Tag: Real Estate Technology

iBuyer

Buzzwords, the world has been suffering these terms for a long time! Everyone talks about ‘FinTechs’, being an ‘Entrepreneur’, or going on the ‘Keto Diet, just to name a few of 2018’s buzzwords. Society always seems to come up with a new buzzword that we all use, yet its much more hype than real substance. The real estate industry’s buzzword of 2018 has without a doubt been iBuyer.

The term iBuyer has been the talk of Wall St and the real estate industry over the last few months. Everyone is trying to get into this space; Zillow, OpenDoor, and even Coldwell Banker have been engaging with this buzzword. With all of this hoopla around iBuyer, let’s take a look and see what it’s all about.

What is iBuyer? (Hint it’s an algorithm)

At its core, it is a platform that uses an algorism to generate an offer on a property. The platform uses the algorithm to calculate the value of a home based on a variety of factors including location, size, potential work needed, and discounted cash flows to come up with a value for the property. This value is not the true market value of the home. It is a slightly discounted value that creates a profit margin for the buyer.

How does the Process work?

The process is relatively simple. A Seller would fill out a form about their home and provide details about the house. If the algorithm deems it a worthy property, the iBuyer would make an offer, conditional upon inspection. After which, a price reduction may be asked for. Alternatively, someone representing the Buyer can go inspect the property, take their findings to the platform and use it to make an unconditional offer on all things considered.  Once the offer is made, the Seller can accept it, reject it, or counter it. Once a deal is finalized, the closing date of the deal can be done in a matter of days. Everyone likes a quick closing in real estate!

How does the Buyer benefit from iBuyer?

First and foremost, the majority of people that use iBuyer are the owners of the platform i.e. Open Door or Instant Offer on Zillow. These large platforms build the platform and algorithms in order to buy properties for a discount that they can resell for a profit in the future on their platforms. Typically, these “Buyers” are looking for properties that need repairs so they can add value through renovations. Sounds like the oldest business model in the book, buy low and sell high.

What are the Seller’s Benefits?

Seller have a lot of headaches when it comes selling their home the traditional way. They have to make sure their home is always showing ready with everything perfectly placed and staged to show your home in the best way. This standard of being showing ready is incredibly difficult, it’s something that most people struggle to keep up with. There are dishes, toys, iPad’s, books, bags, and whatever else you have all over the place (Yes, we all have messes in our homes). Add in the consistent upheaval of your schedule from Buyers wanting to see your place from 8 am to 8 pm 7 days a week, you have a nightmare on your hands. Not only do you have to clean up after your every single move, but you have to put your whole life on hold to let people into your home. I’m getting anxious just writing about it. In comes iBuyer to save the day! Get your home showing ready once, get a photographer to take amazing photos, and then your done. You can relax, have your own mess, and have your life back while you sell your home. In some cases, you don’t even have to do that. All you need to do is fill a form online and presto! Offer received.

iBuyers provide lighting speed offers with quick closing dates, which means you could sell your home faster. Imagine you’re on vacation, sitting on the beach. The ocean view is breathtaking, you can smell the salt of the water. As you’re enjoying the view with your favourite mocktail (who are we kidding, cocktail!), you get an email with an offer on your home. Wow, what a dream! iBuyer makes this a reality… at least the offer part. The vacation is probably not paid by iBuyer.

Do Sellers Really Win?

Most sellers aren’t inclined to accept a below market value offers (5% – 10%) plus a commission (4% – 6%). There would be a subsect of Seller that would take advantage of this i.e. in the case of a divorce, bankruptcy, or relocation. Otherwise, I don’t see Sellers, at large, accepting anything less than top dollar for their homes. For the iBuyer service providers, there is an unspoken risk to them. Most of these providers are technology companies, not construction companies. Their goal is to buy properties at below market value, do a minor or major renovation to the property and sell it on the market at a premium. Sounds pretty easy right? Wrong. Warren Buffet has said on multiple occasions, “Invest in what you know and understand.” With all due respect to these companies, their core competency is in building the technology of these platforms, not in the construction business or understanding the real estate market. My prediction is that these companies will struggle with controlling construction, have higher financing costs, and shrink their profit margins. Combine that with a peak in the real estate market, these companies could be holding massive losses on their books if they’re not careful. As most of these companies are publicly traded, you can expect to see lower than expected earnings and a drop in share price.

Down the line as these platforms and consumer behaviour evolves, I can see the consumer being able to make pricing decisions online with readily available, relevant, and accurate sales data (through platforms likes DigiRealty.com). I can also see everyday buyers making an offer online through these platforms with relative ease. All of this said, the one thing that won’t change is our fundamental human emotions. We all feel happiness, anger, sadness, and excitement. Those emotions will always play a roll in our lives. And when you walk into a home and see a little doggy door that reminds you of the house you grew up in, that emotional connection you have to that memory is what connects you to a home. Not an iBuyer platform.

Read more
Real Estate Franchises are Losing Stock Value

Remax and Realogy Stocks Tank Amidst a Changing Industry

No one seems to be talking about this. Large Real Estate Franchising Groups are Losing Stock Value, and Fast.

The two largest conventional bricks and mortar brokerage conglomerates stocks are tanking. Remax and Realogy have lost close to 50% of their stock value in the past 52 weeks.

On the other side of this news, private investments are fueling over $2 billion in new funding into efficient/scalable broker concepts. $2 billion in market cap lost on one side, $2 billion in market cap gained on another.

Remax and Realogy Stocks

Royalty Fee Models Don’t Align With Franchisor and Agent Member Long-Term Growth

Brokerage Holding companies such as Realogy and Remax rely on incremental individual contributions from their Franchisors agent base. These royalties flow upward from the Franchise to the Holding Companies. The challenge with this model is that both the Franchisor and the Holding Companies are not truly aligned with the agent members due to the conventional cap system. The cap model sees contributions diminish, if not disappear, once an agent member hits certain annual milestones. Low producing agent members (of which form the majority of membership base) contribute a royalty through their Franchise to the Holding Company, in an amount that is very similar to that of a top producing agent member.

In an industry where consumers are demanding efficiencies, the bottom is being weeded out and the 2-10 annual transaction type REALTORS® are finding it harder to justify their value. It is only obvious that the days of mass agent membership are under pressure and the result will be disastrous to the large franchise brands of the past.

Large Real Estate Franchises are Losing Stock Value, and Fast

If this opinion proves to be correct, unless these large franchise holding brands can divert their strategic resources into acquisitions of emerging counterplays, this trend will continue with the steep and aggressive slide that is becoming of a fragmented industry. Paving way for a bright future for forward-thinking scalable, agile operations and technologies, such as DigiRealty.com and others.

These large brands are proving to be the authors of their own misfortune. The brands in the position to stand out as industry stewards became balance sheet adjusters and profit wielders, as opposed to innovators. The results will be obvious.

Read more
Zillow in Canada

Is there an equivalent to Zillow in Canada?

Zillow Group has become known for providing American Real Estate Searchers with a fast and easy to use, map-based real estate search platform. Along with their easy to use search platform, their website displays an abundance of property data, as well as their custom Zestimate™ feature which provides searchers with a quick and effortless way to research home prices. This allows Real Estate Consumers to do their own research by browsing real estate listings and sales data, prior to engaging with a professional of their choosing or with one of the Realtors® paying for Premiere Agent™ advertising space on Zillow’s platform. Is there currently a Zillow in Canada, or an equivalent that is trying to fill in the gaps?

To dive into whether there is a Zillow in Canada let’s first delve into Zillow’s monetization model. Their model is structured by collecting Premier Agent™ fees from REALTORS® paying to appear on listings within geographic regions of interest. This allows Premier Agents™ an opportunity to receive Buyer side leads on property listings that were supplied by another REALTOR®. With their acquisition of Mortgage Lenders of America, Zillow is also looking to collect orientation fees when they provide mortgage leads submitted through their platform to external lenders. These orientation fees may play into their home buying angle as well.

Update on Zillow in Canada

With regard to Zillow in Canada, the group recently made a move to display Canadian listings on their platform and they are in the process of adding more listings via alignments with Brokerages on this side of the border. The UX of the website is classic Zillow and very clean, but the listing inventory is low and the high-value data sets (sales data, Zestimate™ etc.) available stateside are not currently present.

Comparable Platforms to Zillow in Canada

In Canada, all the real estate boards feed their listings to the national website, Realtor.ca. Realtor.ca is operated by CREA, the Canadian Real Estate Association. This website has a national presence but is missing many of the features Zillow offers such as providing solid data and ease of use to search on their platform. Realtor.ca is typically referred to as clunky, dated and old.

On the surface level, DigiRealty.com would be the best Canadian listing provider with a similar user experience to Zillow. DigiRealty’s focus is to provide searchers with the most intuitive, fast and easy to use real estate search site. DigiRealty.com and Zillow also have similarities and differences in their monetization model. DigiRealty.com is operated by DigiRealty Technologies, which also owns and operates a wholly owned subsidiary real estate Brokerage. This entitles the company to monetize both commissions and advertising placements from aligned Agent Advertisers.

For readers that are unaware, here is a high-level overview of how some of these platform models are organized. Start off by viewing the sales channel as a funnel. Consumer traffic is in the top of the funnel (pageview etc.), consumer inquiries are in the middle of the funnel (leads, profiles and inquiries received by the Agent Advertiser), and a successful conversion/sale is at the bottom of the funnel (a closed deal). Obviously, the more deals that make it through the funnel, the more the platform can charge their Agent Advertisers for placements.

All things considered, Digirealty.com is likely the closest platform to Zillow in Canada

DigiRealty has an advanced map-based UX, fine-tuned advertising, placement and lead routing systems and a dynamic ‘go-to-market’ plan that will not be burdened by the bottlenecks that are existing for the established first movers. Where DigiRealty intends to excel, is always increasing the top of the funnel, along with focusing on reinventing the middle of the funnel activities centred around speed and thoughtful in market alignments. The already existing monster platforms know there is a problem with response speed and responder market knowledge alignment. Unless a multi-year revenue dip is okay with shareholders, they will be stuck with legacy premier placements and the associated downfalls.

DigiRealty believes that in-market, knowledgeable, lightning fast response speed and on-the-ground Agents will drive conversions. As a result of not having legacy booked revenue (that must stay on the books) from a potentially depleting premiere agent advertiser pool and a slow to response placement routing system that will bottleneck conversions DigiRealty is able to be more agile.

I wonder if the legacy, single player agent advertisers will leave platforms due to increases in response speed pressures that their small business cannot meet? If this is the case and we assume that qualified teams can nurture more middle to bottom of funnel leads to a conversion, will the resulting revenues offset the lost revenues? How does this transition look? It seems hard to imagine a case whereby a platform can service fast trigger teams and slow-moving placement agent advertisers at the same time. On a platform level, the teams likely provide better funnel to conversion movement, it will just be interesting to see how the shake back takes place.

In short, maybe the question should be, is there a Digirealty.com model in the states?

Read more
Pain Points Faced by the Real Estate Industry

What are some of the biggest pain points and problems faced in the real estate industry today?

Some of my Coles notes on the biggest pain points and problems faced in the real estate industry today are as follows:

At current, real estate industry professional (Agents, Lawyers, Mortgage Brokers, Appraisers, etc…) make up the largest collective interest group attempting to monetize the economic derivatives of a given real estate transaction. The problem with this is that each of these independently self-interested professionals is also spending their marketing, advertising, and product development dollars in silos (to serve themselves/their individual businesses). The cumulative value of this independent spend would likely, if gathered in a collective, be multiple times greater than even the largest platforms development and operational expenditures.

The following statements combine to describe the industry’s largest pain points as I see them today:

  1. Fragmented industry professionals & digital spending: The largest interest groups spend in silos, which results in a product that is too small to fix industry challenges or to truly innovate.
  2. In the examples of unified spending we see today (at national associations/boards) the existing leadership groups have little to no foresight on how to spec, develop, monetize, deliver on and protect or grow digital products that will benefit their professionals; transactions, user search, compliance, etc… Unified spending on products that are innovating in this space is where these leadership groups should be concentrating to make an impact for the professionals they serve.
  3. Nimble digital groups are finding product market fit by actually selling to their customers and needing to provide value to maintain their recurring revenue. Boards and associations are drowning in a cyclical pool of collect, misspend, collect, misspend, collect, misspend, compounded over years of this repetitive and unchallenged behaviour.

“On the other side of addressing the pain points of conventional industry, we must also open up the true/productive conversation – What does the industry look like in 2,3,5,10,20 years and what opportunities will emerge for forward thinking interest groups as a result. There are many… many… many products to look into. The serious groups are actually trying to organize while addressing the market, finding product market fit with future thinking professionals and building the bridge between industry and consumer”. – Jeff Mziray – CEO – Digirealty Technologies

Side note, some of the large digital platforms/interfaces/media companies are lacking some on-the-ground-intelligence and practical application of process-based real estate knowledge that will be vital to providing a fulsome and innovative real estate technology product that will be able to scale with the industry.

The conventional industry has the opportunity to come together with technology to help shape the Real Estate industry of the future. However, if the industry does not ban together soon, we could be facing another industry disruption that will change the face of the real estate industry as we know it today… Think Blockbuster > Netflix, Think Taxi > Uber. Can industry conventional hit back? If yes, it will be fun to see what it looks like!

My two favorite search portals in the US side are Trulia and Zillow. My two favorite Canadian platforms are Digirealty.com (biased built in) and Zolo. As of October 14th Zillow has officially launched real estate listings in Canada on their .com. On first overview the site is operational but the sold and Zestimate features are not available and listing inventory is very low. I will keep an eye on this and update this article when/if the updates take place.

Jeff

Read more
Contact