The restless minds of Silicon Valley are always on the lookout for new industries to destroy – or, as they prefer to say, disrupt – and it seems they have once more turned their baleful glare to the world of real estate. The last time the real estate industry was healthy enough to be worth conquering, before the 2007 housing crash, tech’s great innovators brought the industry online discount brokerages like Redfin and, of course, Zillow and Trulia, which aimed to become consumers’ go-to search for real estate on the web – and not so coincidentally, the key place for agents to spend their advertising and lead-buying dollars.
But two new entrants into the industry have their sights set on a something different from simply cutting themselves a slice of the real estate pie – instead they’re looking for ways to cut agents out entirely.
The first to draw attention this summer was Opendoor.com, the brainchild of former PayPal and Trulia execs, which promises to help consumers buy and sell homes online with just a few clicks of a button, with closings coming in as little as three days.
The current method of selling of buying and selling homes is “painful, expensive and distracting. All those things together scream for a solution. What we’re going to do is make it as simple as snapping your fingers,” Keith Rabois, a prominent venture capitalist and one of the firm’s co-founders, said in a video interview announcing the company’s launch.
Since announcing funding, the group has been tight-lipped about specific details of its model – execs did not respond to requests for comment – but essentially the company acts as a middle-man, using automated valuation models to arrive at a price it’s willing to pay for a given house and generating an offer, sight unseen. If the seller accepts the offer, the company quickly moves to close on the house, then flips the property to a new buyer. The company will only purchase owner-occupied homes.
That may sound pie-in-the-sky, but the credentials of the co-founders – Rabois, who’s invested in or helped lead a succession of successful startups like Yelp, Square and LinkedIn, as well PayPal, and Eric Wu, a former data guru at Trulia – have already attracted serious cash from a host of tech-world luminaries. The company announced a successful initial funding round of nearly $10 million this July. The company says it’s already got deals in place with investors willing to provide purchase funds, and plans to launch in three markets across the country by the end of the year. (Though not its own, ultra-hot Bay Area backyard.)
A second startup to make a splash in the tech world is Allre.com, which was a featured presenter at TechCrunch Disrupt earlier this month, an annual Silicon Valley conference that’s highly regarded by investors and widely watched by the tech press. Allre is aimed squarely at the 2-million-transaction-strong for-sale-by-owner market, which it plans to conquer by an nearly unbeatable offer – using its technology platform allows buyers and sellers to conduct a transaction entirely online, for free. The San Diego-based startup was founded by former real estate agent, Kathy Dryden, who noticed that many of her Millennial clients longed to conduct their real estate transaction online, at their convenience.
“I had client after client after client who would say to me, ‘Kathy, we love you, but we hate that we have to use you,’” said Dryden. “‘Why do we have to wait for you to feed your kids dinner to get an offer written? Why can’t we do this online, ourselves, right now?’”
The company makes its money though deals with affiliates like mortgage companies and lockbox firms. Because the product is free and the company doesn’t make any money from the transaction itself, it is not considered a broker, and is not subject to many of the federal and local regulations, including the Real Estate Settlement Procedures Act, which often hamstring brokers.
While the firm has no problem if buyers want to use an agent, long-term, Dryden’s ambition is for Allre to put pressure on agent to cut fees and provide better service.
“We’re going after a segment of the market that’s already doing it on their own, so I absolutely believe can co-exist [with traditional agents],” she said. “Ten years from now, when Allre has some market share, the agents that are working out there may be doing more deals and getting paid less, and happiness factor of buyers and sellers has gone up significantly. That’s what I’d like to see … our hope is that it cleans up the market a little bit.”
As industry consultant and blogger Rob Hanh points out, it’s far from clear that either of the sites will be successful. But he suggested their emergence may be a sign of a gradual shift in the market, as an increasing pressure from a different generation homebuyers to do more and more of the transaction online. As consumers use Internet resources to become more and more informed not only about the property they’re looking for, but also the process itself, that may put pressure on agents’ commissions.
“It does seem to me that there’s something going on there,” said Hanh. “It may be the technology, or that the industry hasn’t done enough to delight the consumer, or it may be [generational change] … From where I sit right now, I think this is a company to watch.”
Email: csullivan@thewarrengroup.com
