Realtors are one of the most ineffective professions. In the US, a typical commission is 3% to the agents from sellers and buyers. The median cost of a house is $200k, 3% is $6k. The service includes about ten showings and five sit-downs with the client regarding the terms of the deal, 6k divided by 15 — $400 an hour, $70k dollars per month when converted to full-time. In reality, various links talk about the average salary of a realtor amounting to $40–50k, but per year. 19/20 of the working hours are unpaid.
The market size is colossal — within the US one and a half trillion dollars worth of housing gets sold every year, a 6% commission — 100 billion. And that’s considering the market is fragmented, big agencies are a minority compared to the sum of the small ones.
The pain is understandable, the possibility is understandable, even the solution is more or less understandable. Aggressive advertising and pricing below the market value lead to economies of scale. One agent gets a bunch of clients in the field, but the system allocates homes based on geo-proximity, nobody drives too far, and no time is lost on commuting. A good CRM and a mobile app work better than memory and a notebook. The realtor doesn’t forget about meetings and promises to call back, and the client distracts him less often — he sees it all on the phone anyway. And if he does need to find something out, the call center never gets stuck in the sub and out of reach. There’s a lot of projects like this all over the world, some in the US too, of course — the biggest one, Redfin, already went public. Costs $2 billion.
And then a new one appears — exactly the same, #startupoftheday with a humble name REX (Real Estate Exchange). The market is big and fragmented, Redfin is not even close to having monopolized it entirely, there’s space for a second, third, and fifth player — why not launch? But startups can’t just say “we’re exactly the same”, it’s bad all around. And that’s when the circus begins, for which I’m writing this post.
To the journalist from Crunchbase News (that’s editorial content, not wiki, as a main service) REX fed the story about charity, as in — for every 50 houses sold, they build one for a poor family. Yeah, just enough, their commission is 2% — more or less adds up, what they earned (revenue, not profit) is what they gave to the people in need. The journalist wasn’t even surprised at these numbers, but now the uncritical audience knows — REX is like Redfin, but noble.
On their own website it’s even funnier. In their FAQ section, the startup tells potential clients that they use remarketing. They filmed a whole video: what it is, how it’s so cool when the potential buyer sees an ad once, then gets chased down by Twitter ads, and books a home showing after all. Can you imagine what we can do?! Sell your house through us, Redfin can’t pull that off!
Maybe there was a third version somewhere, I didn’t find it. But in truth — all this complies with the usual “new realtor” practices. For now this (and good venture financing) is enough for growth, the window of opportunity has not yet closed even in the US. REX already raised $110 million, and is taking off with this kind of money — their revenue increased by 4 times in one year. The PR doesn’t provide absolute values, but according to my estimations, it’s $20 million.