Primary marketIs Dot-com Discounting Dead?
Several prominent e-brokerages have gone out of business, but does that herald a significant trend? Many traditional brokerages would like to think so, but there"s just as much evidence that e-brokerages are here to stay, especially when they start adopting traditional practices like building a local market and hiring lots of Realtors.
When prominent national e-brokerages such as Homebytes.com and eHome announced that they were going out of business, traditional brokers such as Daryl Jesperson, president of RE/MAX International said, "The Internet is here to stay, but real estate agents who will be successful in this new era will be closer to the older business model than the new one in that they actually have a service to offer in exchange for compensation. No longer controlling listing information, they will remain indispensable to consumers as interpreters of information."
But even while keeping a wary eye on e-brokers, other traditionals such as Coldwell Banker, quietly developed a parallel brokerage beta-model, an MLS listing service for FSBOs, complete with e-marketing on Realtor.com and ColdwellBanker.com. Coldwell Banker managed to figure out a way to capture the elusive FSBO with an irresistible lure - access to marquee-name brokerage services without paying full service commissions. Sellers show their own homes, but it they get tired of that, the company will turn them over to a full-service CB broker with no penalty. While a business model has yet to be announced, the odds are good that Blue Edge Realty will be sold as a local franchise to local Coldwell Banker brokers who can use the service to steer prospects to its full-service bricks and sticks offices.
The promise of the e-brokers was to deliver full-service brokerage while leveraging the cost efficiencies of the Internet to consumers. All offered lower than traditional commission schedules, and most offered cash rebates to buyers and sellers who use their services. EHome had a list of services posted on its Web site, defying full service brokers to top them in service delivery. While they were able to match traditional brokerages service for service, what they didn"t have was enough money to deploy the concept across the country. And that"s where the e-brokers made their mistake.
The e-brokers were competing on a local level with national tools. While they were busy building brand recognition for themselves, their competition, the traditional brokers, were beating the pants off them in triplicate. The e-brokers would advertise their brand in local newspapers, while other brokers advertised their national affiliations, local offices and their agents did their own personal marketing, swamping the lean e-brokerages with more advertising dollars and more personal coverage house-to-house than the e-brokers could ever hope to overcome.
In an interview with Scott Kucirek, cofounder of zipRealty, a few months ago, Agent News asked Kucirek why his company was pulling back from expansion. He responded that zipRealty planned to dig into the markets where they were currently operating to build market share. "All we need is more agents," said Kucirek.
In the past that is exactly how brokers have built their market share - at the local level and by adding more agents to build the brand. How Kucirek, et al, could have outgunned deeply entrenched market leaders with only one or two agents per territory is unclear.
And now the e-brokers plan to take on the traditionals where it matters - locally.
Consider the following. While Wall Street is cold on dot-coms, venture capital firms are still hot on e-brokerages. They see discount full-service e-brokerage as innovative:
In March 2001, Foxton"s Real Estate, a leading London provider of real estate services, announced a $20 million investment in the New Jersey-based, Internet-backed Realtor, YHD Realty. In announcing the investment in and partnership with YHD Realty, Foxton"s CEO Jon Hunt said he reviewed the business models of hundreds of real estate companies and believes YHD Realty has the greatest potential for growth. Foxton"s is London"s leader in market share, selling one in every four homes (25% market share) in central London.
In May 2001, Houston-based eRealty.com announced the closing of a $15 million second round of financing. "eRealty is the first company to introduce fundamental change and
innovation in a previously antiquated industry," said John S. Boyd of TL
Ventures, one of the investors. "We are pleased to have the opportunity to invest in a company
that is having such an impact."
In June, 2001, zipRealty announced that it has also secured $8 million in Series D funding from Pyramid Technology Ventures, a
transatlantic venture capital firm, in a round which also included previous investors
Benchmark Capital, Vanguard Venture Partners, and Barrington Partners. The company announced that zipRealty will use the funds for "continued expansion of its Realtor sales force…" Said new CEO Eric Danziger, "With
this new funding, we plan to take zipRealty to bottom-line
profitability by aggressively growing our REALTOR(R) force -- our
primary focus for 2001." New zipRealty board member Marc Cellier of Pyramid, said, "Over the past
two years, zipRealty has made numerous strides in improving the residential real estate brokerage model by leveraging technology to expedite the process of home selling and buying and better serve its clients."
Kurt Chou, recruiting manager for zipRealty.com says the company plans on hiring about 150 agents for its 15 metros by the end of the year. "Our compensation is incentive-driven based on production. The agents do get a complete benefits package, in addition to full listing and advertising support and working with quality leads."
Isn"t that pretty close to a traditional brokerage? "If you can find one that offers benefits, leads and transactional support," said Chou. "We reward our agents more effectively. We"re not saying this is better, but it is different, because we aren"t discouting service. We are setting up our agents to be more successful because they aren"t dealing with the overhead of a traditional setup. If they work hard they should be more successful consistently."
Dot-com discounting isn"t dead. It just got a second wind. Or a second round, if you prefer.