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.
The table illustrates different type of real estate business model. Content 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.
|Real estate public Companies||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|
|Stock Price (Mar 2, 2018)||$49.21||$21.43||$19.89|
|*Better Homes, C21, ERA, Coldwell, Southeby's, Zip etc|
One can compare a traditional company like Realogy Holdings(RLGY*) with some technology based public companies.
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 potentially disrupt traditional brokerage who insist a certain fixed fee.
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. 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 smaller presence with ~0.7% of the market according to it CEO and in our area it is preferred by more device savvy techies and had ~2% of MLS role based on MLS. As such, Redfin 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 below seems to suggest these traditional realtors who have the technology base are profitable with 272,000 agents. Consumers still prefer to work with a skilled professional because of people touch, and local knowledge which can not be replaced by technology or automation alone.
Sam Shueh Realtor
Not sure how you can have a positive gross profit but a negative net income.
This table though illustrates to me what many in the business already know....the discount brokerages that operate at a loss are simply not running a sustainable business model. Each recession an incredibly high percentage of them go bankrupt. Redfin loses on average $3,000 for every house they sell. Influx of angel investors capital can sustain them for only so long til you actually have to make money.
I think Goldman Sachs Investment claimed the summer is almost over, tight inventory and higher interest rates by downgrade both RDFIN and Z.
With that being said, Zillow stocks maintained at $64, market cap is 11.9 billion dollars. While discount broker Redfin maintains at $22 being a $1.8B. Right now the rating for Z is "neutral" and Rdfn as "sell".
Most of realtors I talk to feel the discount brokerage concept can sacrifices service quality.
@Sam Shueh I myself prefer an agent to handle everything that they handle. Well worth the price. A lot of other investors and homeowners I know feel the same way for both buying and selling. I don't think the full service, traditional brokerage is going anywhere. I do wish there were more transparency, like allowing non realtors limited access to the MLS. Show us more than Zillow, but not as much as realtors can see. That would steer people away from the Zillows of the world IMO. But instead, they act like they have a pot of gold they need to hoard from everyone else, which has allowed the Zillows to thrive IMO. How do you feel about that? I'm not a realtor so I'd like to hear your perspective. Also, what do you think about what people like Greg Hague are doing?
But ultimately, I agree. Most traditional brokerages are and will be okay. Thanks for sharing.
As you know everything like Zillow, Trulia, Nest, social media, Docu Sign, Airbnb, Uber, Lyft etc. are conceived and a few miles from here. I did not know why Java was called until I sold the original coffee shop where product launch Java was met. I can see the Apple Spaceship from my office. The people I deal with are mostly techies. They got the dough and know how to do their own search and know almost as much about the property as listing agent. At the same time we have those expect a full service, driving around town, hand holding. But truthfully the technology needs to be easier to use there will be more DIY and selling homes should be done online as Second Generation of Technology is progressing. I expect the professionals are to be used more like a consultant. Not a person drive people around. That you need an self driving car also developed here (there are 5 self driving technology companies). A robot will greet one at the door( we have that already at open houses). That needs fewer realtors as technology takes over most search, repetitious roles. Many Wall Street investors feel this industry has not moved as fast and is trying to improve the technology. I hope that helps.
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