I’m sure you caught the Dallas Morning News‘ recent declaration that the start-up discount brokerage Door, while on a tear, is not yet really fully disrupting the buying and selling of real estate.
At least not here, not yet. I’m off to Inman in San Francisco, so let’s talk next week.
But it’s interesting that the DMN even wrote about a topic that once might have seemed too “B to B” for a consumer newspaper. This confirms the vibes I got at NAREE last month: the consumer is now keenly aware of the changes in the Real Estate industry, which means they could be selling their home in a different manner: traditional agent commission split; flat fee brokerage, 100% commission model; a discount broker, like Door; sell the place outright to a cash buyer like OpenDoor or Zillow’s Instant Offer for less than they’d make if they messed with marketing, but get the deal done quickly.
There are many disruptors jolting the real estate marketplace, and we are finally feeling it in Dallas/Fort Worth:
The liquidity or iBuyers/providers: OpenDoor and Zillow’s Instant Offer. benefit to consumer: quick cash.
100% virtual brokerages: eXp Realty, out of Bellingham, Washington. Benefit to consumer: happy, motivated, well compensated agent
100% commission models like JP & Associates, Realty One Group, HomeSmart, etc. Benefit to consumer: happy, super motivated, well compensated agent
Tech brokerages: Compass and Redfin. Benefit to consumer: happy, motivated agent, commission rebate (Redfin) traditional split (Compass)
Flat fee brokerages such as UK’s Purplebricks, Door, OpenListing and ListingSpark. Benefit to consumer: flat fee for selling, savings to consumer
But don’t you “get what you pay for”? As Brad Inman puts it, “For a bigger part of the decade, Keller Williams was beating up on Re/Max, the Realogy brands, Berkshire Hathaway and the big indies. But now all of them are lifting their horns for new fights, with some well-funded challengers proving to be ferocious competitors.” Should we be afraid?
Keller William’s founder, Gary Keller, gives the keynote at this week’s Inman Connect., which has lauded Door as an innovator.
Still, real estate is an intensely local business. I was in Fort Worth recently, meeting with three agents from different brokerages, all of whom focus on Fort Worth. Is every market different, I asked? Are there ANY similarities?
All different: selling in Fort Worth is way different than selling in Dallas, or even Colleyville. Briggs Freeman Sotheby’s star agent John Zimmerman is a member of a national group of tip top producers much like himself, the sales studs who relentlessly get the biggest deals done. The group meets once a year, trades tips and war stories. Are there any similarities across those markets?
Very few, says John.
Indeed, Redfin, as you recall, invented map-based real estate search. It was the on-line brokerage that was going to disrupt the real estate business as much as on line travel sites disrupted travel agents.
Redfin was founded in 2002 by a guy named David Eraker, in his apartment. The name, which always bugged me, is an inversion of the word “finder.” Get it? Redfin was one of the first companies to figure out that real estate could be done online, be more transparent and easy for the consumer, and maybe even save them some money. The site combines real estate search with actual agents. The agents are slated to be more concerned about customer service and they earn bonuses over commissions. Or at least they used to. The consumer searches Redfin’s database, which comes from the MLS’s, and does their homework: broker databases, past sales records and third-party appraisals. When the client is ready to buy, the Redfin agents handle property access, legal paperwork, negotiations, whatever. For this the consumer can get up to a 50% rebate off the real estate commission, except in Oregon where real-estate laws prohibit it. In 2012, Redfin was named one of The DIGITAL 100: World’s Most Valuable Private Tech Companies by Business Insider.
Nice, but it’s 2018.
Could it be that each region will hatch local disruptors, just as they hatched independent brokerages, then consumers will settle into what is a smorgasboard approach to hiring a Realtor. Kind of like how we once had 5 TV stations, now we have — hundreds?
Door, writes Arren Kimbel-Sannit, closed on 75 homes the year it was born in 2016. And no surprise in this wild and crazy market, it’s growing, averaging 70 transactions per agent per year:
Propelled by shy of $13 million from seed and series A funding and a brisk business, the company has posted around 400 percent revenue growth two years in a row. Doubet said he expects Door to close up to 1,000 transactions and pull in between $8 million and $10 million by the end of this year.
Series A funding, by the way, is the first round of funding or investment capital. It included no institutional investors. Alex Doubet confirmed he expects his company to earn $8 to $10 million by the end of 2018, based on the $5000 flat fee on about 1000 home sales plus 1.5% to 2.5% on the buy side. Alex also pays his agents a salary, covers all MLS fees, and pays for their health insurance. One of his agents even made D Magazine’s annual Best Realtor list: Jackson Upcheshaw, market manager at Door.
Alex gave me his take on the disruption going on in the higher end of the North Texas market, which has been upended by Compass, which he doesn’t see as a disruptor. And now Warren Buffett’s Berkshire Hathaway owns not one but TWO luxury real estate firms in North Texas: Ebby Halliday and Allie Beth Allman & Associates.
“Compass is doing some great stuff, but it focuses on the agent, not the consumer” said Alex. “I’m actually glad to see the Luxury market upended. I think Compass is a VC backed private equity shop for buying real estate shops.”
It’s Realogy 2.0, he says, but Compass has proved the brokerage brand doesn’t matter. The company has a giant amount of fee revenue, plus now 2% of the market. What if Compass goes downstream, to sell cheaper homes?
“That’s where they run into us,” says Alex. “We are a third of the fee. And we deliver a great client experience.”
Purple Bricks: — “aren’t they running at a 30 million operating loss? It’s like signing a debt instrument.”
As for Redfin, Alex says it has lost its way, doesn’t know what it is anymore 12 years after launching.
I wanted to get a little nit-picky on the marketing side, since that is ostensibly what consumers are paying for. I asked what Door spends on marketing each home. While he admits most of his homes are in the half-million and under range, Doorhas marketed and sold several $2 million dollar homes and even has a $4 million listing on Lennox Lane.
Alex couldn’t give me a set number, but he gave me the blueprint:
Which is why he believes traditional agents are overpaid: consumer home prices have been going up dramatically the last few years, Realtors making more money but doing less work because of the internet — that doesn’t make sense, he says.
“As you and I have discussed, the glossy magazines that so many brokerages spend money on do nothing other than drive up costs for consumers,” says Alex. “Those magazines do not sell homes. A lot of the time, the homes are sold before the magazines even arrive on your door step!”
The smartest way to market a home these days, he says, is through targeted online advertising. This includes syndicating listings widely on the real estate search engines (Zillow, Trulia, etc.) that over 95% of buyers use to find homes these days.
“We syndicate to 100 plus websites. We do programmatic advertising on social media. The truth is, buyers mostly find houses on their own.”
Thus far, his investors, Blair Baker, managing partner at Dallas-based Precept Capital Management, and Richardson real estate investor Phillip Huffines, who also ran for the Texas Senate from Collin County this spring, seem pleased — especially Huffines. None have taken dividends, but are re-investing in the company. Huffines has said he believes Door’s concept is solid. He needs positive news: News reports now say Huffines spent $8.4 million on the campaign he lost to Angela Paxton, who spent $3.7.
Not only does Door want to save consumers money selling their homes, it wants to help buyers on the purchase side. Using Door’s platform, buyers can curate property listings, request a showings instantly with a Door agent, and get that rebate quote to sweeten the pot: about 1.3 percent once deal after closing.
“Traditional agents have had their heads in the sand for years,” says Alex. “Tech disruption takes five to ten years. Agents don’t think disruption is going to happen, but the truth is no one likes paying high fees.”
Still, in a world where the Goliaths around him have millions at their disposal to buy the best tech on God’s green earth, Alex may need to promote Door as aggressively as the traditional agent working on a 6% fee split.
“My favorite thing,” says Alex. “Three years ago the Dallas Morning News did a cover story on me and most of the agents out there were like: silly kid, dirtbag. Now three years later I’m told pretty frequently that Dallas agents are being taught how to sell against Door.”