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2018 Emerging Models in Real Estate Report

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A 190+ slide presentation where I take a global view of emerging models in real estate that are changing the way consumers buy and sell houses. It’s a data-heavy, representative scan of the market that pulls out facts, highlights insights and draws conclusions.

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2018 Emerging Models in Real Estate Report

  1. 1. 2018Emerging Models IN Real Estate REPORTPrepared by Mike DelPrete, March 2018
  2. 2. I’m fascinated by the opportunity in real estate tech. The process of buying and selling houses is complex and uncertain, with many opportunities for improvement. A number of smart entrepreneurs and innovative companies around the world are trying new things, and a certain few are nailing it. In this report, I cover the trends that are changing the industry and the major players gaining traction around the world. The scope is global, because we all have a lot to learn no matter where we live. I'm a strategic advisor and global expert in real estate tech. I’m a former tech entrepreneur and head of strategy at a major real estate portal. Now I travel the world engaging with leading property portals and real estate tech businesses, working on strategy, sharing insights, and helping them grow. Mike DelPrete March 2018 An introduction
  3. 3. 2018 Emerging Models in Real Estate Report A global snapshot The U.K. market: the front line of disruption A leader in disruption: Purplebricks in the U.K. How the U.K.’s biggest incumbent is reacting to digital disruption U.S. market overview: fragmentation and innovation Inside Opendoor and the rise of iBuyers Highlights and trends from Australia and Canada Comparing some of the top emerging models Homepage analysis and customer propositions Product pricing and packaging Tech platforms of the most successful models Tech-led or tech-enabled: staffing breakdowns The role of traditional real estate agents Key learnings and insights from the global leaders 4 9 19 29 39 44 64 74 87 140 151 164 176 182
  4. 4. A global snapshot
  5. 5. This report -- and two years of research -- started with one key question. What are the new models gaining traction that are changing the way people buy and sell residential real estate?
  6. 6. The global landscape is large and varied. There are hundreds of players, but not all are successful. This report is a market scan that pulls out facts, highlights insights and draws conclusions. It’s meant to be representative, not comprehensive. As with all of my work, there is a specific focus on data and evidence. I attempt to let the charts speak for themselves. I’ve spent the past two years focused on this market opportunity. This report is based on speaking to, analyzing, and working with over 100 different companies, and talking to dozens of global leaders.
  7. 7. This summary focuses on a set of businesses that I’ve deemed to be successful. I have focused on models that: • Are gaining meaningful market traction (and not just early adopters). • Have business models and unit economics that support a profitable, long-term business. • Are operating in developed, mature markets. Why? Because during my analysis it became apparent that almost all of the new model innovation originated in developed markets (specifically the U.K., Australia, and North America).
  8. 8. There are so many active players in this space because the opportunity is huge. Country Transactions Avg. sale price Avg. commission Annual commission pool United States 5,600,000 $223,000 5.0% $62B Australia 500,000 $471,000 2.0% $4.7B United Kingdom 1,200,000 $275,000 1.4% $4.6B New Zealand 90,000 $318,000 2.8% $801M The amount of commission paid to real estate agents annually.
  9. 9. The U.K. market: the front line of disruption
  10. 10. The relative stock performance of a traditional real estate incumbent and a disruptor is striking. Purplebricks (the disruptor): +350% Countrywide (the incumbent): -71%
  11. 11. One of the most prominent new models is the fixed-fee online agency. • Customers pay a fixed-fee (Purplebricks charges £849 in the U.K.). • Customers typically pay up-front, regardless of whether the home sells. • Online agents offer broadly the same services as a traditional agent, backed by customer- friendly tech platforms.
  12. 12. Part of their customer proposition is saving home sellers money. $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 New Zealand Australia (Purplebricks) Australia UK USA Average Customer Savings with Fixed-Fee Models Typical Agent Commission Fixed-fee Price www.mikedp.com
  13. 13. £0 £1,000 £2,000 £3,000 £4,000 Typical Agent Tepilo Purplebricks Yopa Emoov HouseSimple Estate Agent Fees (U.K.) www.mikedp.com In the U.K., fixed-fee services offer to save consumers an average of £2,000. Note: Assumes £225,000 home price and 1.3% commission.
  14. 14. Several online agents are now offering a “no sale, no fee” service at a higher price point. Note: Assumes £225,000 home price and 1.3% commission. £0 £1,000 £2,000 £3,000 £4,000 Typical Agent Tepilo Purplebricks Yopa Emoov HouseSimple Estate Agent Fees (U.K.) www.mikedp.com
  15. 15. Measured by the number of live listings, it appears to be a “winner take most” market dynamic. Live listings are a snapshot of overall activity, and are not a reflection of total sales or listings throughout the year. 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Purplebricks Yopa Emoov HouseSimple Tepilo EasyProperty Doorsteps Settled Live For Sale Listings (February 2018) www.mikedp.com Source: Zoopla, MDP analysis. Purplebricks is winning
  16. 16. This dynamic is unsurprising due to the lack of product differentiation and network effects. • No product differentiation • No network effects Source Purplebricks half-year results.
  17. 17. The online agencies are growing at vastly different rates, with Purplebricks leading the pack. Source: Zoopla. 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Purplebricks Yopa eMoov Yearly Growth in Live Listings Listings (Oct 2016) Listings (Oct 2017) www.mikedp.com
  18. 18. Raising a lot of money doesn’t guarantee success, but it sure helps. Note: Live listings as of Feb 2018. £0 £20,000,000 £40,000,000 £60,000,000 £80,000,000 £100,000,000 0 4,000 8,000 12,000 16,000 20,000 Purplebricks Yopa Emoov HouseSimple EasyProperty Settled Market traction relative to money raised (U.K.) Live Listings Money Raised (pounds) www.mikedp.com
  19. 19. A leader in disruption: Purplebricks in the U.K.
  20. 20. Purplebricks is the largest of a new breed of fixed- fee online agency, based in the U.K. • The business model combines FSBO and traditional agency with a lower price point and better customer experience. • Around 5% market share in the U.K. market (~60K houses annually). • Has an online platform and service centre to support its local property experts. • Expanded to Australia (September 2016) and U.S. (September 2017).
  21. 21. Purplebricks’ has become the largest overall U.K. estate agency and the largest online agency. Source: Purplebricks annual report.
  22. 22. Purplebricks’ U.K. growth is stunning. The number of instructions has doubled over the past year. 0 10,000 20,000 30,000 40,000 50,000 FY15 FY16 FY17 Purplebricks' U.K. Instructions Source: Purplebricks annual reports. “Instruction” = Instruction to Sell, also known as a listing.
  23. 23. The business is scaling well. Revenues more than doubled with a small marketing increase. £0 £10,000,000 £20,000,000 £30,000,000 £40,000,000 £50,000,000 FY16 FY17 Revenue and Sales and Marketing Expense Growth Revenue Sales and Marketing www.mikedp.com Source: Purplebricks annual reports.
  24. 24. Revenues increased by £24.6 million while sales and marketing expenses increased by £1.5 million. Source: Purplebricks annual reports.
  25. 25. Each £ spent on sales and marketing is generating more revenue and a higher ROI. 2.8x 3.2x 4.0x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x H1 17 H2 17 H1 18 Purplebricks' Marketing ROI (U.K.) Marketing ROI (Revenue per £ Spent) www.mikedp.com Source: Purplebricks annual reports, MDP calculations.
  26. 26. Customer acquisition costs are dropping significantly as the business reaches scale. £0 £100 £200 £300 £400 £500 £600 £700 FY16 FY17 Customer Acquisition Costs www.mikedp.com Overall market traction and dropping acquisition costs are justifying Purplebricks’ huge initial (and ongoing) marketing spend. It also proves that the model works and can scale, with customer acquisition costs roughly a third of the average ticket size. Source: company data and MDP estimates.
  27. 27. Each local property expert (LPE) is listing nearly 100 properties each year. Efficiency is key. Source: company data and MDP estimates using year-end figures. 0 50 100 150 200 250 300 350 400 450 500 FY16 FY17 Purplebricks' Instructions per Local Property Expert (LPE) LPEs Instructions/LPE www.mikedp.com
  28. 28. As the business scales, the average revenue and cost per instruction (listing) are equalizing. Source: company data and MDP estimates. £0 £200 £400 £600 £800 £1,000 £1,200 £1,400 £1,600 FY16 FY17 Average Revenue and Cost per Instruction Average Cost per Instruction Average Revenue per Instruction www.mikedp.com
  29. 29. How the U.K.’s biggest incumbent is reacting to digital disruption
  30. 30. Online agents are having a huge impact on traditional players like Countrywide (former #1). Purplebricks (the disruptor): +350% Countrywide (the incumbent): -71%
  31. 31. Revenues suffered as home sales fell from 33,940 in the first half of last year to 27,100 this year. £0 £100,000,000 £200,000,000 £300,000,000 £400,000,000 Total Revenue Estate Agency Revenue Countrywide's Dropping Revenues 2016 H1 2017H1 www.mikedp.com Source: company data.
  32. 32. Pre-tax profits were down an incredible 98% in the six months to June 2017. £24,300,000 £447,000 £0 £5,000,000 £10,000,000 £15,000,000 £20,000,000 £25,000,000 £30,000,000 2016 H1 2017H1 Countrywide's Pre-tax Profits www.mikedp.com Source: company data.
  33. 33. Countrywide’s average fee is dropping and showing evidence of compression. Source: Exane BNP Paribas Research Countrywide’s Average Fee
  34. 34. Countrywide launched its own online offering to try and compete with the online agencies. This initiative is currently “on hold.”
  35. 35. But it suffers from a lack of strategic advantage as a brand extension, instead of a new fighter brand. By launching a brand extension, Countrywide is missing out on the classic benefits of a fighter brand: eliminating competition, protecting the existing premium offering, and opening up new, lower-end markets for the organization. Countrywide’s approach begs the question: Is the offering truly meant to succeed?
  36. 36. Meanwhile, its investment bank, Jefferies, continued to boost the stock as it fell last year… Buy Hold Buy Buy Buy Hold Hold Purplebricks launches Purplebricks floats on stock exchange Buy Buy Buy Buy Countrywide’s Stock Price
  37. 37. …while at the same time maintaining a negative view of Purplebricks during its rise. Underperform Underperform Underperform Underperform Purplebricks’ Stock Price
  38. 38. Which highlights the risk of institutional bias when disruptive models threaten the status quo. 0 200 400 600 800 1000 Countrywide LSL ZPG Rightmove Foxtons Purplebricks DaysRecommended Jefferies Stock Recommendations August 2013 - March 2017 Buy Hold Sell Corporate Clients of Jefferies Direct Competitors of Corporate Clients
  39. 39. U.S. market overview: fragmentation and innovation
  40. 40. Company Geography Biz Model Price Point 12+ states Fixed-fee $3,000 California Fixed-fee $4,950 S. California Fixed-fee $3,200 National FSBO $399 Salt Lake City FSBO $900 Texas Fixed-fee $5,000 Denver, CO Fixed-fee $2,500 National FSBO $139 California Fixed-fee $2,000+ The U.S. market has seen a number of fixed-fee and FSBO businesses enter the market.
  41. 41. These models offer a wide range of sell-side price points for varying degrees of service. $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 USRealty Homelister Homie Homebay Trelora Redefy Purplebricks Redfin Reali Door Compass Traditional agent Selling Costs www.mikedp.com Notes: all based on a $250k transaction. Traditional agent 2.5% sale fee, Compass 2.5% sale fee, Redfin 1.5% sale fee.
  42. 42. With the exception of Redfin and Compass, most models have modest, regional market traction. 43,000 16,000 2,600 1,200 1,000 300 0 10,000 20,000 30,000 40,000 50,000 Redfin Compass Redefy Homie Homebay Door Annual Transactions www.mikedp.com Source: Estimated based on public disclosures and “total transaction values.”
  43. 43. But new players like Opendoor, called iBuyers, are turning the home selling process on its head.
  44. 44. Inside Opendoor and the rise of iBuyers
  45. 45. Opendoor is one of the most high-profile real estate disruptors in the U.S. market. • Opendoor buys and flips houses. • It has raised over $355 million and is valued at over $1 billion. • Incredible customer proposition focused on reducing friction and delivering certainty. • Charges a fee of around 7% -- slightly higher than the 6% average in the U.S.
  46. 46. $30M $32.5M Phoenix, Las Vegas, Orlando Phoenix, Tampa, Las Vegas, Orlando, Atlanta, SLC Atlanta San Diego, Inland Empire In 2017, a number of iBuyers raised significant money and launched competing services. $65M London
  47. 47. Interestingly, the consumer proposition is both saving money and saving time.
  48. 48. Opendoor is buying and selling hundreds of houses each month in a handful of markets. 0 40 80 120 160 200 240 280 320 January February M arch April M ay June July AugustSeptem ber O ctoberN ovem berD ecem ber Opendoor Home Sales (PHX+DFW) 2016 2017 www.mikedp.com Source: Public property records, MLS data, Opendoor listing data, public records sourced from Redfin.
  49. 49. But overall market share remains in the low single digits, with slow growth. This is no hockey stick. Source: Public property records, MLS data, Opendoor listing data, public records sourced from Redfin, and The Cromford Report.
  50. 50. In Phoenix, the overall market share (for sales) grew 48% from 2016 to 2017 YTD. 1.1% 1.6% 0.0% 0.4% 0.8% 1.2% 1.6% 2.0% 2016 2017YTD iBuyer Market Share www.mikedp.com The market is growing. No matter your personal opinion of the model, consumers are drawn to iBuyers in increasing numbers. 48% Market share is defined as total units bought and sold.
  51. 51. The price paid by Opendoor when purchasing homes is tightly clustered. This is its sweet spot. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin.
  52. 52. In 2016, Opendoor resold houses for an average of a 5.5% higher price, before expenses. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin.
  53. 53. During 2017, this number increased to an average of 7.4% per home, an important gain. Gross margin is a top line number (hence “gross” and not “net”), meaning it does not include the numerous costs associated with holding, repairing, and reselling a house. Source: Public property records, MLS data, Opendoor listing data, public records sourced from Redfin, and The Cromford Report.
  54. 54. In Phoenix, Opendoor’s largest market, it continues to buy more houses year over year. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 0 40 80 120 160 200 240 280 January February M arch April M ay June July August Septem ber O ctober N ovem ber D ecem ber Opendoor Home Purchases (Phoenix) 2016 2017 www.mikedp.com
  55. 55. Viewed another way, the significant uptick in Q4 purchases becomes clear. It’s ramping up. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 47 122 142 152 62 132 156 220 0 40 80 120 160 200 240 Q1 Q2 Q3 Q4 Opendoor's Average Home Purchases Per Month (Phoenix) 2016 2017 www.mikedp.com
  56. 56. And compared to its top competitor, both companies are growing market share. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 116 143 21 83 0 40 80 120 160 200 240 2016 2017 Average Home Purchases Per Month (Phoenix) Opendoor OfferPad www.mikedp.com
  57. 57. Opendoor is also selling 40% more homes year- on-year in Phoenix. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 0 40 80 120 160 200 January February M arch April M ay June July August Septem ber O ctober N ovem ber D ecem ber Opendoor Home Sales (Phoenix) 2016 2017 www.mikedp.com
  58. 58. Average monthly home sales are up 82%, again with a growing market share for both companies. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 90 126 14 63 0 40 80 120 160 200 2016 2017 Average Home Sales Per Month (Phoenix) Opendoor OfferPad www.mikedp.com
  59. 59. A summary of all Phoenix activity shows Opendoor accelerating at the end of the year. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. 0 50 100 150 200 250 300 350 400 450 January February M arch April M ay June July AugustSeptem ber O ctober N ovem ber D ecem ber Opendoor vs. OfferPad Activity (PHX) Opendoor OfferPad www.mikedp.com
  60. 60. On average, it takes Opendoor 13 days to prep a purchased home for resale. This number is down 35 percent from 20 days in 2016, a reflection of improving operational efficiency. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. Opendoor Prep Days
  61. 61. This compares favorably to its top competitor, OfferPad, where the average is 3x higher: 41 days. Source: Public property records, MLS data, Opendoor listing data, and public records sourced from Redfin. OfferPad Prep Days
  62. 62. Rough estimates of the unit economics behind Opendoor show a low-margin business model. Source: Research conducted in 2016 based on estimates from public records: http://www.mikedp.com/articles/2016/12/13/inside-opendoor-what- two-years-of-transactions-say-about-their-prospects
  63. 63. Only a small portion of Opendoor’s sales occur off the MLS, and even then still include agents. 2016 2017 9% 95 sales 6% 41 sales Non-MLS sales are in part driven by Opendoor emailing new homes to agents to give their buyers early access.
  64. 64. Highlights and trends from Australia and Canada
  65. 65. The Australian market is getting more crowded with FSBO and online agents. Company Annual Listings Biz Model Price Point 1,800 FSBO $600 1,900 FSBO $700 60 (just launched) Fixed-fee $7,500 <10 (just launched) Fixed-fee $7,500 Have been around for a number of years. Recently launched on the back of Purplebricks’ success.
  66. 66. Australia even has its own Opendoor iBuyer model, Sellable, which launched in late 2017.
  67. 67. Listings growth at the Australian FSBO operators is slow, while Purplebricks is growing strong. Source: Listing data from realestate.com.au. 0 500 1,000 1,500 2,000 2,500 11/16 2/17 5/17 8/17 11/17 2/18 Listings Growth in Australia PropertyNow Forsalebyowner Purplebricks Buymyplace www.mikedp.com Strong start, but slowing a bit.
  68. 68. Purplebricks’ average number of sales has nearly doubled in two subsequent 6 month periods. 0 10 20 30 40 50 60 70 80 Queensland Victoria Average Sales per Month Nov 2016-Apr2017 May-Oct 2017 www.mikedp.com Source: Sold data from realestate.com.au. Up 79% Up 97%
  69. 69. My April ‘17 analysis shows the Purplebricks proposition appealing to lower-end customers. Source: Sold data from realestate.com.au. Overall Market Median Home Value Purplebricks Home Values in Victoria
  70. 70. Which is consistent across the various Australian regional markets. Source: Sold data from realestate.com.au. Overall Market Median Home Value Purplebricks Home Values in Queensland
  71. 71. At any one time, Purplebricks is averaging 12.7 active listings per local property expert (LPE). Source: Listing data from realestate.com.au. 0 2 4 6 8 10 12 14 16 18 20 South Australia Western Australia Queensland Victoria NSW Active Listings per LPE www.mikedp.com
  72. 72. Meanwhile, in Canada, ComFree has become a world leader in FSBO operations. • Comfree is a FSBO operation in Canada. • 25% total market share in Quebec. • Lists over 40,000 houses annually. • Average revenue of ~$1,000 USD per customer. • Around 400 staff, mainly in call centres (centralized support services).
  73. 73. ComFree combines its anti-agent proposition with high-touch support and a leading portal.
  74. 74. Comparing some of the top emerging models
  75. 75. Each business has grown well in its own right, all darlings of the venture community. Year Launched 2012 2004 2014 Valuation (USD) $2.2 billion $1.98 billion $1.5 billion Money Raised (USD) $775 million $305 million $190 million Source: Valuations as of January 2018. Includes proceeds from Redfin and Purplebricks IPOs.
  76. 76. Each dollar of investment raised has resulted in varied revenues. Low-cost model = lower revenue. Note: 2017 or FY17 Revenues. Compass (pre-Softbank) excludes the $450 million raised from Softbank in December 2017. $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 Compass Compass (pre- Softbank) Redfin Purplebricks Revenue per Each Dollar Raised www.mikedp.com
  77. 77. Each business is quite different when it comes to fees, average home value, and market traction. Transactions 16,000 45,000 50,000 Listing fee 2.5% - 3% 1% - 1.5% $1,100 Annual Value of Homes Sold $14 billion $19.8 billion $7.65 billion Annual Gross Revenues $350 million $370 million $117 million Average Transaction Sale Price $875,000 $459,000 $221,000 Source: Compass numbers provided by Compass, Redfin numbers are FY17 actuals, and Purplebricks are based on 8 months of actuals. High fee, high value (luxury) Goldilocks? Low fee, high volume
  78. 78. In the U.S., Redfin is demonstrating consistent growth in transactions and market share. Source: Redfin’s public disclosures. 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Redfin's Market Share by Quarter # Transactions U.S. Market Share www.mikedp.com
  79. 79. With corresponding revenue growth, up around 45% per year. Source: Redfin’s public disclosures. $0 $50 $100 $150 $200 $250 $300 $350 $400 2014 2015 2016 2017 Millions Redfin's Revenue Growth www.mikedp.com
  80. 80. $0 $50 $100 $150 $200 $250 $300 $350 $400 2014 2015 2016 2017 Millions Revenue Growth Redfin Purplebricks (U.K.) www.mikedp.com As a percentage, Purplebricks is growing revenue much faster, but from a smaller base. The timing isn’t directly comparable. Redfin is calendar year, while Purplebricks 2017 is eight months of 2017 and four months of 2018. Up 195% from 2014 Up 1,906% from 2014
  81. 81. Purplebricks’ transaction volume is growing faster than Redfin, both absolutely and relatively. 0 10,000 20,000 30,000 40,000 50,000 60,000 2014 2015 2016 2017 Transaction Volumes Redfin Purplebricks (U.K.) www.mikedp.com Source: Public disclosures. 2017 actuals for Redfin and two actual quarters for Purplebricks. Purplebricks based on 78% listing-to-sale completion ratio.
  82. 82. A big part of Compass’ value proposition to agents & investors is tech to make agents more efficient. Compass is currently working to assemble the first modern real estate platform in an effort to reduce friction and frustration associated with selling, buying or renting property by providing real estate agents tools that increase efficiency and sales volume. “ ” The efficiency gain from a technology platform should be evident by the number of transactions each agent completes per year, commonly called “production.”
  83. 83. 0 15 30 45 60 Industry Average Compass Redfin Purplebricks (U.K.) Avg. # of Transactions/Agent/Year www.mikedp.com Production (the average number of transactions per agent per year) is a reflection of efficiency. Actually more efficient More efficient? Source: Public statements and disclosures, based on full year results and number of agents at the midpoint of that year. Industry average of 7/year based on various Inman reports and Real Trends report for 2016. Purplebricks based on 78% listing-to-sale completion ratio.
  84. 84. Compass has announced plans to achieve 20 percent market share in 20 cities by 2020. Transactions 16,000 43,000 42,000 Listing fee 2.5% - 3% 1% - 1.5% $1,100 Annual Value of Homes Sold $14 billion $19.8 billion $7.65 billion Annual Revenues $350 million $365 million $57 million Average Transaction Sale Price $875,000 $459,000 $221,000 The economics will completely change if Compass wants to reach mass-market appeal at anything close to 20 percent market share. Average sale price will be cut in half, with a corresponding drop in incremental revenues. The model works for luxury homes, but can it translate to a more mainstream audience?
  85. 85. Customer acquisition costs continue to drop, making each marketing dollar more efficient. Source: H1 2018 vs H1 2017 for Purplebricks, quarter ending Sept 30 2017 vs Sept 30 2016 for Redfin. $0 $100 $200 $300 $400 $500 $600 Purplebricks (U.K.) Redfin Customer Acquisiton Costs 2016 2017 www.mikedp.com
  86. 86. While all leaders, each is achieving success in its own way. • Strong correlation between price point and transaction volumes. • Higher the fee, higher the revenue. • Compass faces growth challenges; not actually a more efficient playform for agents. • Hats off to Purplebricks for the incredible volume growth in such a short time, to Compass for its fundraising prowess, and Redfin for slow(er) and steady growth.
  87. 87. Homepage analysis and customer propositions
  88. 88. Purplebricks: the leading U.K. online agency.
  89. 89. Purplebricks: the leading U.K. online agency. A valuation is the primary call to action. Customer reviews to build credibility and reflect mass-market appeal.
  90. 90. Yopa: a “runner-up” U.K. online agency.
  91. 91. Yopa: a “runner-up” U.K. online agency. Valuation call to action. Customer reviews
  92. 92. Housesimple: a “runner-up” U.K. online agency.
  93. 93. Housesimple: a “runner-up” U.K. online agency. Start with a valuation. Notice a pattern?
  94. 94. Tepilo: a “runner-up” U.K. online agency.
  95. 95. Tepilo: a “runner-up” U.K. online agency. Valuations and reviews. The U.K. online agents are clearly working from the same playbook.
  96. 96. Emoov: a “runner-up” U.K. online agency.
  97. 97. Emoov: a “runner-up” U.K. online agency. A twist on engaging prospective customers by providing local market info.
  98. 98. Settled: a fixed-fee start-up in the U.K.
  99. 99. Settled: a fixed-fee start-up in the U.K. A clear selling call to action.
  100. 100. buyMyPlace: an Australian FSBO operation.
  101. 101. buyMyPlace: an Australian FSBO operation. A proposition focused on savings, powered by a calculator.
  102. 102. PropertyNow: an Australian FSBO operation.
  103. 103. PropertyNow: an Australian FSBO operation. A prominent call to action, but “get started” with what? A valuation, how much I can save, choose a product package?
  104. 104. Sello: an Australian online agency.
  105. 105. Sello: an Australian online agency. A clear call to action to begin the process.
  106. 106. Upside: an Australian online agency.
  107. 107. Upside: an Australian online agency. The same, clear call to action to book a valuation. Reviews (but significantly less than similar U.K. players).
  108. 108. DuProprio / ComFree: a leading Canadian FSBO business.
  109. 109. DuProprio / ComFree: a leading Canadian FSBO business. With a property portal as part of its core business, the home search process is also highlighted. An interesting twist on initial engagement, DuProprio offers introductory info sessions to learn more.
  110. 110. Redfin: a leading online agency in the U.S.
  111. 111. Redfin: a leading online agency in the U.S. The headline is about selling, but the default call to action is a home search. Valuations are accessible here.
  112. 112. Compass: a fast-growing brokerage in the U.S.
  113. 113. Compass: a fast-growing brokerage in the U.S. The focus is on home search, with a cumbersome dropdown and search box combo.
  114. 114. Redefy: a fixed-fee online agency in the U.S.
  115. 115. Redefy: a fixed-fee online agency in the U.S. Redefy could benefit from a clearer call to action.
  116. 116. Trelora: a fixed-fee online agency in the U.S.
  117. 117. Trelora: a fixed-fee online agency in the U.S. Super tiny call to action. A lovely photo, but this page is just begging for clear user guidance and a call to action.
  118. 118. ForSaleByOwner.com: a FSBO business in the U.S.
  119. 119. ForSaleByOwner.com: a FSBO business in the U.S. Clear call to action, but how many people start a buying journey here?
  120. 120. USRealty: a FSBO business in the U.S.
  121. 121. USRealty: a FSBO business in the U.S. Almost there, but could use more consistency and simplification with the call to action.
  122. 122. Reali: a fixed-fee online agency in the U.S.
  123. 123. Reali: a fixed-fee online agency in the U.S. The default focus is on buying, with no clear sell call to action. Why? What does it do?
  124. 124. Door: a fixed-fee online agency in the U.S.
  125. 125. Door: a fixed-fee online agency in the U.S. Equal weighting between buying and selling.
  126. 126. HomeBay: a fixed-fee online agency in the U.S.
  127. 127. HomeBay: a fixed-fee online agency in the U.S. A clear pitch and call to action.
  128. 128. Homie: a fixed-fee online agency in the U.S.
  129. 129. Homie: a fixed-fee online agency in the U.S. The most valuable real estate on the page, the text raises more questions than it answers. What does this company do? Focus on finding a home.
  130. 130. Opendoor: the largest iBuyer in the U.S.
  131. 131. Opendoor: the largest iBuyer in the U.S. Keeping things simple and straightforward with one clear call to action. Clearly summarizing the business model in one sentence.
  132. 132. OfferPad: an iBuyer in the U.S.
  133. 133. OfferPad: an iBuyer in the U.S. Less clear than Opendoor, but still explains the business model in one sentence. The same clear call to action.
  134. 134. Knock: an iBuyer in the U.S.
  135. 135. Knock: an iBuyer in the U.S. Simple call to action, this time focused on a “trade in.”
  136. 136. Nested: an iBuyer in the U.K.
  137. 137. Nested: an iBuyer in the U.K. One clear call to action. This makes sense if you live in the U.K.
  138. 138. The new model customer proposition is focused on saving money by avoiding a commission. 0 2 4 6 8 10 12 14 16 No commission Customer reviews We're agents Sell for more #ofcompanies Customer Proposition U.K. Australia Canada U.S. www.mikedp.com
  139. 139. This global survey of new models reveals several user interface and proposition best practices. • Explain your customer proposition clearly and concisely. • Have one clear call to action (typically valuation). • Less is more. Keep it simple. Don’t confuse users by offering too many options. • Showcase customer reviews and testimonials as social proof to establish credibility.
  140. 140. Product pricing and packaging
  141. 141. Purplebricks’ package focuses on a strong human touch and comprehensive property marketing.
  142. 142. Emoov highlights a comprehensive offering, providing home sellers everything they need.
  143. 143. In Australia, Upside also highlights quite a comprehensive offering…
  144. 144. …and even goes so far to claim it offers more services than traditional real estate agents.
  145. 145. Most of the big online agents offer only one package to keep the proposition simple. Some online agents have started offering a success-only fee if and when the home sells. Source: Emoov Source: HouseSimple
  146. 146. Tepilo offers the classic good, better, and best packages. This is less common. The more options presented to consumers, the more difficult a decision it becomes.
  147. 147. In Canada, ComFree offers package offerings in Quebec, but fixed-fee everywhere else. Good, better, best in Quebec. A new, simple, fixed-fee price point everywhere else.
  148. 148. buyMyplace offers a real hodgepodge of options. It’s a wonder anyone makes it past this page.
  149. 149. Many online agents offer optional services, which typically include viewing packages. Source: Yopa Source: HouseSimple
  150. 150. The most successful emerging models have a simple, full-service offering. • Keep it simple: the most successful models offer just one package to streamline decision-making. • Online agents highlight comprehensive, full- service offerings with a strong human touch. • Some online agents are starting to flip the pay upfront model with success-based fees (similar to traditional agents).
  151. 151. Tech platforms of the most successful models
  152. 152. Online agents offer tech products as platforms for greater transparency in property transactions.
  153. 153. One of the best ways to offer transparency is with comprehensive online dashboards for sellers. The dashboards typically provide customers (home sellers) 24/7 access to their listing. They typically show listing performance, feedback from potential buyers, and a record of all communication with the customer service team. Some of them also allow home sellers to change pricing, photos, and listing details online.
  154. 154. A key point of differentiation for online agents is the convenience of 24/7 access. asasbsjdbs And this access is provided through their tech platforms.
  155. 155. Online agents focus on automating the mundane, where tech can provide a superior experience. The most successful tech products focus on three key areas: dashboards, booking viewings and onboarding new customers (with checklists and wizards). Over 90 percent of eMoov’s customers complete the onboarding process on their own, saving the company effort and reducing the time it takes to list a new home.
  156. 156. Technology platforms are not a panacea; it is part of an overall offering, not the entire offering. The models with the most traction often include technology last in a list of features and benefits.
  157. 157. Some platforms offer messaging between buyers, sellers, and agents – but it’s not ubiquitous. Just because you can doesn’t mean you should. When it comes to real estate, the majority of consumers still prefer human interaction via phone or in-person (hence the high proportion of support staff in all of the most successful models).
  158. 158. Technology case study: The Settled pivot In early 2018, a relatively new entrant in the U.K. market, Settled, underwent a pivot from do-it-yourself tech platform to full-service online agency. This pivot illustrates the difficultly of achieving market traction with a tech-only product.
  159. 159. The premise of a tech platform to connect buyers and sellers has evolved to one of heavy support. “an online platform that directly connects buyers and sellers” “The company…offers a software platform which connects every step in the home moving journey…” Settled was founded…on the premise that it would "remove the need for an estate agent entirely". “Further, recent research commissioned by Settled indicates that actually consumers don't want a middleman…” "Settled does the opposite of traditional or hybrid models…” 20182016
  160. 160. Along with the change in proposition came a significant change in pricing (and still changing). 20182016 January February 12
  161. 161. Along with the change in proposition came a significant change in pricing (and still changing). February 27 2018
  162. 162. Meanwhile, its number of active listings has steadily declined over the past five months. 0 50 100 150 200 250 300 350 400 450 9/12/17 9/24/17 10/6/17 10/18/17 10/30/17 11/11/17 11/23/17 12/5/17 12/17/17 12/29/17 1/10/18 1/22/18 2/3/18 2/15/18 Settled's Live Listings www.mikedp.com Source: Zoopla live-to-site listing numbers.
  163. 163. The winning formula is technology + people. Both are needed to succeed. • The tech products don’t automate the entire process, only parts of it. • The focus is on providing transparency and control over the transaction. • Successful tech reduces cost at scale by making agents more efficient. • The most successful new models in real estate are not technology companies, but technology- enabled companies.
  164. 164. Tech-led or tech-enabled: staffing breakdowns
  165. 165. Technical Staff Are these new breed of online agents and disruptive players technology companies or not? 10% On average, I’ve found that the most successful real estate tech businesses have around 10% technical staff. There is a direct correlation between a higher proportion of tech staff and lower market traction. Consumers still want people (agents, advisors) as part of the process. The companies that up-weight the importance of customer-facing staff have the most market traction. Note: the following data is from LinkedIn, so it should be treated as a data point rather than absolute truth (which is likely a few points higher).
  166. 166. At scale, the players with the most traction have around 10% technical staff. Purplebricks 7% Source: LinkedIn company stats, February 2018. Redfin Compass 10% 4% Duopropio 10% Comfree Compass often describes itself (and is valued) as a technology company. Is it?
  167. 167. HouseSimpleHouseSimple Yopa The next tier of U.K. online agents have a more varied amount of tech staff as they scale. Emoov 16%12% Tepilo EasyProperty 9% 13%40% Settled 41% Source: LinkedIn company stats, February 2018.
  168. 168. iBuyers have a higher proportion of tech staff given their focus on automated valuations. Nested 28% Opendoor OfferPad 13%20% Source: LinkedIn company stats, February 2018.
  169. 169. Purplebricks: strong, fast growth -- with 5x-10x the employees of its U.K. competitors. Source: LinkedIn company stats, February 2018. Purplebricks’ Employee Growth
  170. 170. Redfin: more modest employee growth, but a big business in terms of staff. Source: LinkedIn company stats, February 2018. Redfin’s Employee Growth
  171. 171. Compass: similar to Purplebricks’ fast growth, with a large employee base. Source: LinkedIn company stats, February 2018. Compass’ Employee Growth
  172. 172. Emoov: Slow, sustainable growth while building its business in the U.K. Emoov’s Employee Growth Source: LinkedIn company stats, February 2018.
  173. 173. Yopa: more aggressive U.K. scaling, especially recently. Yopa’s Employee Growth Source: LinkedIn company stats, February 2018.
  174. 174. Opendoor: strong growth. Opendoor’s Employee Growth Source: LinkedIn company stats, February 2018.
  175. 175. OfferPad: smaller than Opendoor but still growing fast. OfferPad’s Employee Growth Source: LinkedIn company stats, February 2018.
  176. 176. The role of traditional real estate agents
  177. 177. In the U.S., the vast majority of homes are still sold with an agent. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Homes Sold Using an Agent in the US
  178. 178. The dominant role of agents is also strong and steady in New Zealand. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Homes Sold Using an Agent in the US New Zealand
  179. 179. New technologies and platforms have failed to have an impact on the role of agents for a decade. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Homes Sold Using an Agent in the US The introduction of technologies that improve the home search process and show consumers that middlemen are unnecessary (or that technology can replace agents) have failed to have an impact on the role of agents.
  180. 180. 0 500 1,000 1,500 2,000 2,500 11/16 2/17 5/17 8/17 11/17 2/18 Listings Growth in Australia PropertyNow Forsalebyowner Purplebricks Buymyplace www.mikedp.com The story is the same in Australia. Home sellers are still using agents; no shift to alternatives.
  181. 181. Real estate agents will remain an important part of the home buying and selling process. • Home sellers still want someone to hold their hand. Real estate agents aren’t going anywhere. • Even with the advent of technology that could, in theory, replace agents, consumers still prefer to work with them. • This is loss aversion at work; consumers want to work with an agent in order to reduce the chances of a potentially costly mistake when selling their house. Agents are insurance.
  182. 182. Key learnings and insights from the global leaders
  183. 183. These new models will disrupt the industry over time, but it will be slow. • These new models have proven traction and demonstrated strong consumer demand. • But change will occur slowly; this is evolution, not revolution. • Expect copycats to pop up in all markets, not just mature markets. • The leaders are and will be well-capitalized.
  184. 184. Disruption will come from well-funded start-ups, not incumbents, portals, nor niche players. • Incumbents are structurally disadvantaged to disrupt; existing business models, revenue streams, and ways of thinking handicap change. • Property portals won’t put existing revenue streams at risk by disintermediating agents. • Well-funded startups with nothing to lose have everything to gain. Players like Opendoor, Purplebricks, and Redfin will lead the pack.
  185. 185. The impact on property portals is limited in the short- to medium-term. • These new models still need to advertise on property portals. • Extremely unlikely that portals and new models will compete. • Consumers want choice; portals need to cater to these new models to remain relevant.
  186. 186. In five years the industry will look similar, but more fragmented, with more consumer choice. • A more fragmented industry with a focus on consumer choice and increased value. • Agents aren’t going anywhere. • Property portals secure in position as best place to advertise a home for sale. Now Future Today 5 years FSBO Online Agency Disruptive Traditional Agents
  187. 187. There is a strong correlation between keeping people involved in the process and traction. Traction Peopleinvolvedinprocess In other words, tech-only solutions have limited traction.
  188. 188. Best practices point to employee specialization as key point of difference (efficiency and expertise). Moving the process from one-to-one to one-to-many Home seller Real estate agent (Project management, negotiation, valuation, mortgage, customer follow-up, paperwork handler, etc.) Home seller Valuation expert Project manager Listing expert Negotiation expert
  189. 189. Technology is used to automate processes and increase efficiency, not to replace people.
  190. 190. The most successful international businesses all exhibit the following traits. A proposition of a superior experience (and not just low cost). Place a premium on customer service and care, with 70%+ of staff in a customer-facing roles. Operate centralized support services. Are moving towards employing dedicated staff that specialize in key areas. Use technology to automate processes and increase efficiency, not to replace people. 1 2 3 4 5 A smart combination of people and technology!
  191. 191. 2018 Emerging Models in Real Estate Report A global snapshot The U.K. market: the front line of disruption A leader in disruption: Purplebricks in the U.K. How the U.K.’s biggest incumbent is reacting to digital disruption U.S. market overview: fragmentation and innovation Inside Opendoor and the rise of iBuyers Highlights and trends from Australia and Canada Comparing some of the top emerging models Homepage analysis and customer propositions Product pricing and packaging Tech platforms of the most successful models Tech-led or tech-enabled: staffing breakdowns The role of traditional real estate agents Key learnings and insights from the global leaders 4 9 19 29 39 44 64 74 87 140 151 164 176 182
  192. 192. 1%This presentation merely scratches the surface of the businesses and trends changing the industry. Drop me a line at mdelprete@gmail.com if you’d like to tap into the other 99%.
  193. 193. Mike is a strategic advisor and global expert in real estate tech. He is a former tech entrepreneur and head of strategy at a major real estate portal. He has travelled the world talking to and working with leading property portals and real estate tech businesses, gathering first-hand knowledge and insights on industry trends and themes. He advises corporates, works with startups, mentors founders and executives, and works on challenging entrepreneurial projects. • www.mikedp.com • Mailing list • mdelprete@gmail.com About the author: Mike DelPrete
  194. 194. Mike is internationally recognized as an expert and thought-leader in real estate tech. His evidence-based analysis is widely read by global leaders, and he is a sought-after strategy and new ventures consultant. He also brings deep operational experience as the founder and CEO of a 40-person tech company and head of strategy for a $2 billion online marketplace and classifieds business. Consulting and advisory services Strategy Consulting Workshops & Presentations Global Intel & Research Investment Advising Read more about the services I offer or drop me a line at mdelprete@gmail.com and let's talk about what you’re doing and how we might work together.
  195. 195. The Adventures in Real Estate Tech Book Adventures in Real Estate Tech is a 110-page collection of my past insights, analysis, and articles from 2016 to today. My work offers a data-rich, evidence-based analysis of real estate tech, with a healthy dosage of strategic insights. I cover the trends that are changing the industry and the major players gaining traction around the world. The scope is global, because we all have a lot to learn no matter where we live. Order a copy today!
  196. 196. 2017 Global Real Estate Portal Report
  197. 197. A note on data sources The data sources include company reports, investor presentations, earnings calls (and transcripts), and supporting documentation. All information used is in the public domain. No confidential information has been used in this report. Some data has been estimated from financial statements and other known data points. Copyright © Mike DelPrete

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