Most Exciting Real Estate Startups
One of the first free stock images we found
There is nothing like seeing what innovations are taking hold in property tech. That is, whether truly better tech or what passes for innovation in our market, given how starved of change it has been for decades, and the dominant market position of traditional brokerages. After all, it is in the interest of traditional brokerages to place hurdles in the way of new entrants. Lets examine some of them.
One favourite is Unreserved. This start-up aims to have open online bidding as its model for home sales. They offer all sorts of services for the seller, such as staging and fun home descriptions. Transparency is the name of their game, often including inspection and appraisal reports. It can seem relatively innovative for Canada, where our bidding process is closed, lacks any tech, and is quite slow. Open bids are already the law in Denmark, and auctions are quite common in Australia. They offer to clean, stage and show a home while offering to do minor repairs.
Unreserved claims to charge sellers no fees at all, but buyers a 1% fee for a winning bid. They even offer sellers a guarantee, offering to buy the home for 95% of its market rate, which they claim would be the “true price” if you were to sell with a traditional real estate agent. We wish this company great success, but we must first ask how is 95% of market value a “true price”. We have to protest the claim that somehow an artificially fixed 5% + HST is the only alternative. A home seller can always advertise a home outside the MLS, but otherwise the least expensive option appears to be Listed by Seller, which allows home sellers to have mere-postings on the MLS for maximum exposure. Sellers have every option to refuse offering a buyer’s agent any commission. However, no matter how you decide to sell, every property tech start-up like Unreserved will always hit the informal cartel’s brick wall: over 85% of buyers tend to first hire an agent. The seller can either pay their (sometimes negotiable) fee of 2.5% to negotiate against their interests, or they will likely steer their clients away. Unreserved does not appear to even advertise on the MLS, choosing to bypass agents completely. That is a bold decision which I support in principle, but one which will meet strong headwinds from entrenched members in the industry. This decision likely isn’t by choice; CREA forbids agents disclosing the content of other bids, so Unreserved is shut out of the system if it wants to enact a change as sensible as open bidding.
The price of their services is similar to what a traditional estate agent in the UK would charge. That is, inexpensive by Canadian standards, but pricy by global standards. While 1% appears to be little, with the average home in Toronto topping 1M, that is over $10,000. In a rational market without our eye-bleeding transaction costs a reasonable buyer should then bid 1% less than fair market value. In the current market environment it makes the model 1% less competitive, and 3.5% less competitive than Zero Value Realty. This is a real shame, because ZVR is just an economic hack rather than any true innovation. What their model does show is that it is entirely possible to demand that all parties to a real estate transaction be compelled to pay for their own representation. Despite all the noise from traditional brokerages that buyers wouldn’t be able to afford their fees if paid in cash, Unreserved shows this isn’t the case, partly by significantly lowering the fees.
Then there is Properly, backed by some of the bigger incumbents. It is in our opinion what appears to be a laughably lame attempt to artificially preserve the role of salespeople in real estate transactions instead of relegating them to their proper place: the dustbin of history. Having raised $44M in a series B round, this company is a testament to the seemingly bottomless pockets of Softbank despite the WeWork debacle. The company has plenty of dry powder to attempt out-advertising upstarts, all while keeping the price of their services fixed at 5% + HST. They offer an instant home price estimation algorithm, which is rougher than a stucco bathtub when compared to the state-of-the-art in machine learning. Their claim is that their internal machine learning model that they only let their own agents access is better. As they have not published any results on public data sets, there is no way to really know.
It seems to us that Properly tries to appeal to a rather odd and specific niche: the over-leveraged homeowner trying to switch homes, but one who cannot swing a HELOC to buy first and sell later. The vast majority of people can accomplish a similar feat by using bridge financing and a condition-free offer on their current home. Properly offers a guaranteed sale within 90 days, taking their 5% + HST fee on top of it. Properly hence provides such a condition-free offer, but any real estate wholesaler would provide the same. This guarantee isn’t so valuable in Toronto in the last 20 years, and one whose term we predict will be stretched if the market ever cools down. In addition, Properly provides a $20,000 loan for repairs before a sale. Given how cheap money is today, such a 90 day loan has a value of less than $100, in addition to only being relevant to those who cannot access their own home equity through a HELOC. As every property sales company does, they offer to clean, stage and show a home while offering to do minor repairs. It is our opinion that the 5% + HST fee will hurt an order of magnitude or two more than any value that can possibly be provided.
Bode we like very much. The company encourages both buyers and sellers to bypass salespeople completely, taking an a-la-carte approach to real estate services, providing professionals that can take care of any individual task that might be required. That includes cleaners, appraisers, lawyers, stagers and contracts for repairs. Bode even approaches the smart-contracts model, where if both buyer and seller use Bode then contracts for the lawyers are automatically generated. Bode wants buyers and sellers to understand that there is no need for salespeople to be part of this process, and with the right tools and data anyone can buy and sell a home. The sold data Bode has is quite comprehensive, in addition to one of the best algorithms for finding comprable listings. The fee to sellers is 1%, which as we discussed before we believe is far too high by global standards. On the other hand Bode mostly operates in Alberta, where home are affordable and 1% in absolute terms is lower on average.
Bode does recognize that their sellers would hit the informal cartel’s brick wall if no buyer’s agent commission is offered. They do let their customers make the choice of whether to pay the cartel’s fee. Open bidding would be welcome, but Bode chose to comply with CREA in order not to be shut out from the MLS.
So there you have it, anywhere from effective technology that lets buyers and sellers conduct the transaction themselves to pathetic attempts to keep transaction costs high.
