U.S. real estate brokerage firm Redfin launched in Canada this week — a firm that positions itself as a tech-powered company ready to shake up the way consumers buy and sell homes.
Founded in 2004, the Seattle-based Redfin is looking to challenge conventional brokerages through its primarily online operation and one per cent listing fee. The company offers a suite of online tools, including 3D video tours, but also hires agents on salary, who offer the same services as conventional brokers.
Turning to technology is what allows the company to keep its buying and selling process efficient, Redfin says. In Canada, a listing fee with a conventional brokerage is typically around 2.5 per cent.
“Our track record in the United States is that we sell homes for more money, and we sell them faster and with more certainty,” said Redfin CEO Glenn Kelman. “We hope to do the same thing here in Canada.”
The high tech-low commission combination has helped Redfin grow into 85 markets in the U.S., as well as raise a lot of money through an initial public offering (IPO) in 2017. Now worth about $1.7 billion US, the company has the money to expand — even if it’s not yet profitable.
The brokerage launched in Toronto on Tuesday, with plans to open in Vancouver by spring, before expanding to other Canadian cities.
Redfin’s entry into the Canadian market also comes on the heels of two other web-based operators: Purplebricks, a commission-free, U.K-based brokerage, and Zillow, a popular U.S. listing service and mobile app.
It also comes just months after the end of a years-long court battle that saw the Toronto Real Estate Board (TREB) ordered to allow its brokers to publish more sales data online, such as sold prices and delistings — a move touted as a way to start opening up the market to data innovation.
Tech transforming home-buying for Americans
The arrival of these potentially disruptive new players might be the early days of a real estate revolution long-awaited by industry watchers, according to Will Strange, a professor of economic analysis with the University of Toronto’s Rotman School of Management.
“It’s the kind of industry that is really ready to be revolutionized,” said Strange, who has been predicting change in the real-estate sector for more than two decades.
While Strange initially believed that revolution would come to real estate as quickly as it came to the travel industry — starting in the late 90s. Now there are signs it may have finally arrived.
Over the past two years, investors have poured billions into real estate firms that are using technology to do more than just list and promote homes.
And while online realtors like Redfin may challenge convention in Canada, much more radical changes are being rolled in the U.S. market.
One of the biggest disruptions south of the border has come in the form of real estate companies known as “iBuyers,” or institutional buyers.
These investor firms use algorithms, or automated valuation models (AVMs), to determine the market value of a home, before making an initial offer on the property, often sight unseen. They’ll then send in staff to inspect the home, finalize the price and close the deal within a week.
The process is aimed at speeding up and streamlining the selling process for homeowners, providing certainty about the sale, the price and giving them control over the timeline. The seller picks the closing date and can change it as needed — an ideal scenario for people who might unexpectedly be relocating for a job or moving into a house still under construction. There’s also the bonus of not having to spruce up your home for showings.
But the convenience also comes at a cost: iBuyers charge a fee of anywhere from six per cent, up to as much as 13 per cent — the top end being significantly higher than a traditional commission.
Still, the iBuying space is taking off in the U.S. Opendoor got it started in 2014; Offerpad quickly followed. Both have raised hundreds of millions in investment and are expanding rapidly. Zillow and Redfin have, too, recently moved into iBuying, and growth in the sector convinced traditional brokerages, like Keller Williams and Coldwell Banker, to test the concept.
Offerpad, which operates in nearly a dozen U.S. markets, says the fee model — not profit on resale — is the key to the business.
“Our intention is to get people as close as possible to what they think their home is worth,” said Cortney Read, Offerpad’s communications director.
Offerpad’s sweet spot is in cities with diversified economies, buying houses built after 1960 that are generally priced under $600,000. The company believes its model could work in Canada, even accounting for seasonal buying trends.
Trading in your house like a car
Another radical iBuyer approach comes from Knock, which essentially arranges a home swap for its consumers.
The company buys their clients’ new home for them in cash and moves them in. Then it does the needed repairs on the homeowner’s old home, before putting it up on the market as a Knock listing.
Knock co-founder Sean Black says the trade in model solves a chicken-and-egg problem because “70-plus per cent of people in the U.S. that are buying homes every year are also selling one.”
Knock advances up to $10,000 US to the homeowner to pay for repairs on the old house, which is paid back when it sells. The client also continues to pay the mortgage on their old home until it is sold, when the title and mortgage for the new property is finally transferred over.
Knock makes its money by taking a three per cent commission from the homeowner on the sale of their old house, and another three per cent from the seller of the new house. Tech is at the core of the company, which uses algorithms to determine how much a home is likely to sell for, and to help choose which markets to enter.
Black believes his company, and the other innovators in the space, like Ribbon and Bungalow, are the long-awaited real estate revolution in an on-demand world, where consumers expect consistency and transparency.
“The big picture here is what you’re witnessing is the transformation of this industry,” he says, moving from a world where going individual agents have control to one where institutional buyers can “give you a really professional, certain and hopefully cost-effective solution.”
Black admits the change could a take a generation — a sentiment echoed by industry-watcher Strange.
Still, there’s also the potential for the snowball effect to take hold, Strange says.
“I would expect change to happen overnight, I just don’t know which night.”
WATCH: Tech-brokerage Redfin hopes to shake up Canada’s real estate market