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With Open Listings we started flat fee on the buy side but had a couple problems. First, it was very hard to communicate the value prop to customers. We went t

by rgbrgb 9y ago

With Open Listings we started flat fee on the buy side but had a couple problems. First, it was very hard to communicate the value prop to customers. We went to market with something like "we refund the buyer's commission minus our flat fee". This brought up all kinds of questions and often buyers thought we were more expensive than realtors. Saying that we're 50% the price of a traditional realtor ended up being a more compelling message even though there's less savings in many cases. Second, when we're acquiring customers we compete with all of the people charging a much fatter commission. If a realtor is making a 50k commission, they can afford to spend 10k on acquiring a single customer. Assuming an efficient market (which the acquisition side kind of is), a flat fee kind of caps your addressable market because you can only compete with ads at a certain price point (buyers at <400k price points in CA for instance). In some ways this is counteracted by the fact that you can save $1M buyers way more money with the flat fee, but only if you can communicate that message effectively. That said, it looks like redfin found that there's more price elasticity on the sell side. The seller has likely been through the process before, seen how little work agents do, and feels the full agent fee more viscerally at the time of listing. For the buyer, the agent fee is this murky thing that your agent will tell you is paid for by the seller... first time buyers usually don't find out how much it is until they sign the final closing docs. The other difficulty is that the typical 2.5% being offered to the buyer's agent is essentially an advertising cost... in the existing market agents will often steer clients away from low commission listings (not ethical but it happens).

cabinguy 9y ago
"seen how little work agents do..." This is going to sound condescending, but you honestly do not know much about the business you're in.
- rgbrgb 9y ago
  I'm not an agent myself, but I did help start a brokerage and spend most of my time automating busywork for our agents. Our top agents do 5-15 transactions per month in very competitive markets, have competitive acceptance and close rates, and great NPS scores. Agents are absolutely necessary to negotiate with sellers and talk stressed out buyers through the process, but most spend the majority of their time doing lead generation. I talked to an agent from a respectable brokerage in LA the other day who said she spends 95% of her time prospecting for new clients. I'm not by any means saying agents are lazy, I maybe phrased that poorly. Just that if you're looking at the hourly rate the agent is making for the ~10 hours they're spending from offer to close, it's kind of wacky compared to most other types of high skill work (e.g. 10 hours on a 500k home with the typical 2.5% commission is $1,250/hour).
strongai 9y ago
Thank you. A very illuminating description of how things work.
boulos 9y ago
Aha! I knew I wasn't crazy... I had told multiple people that Open Listings was the true incarnation of "this should be a fixed fee, not percent of transaction" only to be proven wrong by your current pricing page. Maybe like Vanguard you could do a sliding scale as the home price goes up? That is, instead of doing 50% off at all points (and I know you're focused on CA, but bear with me) you could increase the discount at higher price points. That way a $2.5M home on OpenListings is suddenly really attractive to the high end, while you'd still be the best option at the lower end (your pricing comparison to Redfin is genius, since I believed they did a 50/50 split). Did different portions of California respond differently to your pricing? I'm seriously sad that people buying a home wouldn't do the math to see that your flat fee was drastically lower than any percentage.
- rgbrgb 9y ago
  That's a cool idea. Our long term vision is definitely to get transaction costs approaching 0 so that home ownership becomes more accessible. > Did different portions of California respond differently to your pricing? As a young startup the sample size was pretty small, but I didn't see a regional difference. I'd say the mentality split was more experienced vs first time homebuyers. Experienced deal seekers understood commissions and were already looking for hacks around using a full-price agent (e.g. getting their own license, going direct to the seller), but the FTHBs often thought it was an additional fee. However, our product naturally attracted more of the latter group and as a team it's just easier to get excited about helping young families become homeowners than helping millionaires save 100k. That said, we didn't really see a dip in the deal seeker audience when we switched the pricing (it's still very competitive).
  - boulos 9y ago
    Thanks again for the informative reply. I agree on the "feels better helping families" angle. I think of high-end items as helping to subsidize the expected value (so drawing more high end homes means more absolute marketing / advertising dollars, allowing you to be even more competitive at the lower end). NVIDIA's Quadros and Teslas effectively pay for the GeForce price point, and both are required to be successful (GeForce drives volume, otherwise Quadro/Tesla would have to be ridiculously expensive). I realize now that my assumption is likely wrong: selling lots of expensive homes at a lower commission doesn't generate nearly enough additional revenue. That is, there are only X000 units per year that trade hands at that price point, so unless you get a drastic change in behavior that doesn't move the needle. Interesting challenge!
rokhayakebe 9y ago
Assuming an efficient market, a flat fee kind of caps your addressable market because you can only compete with ads at a certain price point Unless you plan to be in business for the next 7-10 years and instead invest heavily in building a brand around your value proposition. So short term you make less, however long term when you have made the other guys irrelevant you own most of entire market.
realestateguru 9y ago
Easyknock takes it a step further and will be the next big thing
- vbs_redlof 9y ago
  The website seems like pure marketing at this point in time. Account created today, with every post promoting the company.
conanbatt 9y ago
This is a great answer. I was also going to say that from an economic standpoint, agents tend to make a rather low median income even if the commission is really high, simply because the realtor job is very accessible. (There is a tight correlation, if not simple causality, between home prices variations and the variations of the amount of realtors) Acquisition becomes proportionally harder the bigger the commission is because of the amount of people it attracts. Conversely, if you reduced the commission by law to half, you would lose a lot of realtors, which could reduce liquidity and thus the value of the homes.

by rgbrgb 9y ago

cabinguy 9y ago

"seen how little work agents do..." This is going to sound condescending, but you honestly do not know much about the business you're in.

rgbrgb 9y ago
I'm not an agent myself, but I did help start a brokerage and spend most of my time automating busywork for our agents. Our top agents do 5-15 transactions per month in very competitive markets, have competitive acceptance and close rates, and great NPS scores. Agents are absolutely necessary to negotiate with sellers and talk stressed out buyers through the process, but most spend the majority of their time doing lead generation. I talked to an agent from a respectable brokerage in LA the other day who said she spends 95% of her time prospecting for new clients. I'm not by any means saying agents are lazy, I maybe phrased that poorly. Just that if you're looking at the hourly rate the agent is making for the ~10 hours they're spending from offer to close, it's kind of wacky compared to most other types of high skill work (e.g. 10 hours on a 500k home with the typical 2.5% commission is $1,250/hour).

strongai 9y ago

Thank you. A very illuminating description of how things work.

boulos 9y ago

Aha! I knew I wasn't crazy... I had told multiple people that Open Listings was the true incarnation of "this should be a fixed fee, not percent of transaction" only to be proven wrong by your current pricing page. Maybe like Vanguard you could do a sliding scale as the home price goes up? That is, instead of doing 50% off at all points (and I know you're focused on CA, but bear with me) you could increase the discount at higher price points. That way a $2.5M home on OpenListings is suddenly really attractive to the high end, while you'd still be the best option at the lower end (your pricing comparison to Redfin is genius, since I believed they did a 50/50 split). Did different portions of California respond differently to your pricing? I'm seriously sad that people buying a home wouldn't do the math to see that your flat fee was drastically lower than any percentage.

rgbrgb 9y ago
That's a cool idea. Our long term vision is definitely to get transaction costs approaching 0 so that home ownership becomes more accessible. > Did different portions of California respond differently to your pricing? As a young startup the sample size was pretty small, but I didn't see a regional difference. I'd say the mentality split was more experienced vs first time homebuyers. Experienced deal seekers understood commissions and were already looking for hacks around using a full-price agent (e.g. getting their own license, going direct to the seller), but the FTHBs often thought it was an additional fee. However, our product naturally attracted more of the latter group and as a team it's just easier to get excited about helping young families become homeowners than helping millionaires save 100k. That said, we didn't really see a dip in the deal seeker audience when we switched the pricing (it's still very competitive).
- boulos 9y ago
  Thanks again for the informative reply. I agree on the "feels better helping families" angle. I think of high-end items as helping to subsidize the expected value (so drawing more high end homes means more absolute marketing / advertising dollars, allowing you to be even more competitive at the lower end). NVIDIA's Quadros and Teslas effectively pay for the GeForce price point, and both are required to be successful (GeForce drives volume, otherwise Quadro/Tesla would have to be ridiculously expensive). I realize now that my assumption is likely wrong: selling lots of expensive homes at a lower commission doesn't generate nearly enough additional revenue. That is, there are only X000 units per year that trade hands at that price point, so unless you get a drastic change in behavior that doesn't move the needle. Interesting challenge!

rokhayakebe 9y ago

Assuming an efficient market, a flat fee kind of caps your addressable market because you can only compete with ads at a certain price point Unless you plan to be in business for the next 7-10 years and instead invest heavily in building a brand around your value proposition. So short term you make less, however long term when you have made the other guys irrelevant you own most of entire market.

realestateguru 9y ago

Easyknock takes it a step further and will be the next big thing

vbs_redlof 9y ago
The website seems like pure marketing at this point in time. Account created today, with every post promoting the company.

conanbatt 9y ago

This is a great answer. I was also going to say that from an economic standpoint, agents tend to make a rather low median income even if the commission is really high, simply because the realtor job is very accessible. (There is a tight correlation, if not simple causality, between home prices variations and the variations of the amount of realtors) Acquisition becomes proportionally harder the bigger the commission is because of the amount of people it attracts. Conversely, if you reduced the commission by law to half, you would lose a lot of realtors, which could reduce liquidity and thus the value of the homes.