It is assumed that the real estate industry is ripe for disruption. We see a new whiz-bang website just about every week that was developed by two guys in a garage who think they have the answer – but then are never heard from again.
The reason is advertising.
Zillow got to the top because they were spending $100 million per year to advertise. Anybody who is willing to spend that type of money can dance their way into the hearts of consumers.
Bigger players will be looming in 2017.
1. We talked about Opendoor, the flipping company who buys your house for cash in 3-7 days at a below-market price based on algorithms. Their fees range from 6% to 12%, which would only appeal to desperate sellers – which have been few and far between in San Diego. Opendoor is only operating in Dallas and Phoenix, so expanding to the tony coastal regions might take a while. But they just received $210 million in venture capital, and have 200 employees closing $60 million per month in transactions currently. They are expanding to 10 unnamed cities, and hope their fast money can attract a homeowner’s first phone call. But once sellers hear their (low) bottom-line, only a great salesman could convince them to not shop around.
2. Another big-money contender is Quicken Loans, the second-largest retail mortgage lender in the country. They just announced that they are acquiring a ‘technology platform’ to appeal to more home buyers directly. LINK
“Finding a reputable agent and a great home go hand-in-hand,” said Ron Frankel, OpenHouse Realty CEO. “I am confident that the work John Kvasnic, OpenHouse Realty’s Chief Product Officer, and his team have done in both arenas will help In-House Realty become the premier destination for those looking to work with the best agents in their community, while also helping them find the home of their dreams. It’s the perfect fit.”
They don’t mention that their recommended agents are paying Agent Ace a referral fee of 35% of their commission. There is a big difference between the ‘best agents in their community’, and ‘best agents in their community who are willing to pay a 35% referral fee’. The second group is much smaller, and typically they are the realtors who are getting outworked by the ‘best agents in the community’. But consumers won’t figure that out until it is too late.
Quicken Loans spent $21.1 million on Google advertising alone in 2014, more than any other mortgage lender. They could become a major player if they spend enough on advertising – they already spent it in the mortgage space, and are up to the #2 mortgage-lender nationwide (look for their Super Bowl ad).
3. The founder of Uber is another potential disrupter, but only because of their previous smashing success. Their real estate package follows the course of most outside disrupters who think transparency is something the sellers want – but they don’t.
When a seller receives a few good offers on a home, the sellers agent will ask for best and last offer by noon tomorrow, for example. If buyers were able to see the terms of all the other offers, as they would when using Haus, then this could drive the price of the home up as buyers enter into a bidding war. Not to mention, unethical sellers or agents could artificially inflate the price of a home through shill bidding, as an offer is not legally binding.
While Haus helps sellers measure the demand on their property, it might also drive away potential buyers who don’t want to get in a bidding war over an already-expensive purchase. Or, on the other side, this might short a seller who would have received a much higher best and final bid from a buyer, but saw that offer drop to barely beat the next-best offer.
Once sellers figure out that disruption/transparency may not be in their favor, selling the old-fashioned way where they hold all the cards will sound like a safer choice.
We already know that the industry is in retreat. The old-school realtors who think they deserve a five-figure paycheck for completing fill-in-the-blank contracts will think retirement sounds better than ever. Mid-range and better agents are scrambling to build teams and be Redfin-ish in their conveyor-belt approach, even though the pitfalls are obvious. It wouldn’t take much to tip the whole thing over at this point.
Zillow feels like an old friend by now, but who knows what they might do? Amazon or Google could jump in too, and if they did, look out.
Whoever spends the most advertising dollars, wins!