The New ‘Real Estate’ Tech Players: Don’t Trust the Billion-Dollar Valuations

Realty ONE Group Founder Warns Virtual Real Estate Models Are Nothing More Than ‘Get-Rich-Quick Schemes’

The real estate market is more polluted than crowded. There are a number of respected, well-recognized national and international brands that have been making a positive impact in people’s lives for decades. However, history has a way of repeating itself, and at the opposite end of the spectrum, there are several “get-rich-quick schemes” that are built on an unsustainable and weak operational foundation.

Valuations are often difficult to justify, as the public market dictates the estimated value of a product and service. For instance, how can cloud-based brokerages—for example, eXp Realty, a relatively new real estate organization with some of the lowest production-per-agent stats—be valued as high as $1 billion on the stock market while a respected real estate company like RE/MAX traded at a lower market cap this week and is more than 10 times larger, hugely profitable, and has an established brand? Realogy, the giant of the industry, has been profitable, as well. Conversely, some of these newer firms with high valuations have been losing money for years while continuing to dilute their equity to fund operations and their multilevel marketing commitments. More importantly, they motivate agents to recruit other agents to benefit indirectly from earned commissions, which is a dangerous message, as top producers are being distracted from their core business, and clients may suffer along the way.

There are many warning signs that everyone needs to be aware of with these new “tech plays.” I was a former stock broker and computer programmer, who became a top-producing real estate professional, and then created Realty ONE Group in 2005. Tech is sexy, but most times it’s a shiny new toy, unfortunately.

With this new crop of virtual real estate models, speed to market isn’t the only variable. It’s easy to throw something together to create hype, but it’s much more difficult to take the time and diligence to understand your customers (aka real estate agents), create a solid and realistic UVP for their businesses, and build it so that it is scalable, adaptable and fault-tolerant. On average, about 10 – 50 errors occur per 1,000 lines of delivered code, developed with a level of structured programming. Otherwise, the system is not scalable, and not robust for that matter. A virtual real estate company may have millions of code behind it.

Scaling to large adoption takes serious strategy work. Ability to get this far doesn’t prove a team has skills to scale. When cracks start appearing in the model, to what lengths will the leadership reach to protect everyone’s interest in their organization? In a day of real concern around privacy, how much right do technology companies have to access sensitive and private data for “market analysis and product and/or service recommendations?” Will they never sell consumer lists?

Net net, residential real estate is a people and face-to-face relationship business. At most times, it’s an emotional and significant transaction, especially when primary homes are involved. No two transactions are alike when it comes to resales in residential real estate.