By Caitlin Mccabe
The Philadelphia Inquirer
WWR Article Summary (tl;dr) One real estate startup aims to attract customers by offering rates lower than the traditional market. Rather than paying the typical commission-based fee associated with selling a home, sellers would instead pay a flat $2,500.
PHILADELPHIA
It’s a phrase that countless start-ups use when they feel as if they have gained enough traction: “We’re the Uber of (fill in an industry here).”
There are companies like Instacart and AmazonFresh, considered disruptors of the grocery industry.
There’s Roadie, the delivery service that connects people who have stuff to send with drivers already heading that way. Even household chores, such as furniture assembly or dog-walking, have been made easier, as a result of companies like TaskRabbit and Wag!
While each start-up has had varying degrees of success, all believe they are viable because they are so-called disruptors of entrenched, slow-to-change industries. By using technology to connect consumers directly with services, these start-ups believe they can make customers’ lives more efficient and easier.
Still, some industries have been insulated from change. One reason? The more crucial the industry is, some experts say, the more time a disruptor needs to build consumers’ confidence.
Take, for example, health care, a complex, deeply personal, and high-stakes industry.
In a 2017 interview, Arun Sundararajan, a New York University business professor and expert on the sharing economy, said that what’s holding health care back at this point is that platforms “haven’t built up sufficient trust.”
The real estate industry is, in some ways, similar. Buying a home is the largest purchase many people make and something that is generally too complex to be handled without help. As a result, though the industry has experienced a few disruptor success stories, the real estate databases Zillow and Trulia are less than 15 years old, for example, it also has been littered with start-up failures. Consumers looking to buy or sell a home have consistently had to return to the status quo: hiring a real estate agent to help them.
The decades-long domination of the real estate agent has caught the attention of federal regulators.
A few years ago, the U.S. Department of Justice’s Antitrust Division published on its website a page titled “Competition and Real Estate,” noting the necessity of more competitors in the industry.
In one post, the Justice Department wrote that “the real estate brokerage industry has been slower to change,” leaving consumers to pay “higher commissions and fees than they would under a more competitive system.”
Recently, start-ups have emerged again, believing they could force the real estate industry to change.
And as these companies forge ahead, it’s likely they could ruffle a few feathers along the way.
There is perhaps no better example in Philadelphia than Houwzer, cofounded by Mike Maher, who previously launched the Philadelphia co-working company Benjamin’s Desk. His latest start-up, founded in 2015, has branded itself as a “full-service,” “modern,” and “pressure-free” way to buy and sell homes, as a result of its low-cost model.
Houwzer, with offices near Rittenhouse Square, aims to attract customers to its brand by offering rates lower than the traditional market. Rather than paying the typical commission-based fee associated with selling a home, sellers who work with Houwzer instead pay a flat $2,500.
With the median price of a house in Philadelphia hovering around $153,000, homeowners who list their properties with a traditional broker would normally pay close to $4,600 to a seller’s agent, according to the customary 3 percent fee. (An additional 3 percent commission is typically paid to the buyer’s agent.)
Houwzer believes it can entice customers by saving them several thousand dollars.
After a home listed by Houwzer sells, the company then offers a $2,500 rebate back to the consumer, which can be used on the purchase of a home found through a Houwzer agent. Houwzer’s business model is based on making money on the 3 percent commission that buyers’ brokers typically receive.
“You can use it if you buy a home simultaneously, or a year from now, 30 years or now … or you can gift it to a family member,” Maher said in an interview at company headquarters this month. He added that the rebate can be used in the Philadelphia metro area and the Washington area, which Houwzer expanded into last year.
In 2018, Maher said, the start-up sold 297 listings in the Philadelphia metro area and helped local buyers purchase 238 homes. With an average price point of $375,000, Maher said Houwzer’s work last year represents nearly $200 million in sales volume.
At a recent Tuesday morning meeting, Maher, 36, rallied several dozen employees on the eighth floor of the company’s modern office, bedecked with brick walls, high ceilings, and chalkboards covered with phrases such as “do what you love” and “love what you do.” There, he briefed employees on the latest initiative: acquiring the mortgage broker Nations Home Loans, in order to create a “one-stop-shop” for Houwzer customers, he said.
It’s a small piece of the bigger strategy that Maher has for Houwzer: building a national brand. Houwzer hopes to raise another large round of funding in the next couple of years (the company has already raised $6.7 million) to help create the “biggest consumer-facing start-up company in Philadelphia history.”
Because of the infrequency of buying a home, Maher said, Houwzer is “a little less like Uber, which you dial on your app every day.”
“But nonetheless, it’s the single-most important transaction that someone makes in their lifetime,” Maher said. “I think we are solving one of the biggest problems that exists in America.”
Building that national brand, however, has required ditching some real estate norms, something that Maher says is important for its culture. The typical age of his roughly 70 employees is a “year or two under 30,” he said, with many agents joining as their first time job. Each agent is salaried, earning flat fees on top of that on a per-deal basis.
Hiring industry newcomers, and not paying them only a commission, is important culturally, Maher believes.
“We found it easier to train people from the ground up,” he said. “What we have learned is hiring agents with a ton of experience, they bring a lot of bad habits into the business, and it’s too hard to rewire or reprogram what they’ve learned or lived for the last 10-plus years.”
Because of Houwzer’s salary structure, he said, agents do not have to worry about the typical commission splits that occur between brokers and agents. Additionally, Maher said, agents can leave the “going out and building business” to Houwzer, allowing them to instead focus on deals.
Lower-cost real estate brokerages such as Houwzer have been launched before, with varying degrees of success. Most famously, Foxtons, the low-service, discount real estate brokerage that once offered commissions as low as 2 percent in the early 2000s, ultimately had to file for bankruptcy, leaving thousands of sellers in limbo, after a class-action lawsuit, an investigation into its mortgage brokerage by the New Jersey Department of Banking and Insurance, and bad customer service reviews mounted.
Still, there’s been a resurgence of similar models. The real estate company Redfin offers full service for 1 percent to 1.5 percent commission for customers who list with a company agent. And the Dallas real estate start-up Door offers a similar model to Houwzer with a flat fee of $5,000.
It was not unusual in the past for large, traditional real estate companies to criticize companies such as Foxtons.
In 2003, for example, Coldwell Banker ran radio ads that proclaimed: “Trying to save money could cost you thousands of dollars. … Two percent doesn’t get your home maximum exposure.”
Today, Lawrence Yun, chief economist for the National Association of Realtors, said in a statement that he is “glad to see the dynamism in the industry with different businesses being tried out.”
Chris Somers, the newly elected president of the Greater Philadelphia Association of Realtors, said that “one model isn’t better than the other.”
But he added that “discount broker agents typically don’t have as many years of experience in terms of pricing a property, negotiating an agreement of sale, and knowing all the ins and outs.”
“Is that discount that they’re getting maybe hurting them?” Somers said. If customers worked with a traditional agent, “maybe their property gets sold faster. They might have gotten more money.”
It’s a point that Maher said he’s heard before.
“The traditional brokerage model will say we’ve seen Houwzers come and go and they don’t last,” Maher said. “That’s fine. I’ve heard that, too.”
