market price. They’re not looking for the agent that can fill up their letterbox with the most brochures.People are attracted to the halved commissions like moths to a light, but the deal is really sealed when they’re able to browse a catalogue of agent reviews. They’re in control. People like being in control.For most traditional agencies, one of the greatest problems is a shortage of listings. Agents spend a lot of time prospecting. Primarily, this is due to too many agents fighting over not enough listings. To make matters worse, they’re chasing commission that needs to be chopped and diced to support the inefficiencies of the whole process. In effect, the added fees are passed onto the consumer. So attracting clients with cheaper listing fees and making up for the lost commission by managing more business efficiently isn’t too bad an idea.Prospecting alone often makes up the bulk of an agent’s workload. An article by Anne Gibson (property editor of the NZ Herald) showed that the average agent in New Zealand spent over 64% of their time prospecting for new business. That’s terrifyingly close to an entire two thirds of their working week. In Redfin’s case, agents can spend less time prospecting and more time doing what matters most.Redfin have taken an entirely different approach – and evidently it’s working.
To properly understand how Opendoor’s process works, we’re just going to have to jump right in.
- A vendor, looking to sell very quickly, goes onto their website and fills out a few forms telling Opendoor all about their property
- Opendoor uses proprietary CMA tools and big data to generate a fair offer for their home
- If the vendor accepts this offer, Opendoor do a quick home inspection to confirm that the house is in the condition the vendor said it was
- The vendor chooses a closing date, which can be anywhere between three and sixty days from the inspection
- Opendoor manage the entire sale for them, and the vendor receives their money on the closing date they selected
Now, you’ve probably already detected there’s a piece of this puzzle missing. Where’s the buyer?The truly amazing thing about Opendoor is that rather than working to pair a vendor and buyer – they simply buy the house themselves.Sure – it’s taken a hell of a lot of venture capital to get this ball rolling, but in the long term, it just might work. Traditionally, if you want to sell your home, you have to list and show it. You sit and wait - and negotiate - for a fair price. All the while, your money is tied up in the first house. You can’t actually buy your new house until the process is complete.As I’m sure you know – moving is hardly the most relaxing thing in the world.So Opendoor have set out to make the whole thing a little more convenient on sellers. They speed up the process by several orders of magnitude, and take on the task of selling it themselves - in effect, turning property into a liquid asset. In return, Opendoor charge around 2-4% more than a traditional real estate brokerage.But it’s not just the process of selling your home that Opendoor are trying to change, it’s purchasing one too.
Buying a home with Opendoor
Once Opendoor has purchased a home, they’ll get to work fixing up anything that might need a little bit of renovation. It’s never anything too ridiculous; a new coat of paint here, a bit of landscaping or some new carpet, for instance. Then they put it on the market.Buyers don’t need to get in contact with an agent if they don’t want to – Opendoor show addresses for all their listings on their website and offer a 24/7 open home. You drive to the house, follow the instructions on the door (provide Opendoor with your details, etc) and then Opendoor will text you an access code.Opendoor install security cameras around the house to ensure nothing goes missing, so home buyers can take their time showing themselves around the house without any pressure. If they like the house – they can make an offer on their phone there and then. It really is that easy.
So what should we do, then?
These are just two examples – there’s sure to be plenty more. But as I said at the start, these new challengers probably aren’t going to be a threat to your business anytime in the near future. Real estate is a massive and diverse industry – everyone has different needs and wants – so it’s unlikely that your roof is going to fall in tomorrow.However – you do need to keep up with the pace of change.You shouldn’t be worried about these new business models taking over your market share – but it’s never a bad idea to improve your service anyway. You don’t want to welter under the threat of new competitors, nor do you want to offer your clients a service of the same standard as everyone else’s. Always strive to be better - never grow complacent.
There’s been a lot of talk about disruptive innovation in the real estate industry lately. We recently published a post on it ourselves – the basis of which was the real estate industry is huge, diverse and divided. There’s plenty of room for everyone.Opendoor, for example, only target a very niche market. There’re not a lot of people who find themselves in such a rush that they’re willing to sacrifice any percentile of their property’s value, no matter how small, for convenience.Other new business models, such as Redfin, don’t differ as much from the traditional real estate agency as one might expect. In fact, lately Redfin have been scaling back their rebates and drifting towards a more conventional model. A similar new brokerage in New York, Compass, who once paid their agents salaries and offered a discounted listing fee, have stopped altogether. During an Inman interview, Compass CEO, Robert Reffkin, explained their customers said that in light of the fact that great agents prefer commission, they’d rather work with an experienced agent at normal rates than an inexperienced one for a discounted fee.At the end of the day, these new agencies are innovation personified – but as long as traditional agencies can keep up with the pace of new technologies and continue offering a great service – we’re probably going to be alright. And for the time being, we seem to be doing just fine. With such an enormous market for real estate services, there’s never going to be just one model. Everyone likes their own flavour.We’re discussing these new challenger business models not to worry you, but to give you some ideas on how you might like to advance your own agency in the future. We don’t have some mordant penchant for the collective gooseflesh of agency principals Australia and New Zealand wide – we want to get your creative juices flowing.
Advice for traditional agencies
Here’s a few thing’s we’ve learned to get you started:
Use the best agents and tech tools available
While there’s a great chance these hybrids aren’t going to encroach on your market share, you can always better your service by adopting similar technologies to make your office more efficient.If you’re an agency principal and you want to position your service against these hybrids, never underestimate the importance of great, hands-on service. Hire the best agents you can and equip them with the most advanced tech tools you can afford. Great agents are hands-down the best investment any agency can make. Great agents with great tech? Game-changer.Cloud software can enable your agents to work just as well in the field as in the office – you can cut the ties that keep them to their desks. And thanks to more and more advanced software, there are plenty of opportunities to automate day-to-day tasks. Take them.Likewise – with so many different, creative ways to advertise – it seems hard to keep up. The brochure drops of the past might still be working okay now – but if you haven’t yet experimented with some other avenues; do so. Australian agencies such as Toop&Toop and Bushby have had incredible success with their clever and original marketing innovations. Take a leaf out of their book and find your own way to differentiate your marketing strategy from those around you.
Consider experimenting with a different business model or alternate payment schemes
Larger and more established agencies might even want to try out some of the unusual business models we discussed earlier for themselves. While not all agencies have the means to start paying agents salaries – open ratings and customer satisfaction bonuses are a great way to keep your agents delivering the best possible service and a great marketing point for attracting more business.
As with our findings from the Inman Connect conference, broadening your role in the game by offering ancillary services can prove to be extremely rewarding.You might like to consider incorporating a few of these into your service:
- Referrals to mortgage and financial services
- Referrals to top tradespeople for renovations
- Referrals to removalist services or van or truck hire
- Referrals to insurance companies for great deals
- Referrals to general service providers for great deals
By providing a more comprehensive service, you’re giving your clients a reason to choose to do business with you - and to spend more.
Final thoughts - the future of real estate
While the general consensus of industry thought leaders is that the new generation of hybrid brokerages doesn’t pose a threat to the traditional model – there’s a lot that we can learn from them. The difference between them and the (now dead) discount agency upstarts of the past seems to be technology – and it’s working strongly in their, and our, favour.Remember: every principal has to be a CTO and every agent has to be an IT guru – but this isn’t as difficult as it might seem. We can use the experimentation of these new hybrids to our advantage by looking to them for inspiration. Many traditional agencies have already started utilising new technologies to improve their productivity and customer service. Don’t be afraid to experiment within your own agency (within reason), and keep your eye on Silicon Valley. You never know what great innovations there are for you to adopt. The future of real estate is technology – technology doesn’t always have to mean ‘disruption’.Rather than worrying yourself sick, or grabbing your pitchfork and marching over to Opendoor's head office, look to these companies for inspiration. Learn from them, and start finding ways you can innovate yourself. The future of real estate isn't an agentless dystopia - it's an industry rich in options for the consumer. What does your market want?