The good news is that technology has allowed residential real estate brokers and agents to be more efficient. The bad news is that this has sparked a bit of a price war. Redfin, for example, has created a marketplace in the U.S. for real estate listings and leveraged its popularity to offer 1% listing fees for clients. This is meant to help them increase their share of the market at the expense of competitors that are still asking the standard 3%.
But now there is a company called Richr out of Florida that is looking to undercut the undercutters by making their service completely free. Rather than taking a cut of the transaction Richr’s founder Glenn Orgin hopes to monetize financial and home services for the houses that get bought and sold on the platform. He also envisions his platform as becoming a place where investors can provide financing options for buyers in return for equity in the properties.
At first glance, this might look like another use of the “market share at all cost” strategy that is a go-to for well-funded startups. But, considering that Richr has only raised $500,000 in outside funding, this doesn’t seem like the case. It is true that many other countries have a much smaller percentage payout for brokers and that there are a lot of other ancillary services that go with a house purchase so there is room for a company to flip the script on how the industry gets paid. But, those countries also probably have much less liability for agents and brokers than the U.S. and return on risk is one of the things that every (good) broker thinks about when determining fees.
Commercial real estate can be much more complex negotiation process so this model will likely not work for it but Richr’s innovative play does signal a change in how the real estate industry competes. If technology is able to help some companies do more with less like it has been promising for years then we could start to see high-volume, low-cost agents popping up. There has always been a bit of an unspoken agreement between brokers not to change the established fee structure but with the high stakes that technology has created for those that win or lose we might see courtesy go out the window and social rules start to get broken.