Can realtor commissions be replaced with flat fees?

Dovi Frances
May 14, 2019 · 3 min read

For an American, buying a home is one of the most important financial transactions they will experience. However, buying or selling a home is still a time-consuming, confusing, and lengthy process fraught with friction, lack of transparency, and misaligned financial incentives that oftentimes favors the real estate agent instead of the customer.

More than ten years after the housing market crisis and the 2008 recession, residential real estate in the United States is booming. In 2018, 5.35 million homes were sold in the United States and the national average price was $298,000. If you multiply the average price by the number of houses sold, it translates to almost $1.6 trillion worth of homes sold, and roughly $90 billion in residential real estate commissions earned by agents in 2018 alone.

While it is debatable whether or not the agent’s commission model is outdated, there is no denying that many residential transactions still involve real estate agents who bring significant domain and market expertise. They are compensated for their efforts, too. Real estate agents are traditionally paid on commission, which can be up to 6% of a home’s sale price. If you take the average sale price of a U.S. home of $298,000, the average seller would have to fork over $17,880 in agent fees. What’s interesting is that this age-old fee structure has not been modified to reflect the increased availability of real estate information through technology advancements.

Technology has replaced much of the traditional advertising, marketing, and photography agents provide, and the information gap between agents, buyers and sellers has narrowed significantly. Moreover, behavioral and technology shifts over the last decade have led to a mobile-first lifestyle. 76% of potential homebuyers look for their homes on their mobile phone which means that they expect a faster, seamless, and more affordable transaction.

Due to the great potential to change this industry, technology disruptors in real estate have received a surge of venture capital funding in the last decade. In 2008, only $20 million was invested in real estate tech, however that number increased to almost $4 billion in 2018. In the next decade it is estimated that more than 20 million first-time homebuyers will enter the market as millennials shift to a homeownership generation.

At Group 11, we believe the home buying and selling process is being improved by a few technology disruptors. The most innovative companies who can integrate technological advancements with real estate professionals and who are laser-focused on providing the best customer experience stand to gain market share from the incumbents in this fragmented market.

We became increasingly interested in the real estate tech market in 2011, when we made our first investment into HomeLight, another real estate tech disruptor where we are a significant investor to this very day. Admittedly, it has taken us years to find another company like HomeLight that has the potential to disrupt a massive and fragmented market, whilst solving a huge pain point for millions of homeowners.

I’d like to introduce our newest portfolio company, Reali. Reali, a real estate startup facilitating transactions between property buyers and sellers while eschewing the conventional home-buying commission structure in favor of flat fees. Furthermore, Reali focuses on obtaining customer insights with a team of data scientists and licensed real estate agents.

The biggest difference between traditional agents and Reali agents is that at Reali they are salaried, not commission-based. This simply creates a full alignment of interests with the homeowners they represent.

On top of their seasoned management team and robust technology, Reali’s solution and their incredible growth to date demonstrates their team’s determination to streamline the unnecessarily complicated real estate process.

We are excited to announce having recently led a Series B2 round of $9 million into Reali, adding to a $20 million financing round led by Zeev Ventures back in July 2018. We look forward to joining Reali’s management team and existing investors in growing the company into the market leader it ought to become.

About Group 11:

Group 11 invests in revolutionary software companies that are redrawing the landscape of the financial services industry. As FinTech continues to gain momentum and to disrupt the traditional industry value chain, Group 11 has positioned itself as a partner of choice to provide capital and guidance to entrepreneurs that are creating the world’s next generation of financial services industry leaders. Learn more at www.group11.vc.

Group 11

Group 11 invests in revolutionary software companies that…

Dovi Frances

Written by

Dovi Frances is a financial services entrepreneur and founding partner of Group 11, a venture capital firm based in Los Angeles, California.

Group 11

Group 11

Group 11 invests in revolutionary software companies that are redrawing the landscape of the financial services industry. Learn more: https://group11.vc

Dovi Frances

Written by

Dovi Frances is a financial services entrepreneur and founding partner of Group 11, a venture capital firm based in Los Angeles, California.

Group 11

Group 11

Group 11 invests in revolutionary software companies that are redrawing the landscape of the financial services industry. Learn more: https://group11.vc

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