Why I Built A Real Estate Startup
I’ll never forget the days of paper street maps. The kind that take 10 minutes to unfold and nearly caused a car accident if they were opened to full size while driving. As a child, I would unfurl those same maps while driving to every corner of Atlanta with my father. Needless to say, I still spent wayyy more time in the car than any kid would have liked.
All the driving and exploring gave me a deep appreciation for the local streets, homes and neighborhoods of Atlanta’s sprawling metro area. And it also led to a fascination with the broader real estate industry. I’ve been involved with real estate for about 12 years alongside a career in technology. And during the last 2–3 years, I’ve noticed a pronounced shift in the real estate search and buying process; and that’s one of the reasons why I decided to build a startup.
A few emerging trends
Property data is become even more accessible to consumers. 15 years ago you could barely figure out the price of a home without looking in the newspaper or pulling a flyer from a yard sign. Today consumers not only have tools like Zillow, but mobile apps to facilitate the search process. Consumers are more empowered than ever and more prepared to make informed decisions on their own.
Gen-X and Millennial home buyers aren’t satisfied with how home buying works. Most people that are looking at houses today are the same folks that have bought every book they own from Amazon.com. They’ve never known what it’s like to go to drive to the bookstore and search for 20 minutes before discovering the book is out of stock. And unlike previous generations, younger buyers are very comfortable making big transactions online (yes, even home purchases). These same buyer resist opaque, cumbersome and inefficient services — which is how most would describe the home buying process that exists today.
Buyers are doing more work than ever. The National Association of Realtors claims that about 8 in 10 home buyers find the home that they ultimately purchase on their own, without the help of a Realtor. Yet buyers still need an agent to tours homes and submit offers. One of the most egregious examples I’ve heard lately is a local, Atlanta buyer that found a $400K condo unit in a building he’d been eyeing for a few weeks. Because the units were mostly homogeneous, there was no research needed to determine a fair price point, nor any negotiation. He hired an agent and went under contract the same week, offering the same price that was paid for a dozen or so similar units. His agent was paid $12,000 for the transaction — which required her to unlock the condo door and spend 10 minutes completing the contract paperwork. Other than a few phone calls, everything else was managed by the closing attorney.
Incentives aren’t aligned. Two University of Chicago professors published a well-cited study in 2008 describing how the prevailing commission model that exists in the US does not economically benefit homebuyers or sellers in a meaningful way. But because most consumers only buy or sell a home a few times in their life, economists suggest that consumers are unable to accurately judge if the real estate services they’ve received are good or bad — mostly for lack of comparison.
Why SimpleShowing exists
I created SimpleShowing for both practical and philosophical reasons. The practical reason is to help buyers go further in the search process before engaging an agent. Today buyers can search independently on their favorite app but are stuck if they want to tour a property in person. They have no choice but to hire an agent and sign a “Buyer’s Agreement”. We wanted to provide a service to consumers without requiring a contract. More importantly, we wanted to provide a mechanism for buyers to choose from a curated list of experienced agents who have agreed to refund 50% of their commission back to the buyer.
From a philosophical standpoint, SimpleShowing exists to help solve for the issues that exist around mis-aligned incentives. Traditional agents are incentivized to get the buyer to purchase a home as quickly as possible, so they earn a commission. With our model, the economic incentive resides with the homebuyer, as well as the agent. That’s because with SimpleShowing, the buyer themselves “earn” a commission — equivalent to 1.5% of the purchase price of the home.
With today’s technology, buyers are doing much of the legwork in the search process and really driving the home discovery process. This phenomenon has begun to diminish the need for a Realtor at the front-end of the buying process. Todays buyers really only need help with two things — scheduling showings and making offers — they can find the house on their own. At SimpleShowing, we envision the buyer being able to drive the home showing process as well — in the same fashion that they are driving the home search process. We’re building technology to facilitate this, making buyers more autonomous and empowered — ultimately lowering the cost of buying a home.
Naturally, most buyers still need help making an offer and negotiating. SimpleShowing is fully licensed to provide end-to-end real estate services, support and guidance — similar to what a traditional Realtor would provide — except at half the cost.
In 2016, The World Economic Forum suggested that Realtors might eventually be out of a job due to technologies like Artificial Intelligence/Machine Learning and Virtual Reality. I’m not totally buying that, but do I believe there will be a “bridge period” over the next 10–15 years where we will see tremendous innovation in the residential real estate space. During the “Post-PC Era” of the early 2000’s, technology and demographics were not yet in an ideal state for innovation to truly occur in real estate. But a lot has changed in 10 years. Technology is better, consumers are smarter and data is ubiquitous. I believe that the “bridge period” — where we will see tremendous innovation in real estate, is right now. In fact, I think it has already begun.