Technology and Traditional Realty -the line is fine

                                            Sam Shueh

                                         Realty One Group

                                       Silicon Valley, CA

Homes in America still attract foreigners. A $1,000 square feet home which may look expensive here appears to be very reasonable. A big detached home with soar ceiling and lots of natural lighting comes with spacious yard, a garage for multiple vehicles. In ground pool, back yard kitchen, out door fireplace features are not often seen overseas are taken for granted here in the US. American realtors are often thought better compensated for the time they devoted on. In Japan, Korea, and China including Hong Kong the buyers have to pay a finder’s fee while home sellers can list with as many agents until that agent can bring a buyer with money put on the table. Listings are more like pocket listings in overseas offices often with addresses not disclosed. Buyers need to work with several brokerages to see all inventory in a neighborhood. People can sign up and work with multiple agents simultaneously. In Germany and France the buyers have to pay 6-8% to purchase while it is free to the sellers.

The following is typical commission rates being charged in different countries.

Real estate public Com Z Rdfn RLGY*
Type internet Tech Discount tech Traditional
Year Revenue $1.08 billions 0.37 billions 5.81 billions
Gross Profit $ 0.99 billions 0.11 billions 1.32 billions
Net Income (-94 millions) (-15 millions) 213 millions
Book Vlaue/share 14.05 19.89
Agents - 272,000
Stock Price (3/2/18)) $14.05 21.43 $19.89
IPO year 2011 2017 2012

*Better Homes, C21, ERA, Coldwell, Southby, Zip etc

With a new technology it is easier to access data. The tools are there to find coop brokers who work with buyers to bring to the listing agent. Those who are computer or device savvy can go view direct or call whoever to open the door since everyone has the same tool to search for properties and find out recorded data. The drawback is in US there are 800 some MLS systems and associations. They often disagree with each other how just about how things should work. This has created opportunities for technology based companies like Trulia, Zillow, Realtors, Homes etc. to merge all systems in one data base to get people to use them while selling advertisements to generate revenue.

Redfin offered a better technology for people to search properties on line. To entice often first time home buyers it offers a rebate where legal and home owners can sell it in selective US metropolitan cities at a steep discount for full services. This can disrupt traditional brokerage who insist a certain percent of fee (see table above).

One can compare a traditional company like Realogy Holdings(RLGY*) with technology based public companies.

Real estate public Co. Z Rdfn RLGY *
Type Internet Tech Discount tech Traditional
Year Revenue($) $1.08 billions $0.37 billions $5.81 billions
Gross Profit($) $0.99 billions $ 0.11 billions $1.32 billions
Net Income($) (-94 millions) (-15 millions) $213 millions
Book Value / share $14.05 $21.42 $19.89
Agents - 272,000
Stock Price (3/2/18) $49.21 $21.43 $19.89
IPO year 2011 2017 2012

*Better Homes, C21, ERA, Coldwell, Southeby’s, Zip(now ZapTech) etc

The above table illustrates some public real estate companies do not carry their listings. They claim they are technology company as Wall Street investors are willing to pay top price and speculate they will change the way we do business. Often it takes sometime to catch on and realize the technology is no better. It was that way during the Dot.com days. It has not changed much to investors perception that technology is desirable even to this date.

Both Zillow Group and Redfin have been around for almost 10 years. While there is a place for every type of business model, the threat that technology will be disruptive like America chain stores and shopping centers the threat is there. More and more, the real estate technology will take over the traditional brokers in America does not seem to be the case. Redfin has a small presence with ~0.7% of the market and in our area it is preferred by more device savvy techies and had ~2% of MLS role based on my survey until it got blocked just before its IPO. As such, it is a discount brokerage and give rebates to home buyers. Many prefer traditional brokerage which is more service oriented in my opinion. The income statement shown above seems to suggest they are profitable with 272,000 agents. Consumers still prefer to work with a skilled professional.

In my opinion, the content company like Zillow, Realtors, and Homes etc there is a place for them. The discounted brokerage like Zip(now ZapLabs) and Redfin are preferred by clients with a tight budget. If one public company undercut their earning power working more for less, stock share holders will not view them as technology stocks. With every real estate using similar technology selling media with machine learning advertisement the line between technology and traditional real estate model is thin one.

Sam Shueh Realtor

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Bad editor columns not lined up right. Sorry