Ray’s Proptech Weekly #35
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Friends, Feudal Landlords and Commoners,
Some fascinating real estate tech news from across the globe this week and a nice look from Geekestate at the top real estate start-up cities in the US.
There are also some new events including a Proptech investor evening where I’ll be pitching The Unmortgage alongside 3 other Proptech start-ups in London.
I’m finding it increasingly entertaining that the fundamentals of real estate are misunderstood:
1. Real estate is a low volume/highly illiquid market. Result: Long tail of service providers, in everything from agency, to tech and investment. There isn’t a dominant player in any segment, except
2. Classifieds. Transactions are so involved that you need to spend a lot to attract custom (agency fees are 5–6% in most places, except the UK where most pay between 1–2.5%).
For classifieds sites, like Rightmove, Realestate.com.au (REA) and Zillow to make more money is easy: the number of agents and the price of real estate need to increase.
So when you hear about online or tech-enabled ‘hybrid’ agencies getting funding, think about increasing revenue at classified sites (or property portals) as a tax on the GDP of the real estate market.
Put simply, these companies are very much like Google: they aren’t the end service, but the generally accepted door in.
Facebook and the App Store have begun to disrupt Google as the first port of call, because they eliminate web browsers and links from the customer experience.
What enabled this? Mobile.
So could the same happen in real estate? Could there be a mobile platform to ‘own’ people’s attention better than property portals?
To answer this you have to look at what the journey is for someone looking for a home: researching schools, browsing property porn, registering with agents, booking viewings, being verified as a good buyer or tenant, making offers, arranging finance, lots of waiting (for the right property, for the lawyers to get a move on) and finally moving in.
Could all that really be serviced end-to-end? Would any one company be able to offer the kind of choice, like Amazon does with retail, to make people think about just one brand for all their property needs?
It’s highly unlikely.
But it was also highly unlikely that a company would come along with a better advertising business than Google, and Facebook has managed to dominate mind share and grow advertising spend while growing margin in the most incredible manner.
So if you are thinking of ‘owning’ that massive real estate market with your tech start-up, there are plenty of problems to start with solving.
You know what isn’t a problem people care about: estate agency fees.
Every start-up claiming to be disruptive, especially in the US and UK, has discovered that their business model doesn’t stack up: consumer homeowners are selling low-fee online agents a dummy when they say they hate estate agent fees.
Consumers have bigger concerns: can I do better on my mortgage, how much are house prices going up in my area, will I get stuck in a chain and lose my (spouse’s) dream home.
When you tackle these highly emotive problems, people will care about your brand.
Until then, low-fee online agents are merely taking money from investors and handing it over straight over to property portals.
When you hear about new agents getting funding, buy property portal shares.
Currently there’s only one start-up in the world tackling real estate in a way people care about: Opendoor.
Their algorithm values a home in Phoenix (Arizona) or Dallas (Texas) from just a form online.
They aim to be competitive with market price and will buy your home in 72 hours. No worry about whether your home will or won’t sell.
If you’re buying one of their homes, you can view them unescorted 24 hours a day, thanks to electronic locks. They also fix up homes to the ‘ Opendoor standard’ to help establish trust and an expectation of quality in their brand.
And now they are offering a money back guarantee for 30 days if you don’t like a home you bought from them.
Commentators on this latest proposition think of it as risky for Opendoor’s balance sheet.
I see it as an extension of their brand and removing yet another impediment from paying Opendoor in the highly competitive, low volume market that is real estate.
The best things about Opendoor: they have a healthy margin. Charging a fee from 6–10% of the property’s value means they should make money on every transaction (assuming their algorithm got the value right).
And ultimately Opendoor is just an algorithm. It scales. Sure they have to spend money on feeding that algorithm when entering new cities, but after that the brand recognition will do the rest.
Speaking of brand recognition, my statements about low-fee online agents are bold and certainly buck perceived wisdom about the future of real estate agency.
But don’t just take my word for it. Here’s consumer research by Rightmove on the brand recognition and likelihood of using specific online agency brands. You really have to feel sorry for the investors seeing their TV and outdoor advertising spend convert so poorly into both recognition and intention:
Please feel free to relay news, tips and comments @RayhanRESI
Rayhan’s PropTech Weekly XXXV
Upcoming Events
SPD Insights — The Future of the Property Professional — 15 Jun — Link
Realogy FWD — 21 Jun — RealogyFWD.com
Realcomm 2016–21–23 Jun — Link
Proptech Investor Evening — 29 Jun — Link
Inman Connect SF — 2–5 Aug — Link
Zillow settles lawsuit with Move/NAR/Realtor.com for $130m
Zillow hired some Move execs, who allegedly took company secrets with them. Next thing you know, Zillow buys Trulia again allegedly using those secrets. What could have been a long lawsuit and $1bn of damages is now allowing Zillow’s share price to rebound and CEO Spencer Rascoff doesn’t have to worry about selling his home for less than its ‘zestimate’. Will be interesting to see if News Corp’s Move can use the funds to out-innovate Zillow: Link
Low-fee online agent Housesimple raise £13m (CityAM)
This is one of three low-fee online agent funding stories this week. I’ll reiterate what I’ve said previously: If you tell me you’ll sell my home, for less; you’re telling me you’ll sell my home for less. Link
Savills invest in low-fee online agent YOPA (Property Industry Eye)
Will be interesting to see if there’s a differentiated proposition to come out of this investment, or it’s just bandwagon jumping: Link
Countrywide launches into online agency (Property Industry Eye)
Probably the worst run estate agency in the country. Countrywide was set up to make money from financial services, using estate agency as lead generation. When the industry in the UK looked to leave Zoopla for their own OnTheMarket.com, Countrywide stuck by Zoopla. Now Zoopla is sticking it to countrywide with the soon-to-launch integration with online mortgage broker Trussle. Like I said, you can’t imagine what goes on behind Countrywide’s doors, but intelligent isn’t the word to describe it (unless you’re highly vested in the success of low-fee online agency like poor Russell Quirk and his ‘4% likely to be used by consumers according to Rightmove’ Emoov): Link
Cozy turns 3 (Medium)
Rent processing and tenant referencing start-up Cozy has had quite the 3 year journey. They started in Portland, moved to the Valley and are now back headquartered in Portland, post a decent angel/VC raise: Link
Buying agent Henry Pryor launches the NotOnTheMarket property portal on a private Twitter account
Taking simplicity to the max. Henry isn’t boasting about changing the world. He’s experimenting, making people think and is patient enough give the idea time to find it’s sweet spot: Link
Opendoor money back guarantee (Fortune)
This is genuine service innovation: Link
Former REA CEO says portals will transact property in the future (Property Industry Eye)
It’s a view almost everybody in real estate agency believes, except me. The fundamental of a classifieds business is that you do the least amount of work (post an ad online) and aggregate the whole consumer audience therefore becoming the ‘partner of choice’ for all the professionals in the space. It enables portals to take an effective ‘tax’ on all real estateactivity. Easy if you can get it, and therefore silly to put that revenue from the ‘partner’ income at risk: Link
