DIFFERENT MODEL OF REAL ESTATE COMPANY

Generally, people buy and sell houses the same today as they did 100 years ago. Aside from
property portals like Rightmove, Realestate.com.au and Zillow, the industry hasn’t meaningfully
shifted online. Real estate agents are front and center in the transaction, and the bulk of the
process still occurs offline.

When I bought a house a few years ago in New Zealand, I used a real estate agent (I didn’t have
a choice in the matter). The only way to negotiate with the sellers on price was to have the agent
drive across town to my apartment with a contract, cross out the selling price with my counter-
offer, and then have him drive to the sellers. This happened multiple times in a process designed
to reinforce the central role of the agent. Did I mention it was 10 p.m.? Sound familiar?

The residential real estate industry is huge, and buying or selling a home is likely the biggest
transaction people will make in their lifetime. So why does it feel so old? Why do we still
transact properties the same way our grandparents did, with agents so dominant?

Real estate technology (also called PropTech in the U.K.) is an extremely active space with
hundreds of companies around the world vying to change the industry. New models are
launching on a regular basis, and investment in the space is growing.

Coming from an entrepreneurial and then corporate M&A background, I know what a successful
business looks like. After founding my own gaming tech firm and selling it, I served as head of
strategy at New Zealand’s leading classifieds and marketplace portal, Trade Me, for four years. I
left that position in early 2016.  

From these experiences, I know that a good real estate tech company is more than fancy
technology; it’s about a great product-market fit powered by a business model that works. So I
set out to find out which new models were getting traction, globally.
The market landscape

There’s a lot going on in the real estate tech space. For this article, I’ve focused on one specific
segment: new models changing how people buy and sell houses. I’m not covering the various
tech innovations occurring in commercial real estate, rentals, tools for agents or the myriad other
areas changing real estate.

Let’s set the scene. The vast majority of houses are bought and sold using real estate agents. In
the U.S. and Canada, about 90 percent of transactions involve an agent, with the remainder as
private sales (for sale by owner aka FSBO). The percentage of transactions involving an agent is
even higher in the U.K., Australia and New Zealand.

In this article, I look at three new real estate models gaining market traction: fixed-fee operators,
for-sale-by-owner services and disruptive players.

I looked for strong product-market fit and business model viability. I’m looking for businesses
and business models that can materially change the way people buy and sell houses in a
sustainable way, while making money. In other words, a good business.

Fixed-fee operators

These businesses operate under a simple premise: they offer their services for a fixed fee, as
opposed to a typical real estate agent’s commission. The average commissions charged by an
agent vary from around 1.4 percent in the U.K., 2 percent in Australia, 2.8 percent in New
Zealand to 5-6 percent in the U.S.. Fixed-fee operators will typically save homesellers thousands
of dollars.

The business model is straightforward. For a simple fee (typically paid upfront), the firm will list
a house for sale. Advertising for properties is almost entirely done online via the major property
portals. They also typically provide a yard sign. Given that a greater percentage of homebuyers
now find the home they purchase from the web than from any other source, according to
the 2016 National Association of Realtors profile of homebuyers and sellers, it’s logical the
majority of advertising dollars shift online.

These businesses aim to offer at least the same level of service as a traditional real estate agency,
and in many cases exceed it by providing services like online dashboards and 24/7 support.

The chart below shows average customer savings by using fixed-fee models. All numbers are in
local currencies, and the calculations are based on average home sale prices and agent
commission rates, excluding any additional marketing costs.