Truth be told, I get a ton of press releases and the like announcing some OMGASM! DISRUPTIVE NEW THINGAMABOB!!!BBQ!!11 from one real estate related company or another. I tend to ignore most of them because said AMAZING GAME-CHANGING DISRUPTION turns out to be a slight modification of some CRM platform. “Now you can put your listing on Instagram automatically” isn’t exactly disruptive, no matter how much the marketing folks and PR folks like to dress it up.
I’m making an exception in the case of Surefield, a brand new brokerage in Seattle, for a couple of reasons.
One, the people behind this new brokerage have a track record. The two main founders are David Eraker, the Founder and first CEO of Redfin, and Rob McGarty, who ran operations for Redfin’s brokerage side (and mortgages as well).
Two, Surefield is actually trying something new, which may or may not work, but at least it’s new and potentially disruptive, if it takes off. (I have some questions about the viability, but….)
Three, Surefield itself may or may not be the next big thing, but it seems to me that it is yet another entrant into space that are explicitly seeking to change the way that business is done in real estate. These tech-enabled brokerages are the front-wave of Real Estate 3.0 (yes, yes, I know such Web 3.0, Internet 4.0, and Human 2.0 type of stuff is just marketing-speak for the most part, but I do like the phrase to signify this next generation of attempts) and I think there’s something going on there.
Let’s get into it.
At first glance, Surefield sure doesn’t seem like much. It’s essentially a brokerage built around a single technology: a new 3-D home tour that, while sexy as hell and technically super-interesting (go review computer vision technology if you’re interested), isn’t itself a OMGASM! moment. I mean, the 3D tour is cool, but we’ve seen similarly cool property marketing tools for real estate. In fact, we’ve seen this play already.
Matterport is the far better known “new 3D” technology. This video is an example:
Redfin added Matterport technology to its listings this year, and released a TV commercial about it. At the recent NAR Convention in New Orleans, I noticed the Matterport booth crowded with agents, so I imagine it’s just a matter of time before we see this technology deployed across the industry.
I spoke with Dave Eraker and Cynthia Nowak, VP of Marketing, by phone recently and asked (a) why they developed their own technology, instead of just using existing solutions, and (b) why they opened a brokerage instead of a technology company.
As to the technology, Dave said that Surefield’s system has advantages over Matterport’s system, such as working outdoors, using far more pictures (as many as 30,000 photos), and so on. I guess the user can decide if the technology is better or not, and I’ll simply grant that Surefield’s technology is very cool.
As to the business model, this is where things get interesting.
First, Dave mentioned that he did go speak with some other brokerages when they first started up Surefield, but that he wasn’t thrilled at the answers he was getting from established brokerages. He wanted to use the technology to control the user experience from start to finish, and to change the way that people buy and sell real estate. Hard to do that if you’re just a tech vendor to the industry.
Second, that business model itself is… dramatically different. If there is disruption here, it’s in this business model.
The Surefield Business Model: No Compensation
Simply put, Surefield is a listings-only brokerage that does not automatically offer compensation on its listings. Say what? Here’s how it works.
A seller who lists with Surefield will be represented by Surefield, which has licensed real estate agents. (They are not REALTORS, by the way, since the Seattle area has a broker-owned MLS — NWMLS — that does not require Association membership.) The seller will pay 1.5% or $7,500, whichever is higher, for Surefield’s services, which includes the 3D tour and entry into the MLS, as well as negotiations, contract-to-close, etc.
What the seller will not pay is the buy-side cooperating commission. The 1.5% is for Surefield alone; there is no automatic compensation to buyer agents.
When a buyer makes an inquiry on a Surefield listing, if he is unrepresented, Surefield works with the buyer, and then sends the buyer to a real estate attorney. The attorney ensures that the buyer’s interests are protected throughout the negotiation and closing. The attorney’s fees are paid by Surefield out of its expected commissions.
If the buyer is represented, however, then Surefield has the buyer include the buy-side commission as a contingency in the offer to purchase. So let’s say the house is to be sold for $500K, and the buyer wants his agent to be paid 3%. Buyer would include the $15,000 buy-side commission as a contingency on the offer itself, so that it can be rolled up into the HUD-1 and the mortgage. The seller can choose to pay the buyer agent’s commission (standard practice), choose to increase the sale price of the home by $15,000 (so he nets the same amount), or somewhere in between. It’s a contingency, so it’ll be subject to negotiation.
Seeing as how most MLS’s, even a broker-owned NWMLS, requires that its Participants offer and accept cooperation and compensation, I asked about that. Surefield is a Participant in NWMLS, so when it puts the listing into the MLS, it has to offer cooperation and compensation. Thing is, there is no amount requirement: a broker or agent can put a listing into the MLS and offer $5 for cooperating compensation. It’s up to the buyer’s agent to decide whether to show that property or not. So Surefield puts in remarks into the cooperating compensation field that suggest the “bake it into the offer as a contingency” deal discussed above.
I’m fairly certain that my readers, being industry pros, will note several problems and issues and have questions. Well, I’d direct them to Surefield if you’re really that curious. But a few interesting factoids:
- Surefield has done deals already, sort of as a beta-test. They’ve taken ten listings, gotten offers on seven, and sold three. Some have been with the lawyer model, and others have been with cooperating compensation. Not too shabby for such a new and different way of doing things.
- As of now, all of Surefield’s agents are employees, not independent contractors. That makes sense given the Redfin background of the founders.
- Surefield’s main challenge is generating listings. Dave told me that Google charges as much as $30 per click on any keyword advertising that looks like listing leads, and one of Surefield’s biggest challenges will be to drive the cost of acquisition down.
- I did raise the issue of recruiting, retaining, and compensating strong listing agents. Those men and women are unlikely to take a fixed salary, if they really have the sphere, farming, and ability to convert that leads to a substantial number of listings. Dave admitted that may be an issue in the future for them.
The basic idea, which allows Surefield to charge only 1.5% to list a house and not offer compensation by default, is that its sweet 3D tour obviates the need for anyone to show the home to a potential buyer. (I do wonder if people who are not investors will buy an actual family home without seeing it in person, but even if the technology helps buyers narrow down the list of potential homes dramatically, that saves time, energy, gas, and money.)
It is this basic idea — that a detailed 3D tour can replace home showing — on which David Eraker has bet the farm for his new company. It may work, it may not work, but that isn’t the important thing. The important thing is that he’s willing to try at all.
The Core Issue: Utility of Buyer Agency
Back in January of 2013, I predicted (wrongly) that buyer agency itself was at risk. At the time, I thought that technology might devalue the buyer agent. I rated that prediction as WRONG, because buyer agency is alive and kicking in 2014.
But Surefield is but one of many companies that are looking to save consumers money and make the process of buying a home more efficient… by devaluing buyer agency. Surefield is the most straightforward: if you think your buyer agent was valuable, then ask for the fees in the offer. Otherwise, no soup for you.
Yet, other startups — such as AllRE.com, which focuses on the FSBO space — have as an assumption the idea that much of the value of the buyer agent can be delivered by technology. The grand-daddy of the idea is Redfin, with its buyer rebate model, out of which come the two founders of Surefield.
The overall thrust of innovation in real estate is to replace the value of a buyer’s agent with data, with tools, with technology. Even something as basic as property search delivers the value that the buyer agent once delivered. The industry, predictably, responded and continues to respond with a mix of fear and opportunism. And who knows where things will end up?
But the key concept is that technology tends to displace buyer agency. The strategic question then is what buyer agency actually looks like as technology continues to get more and more advanced and more and more able to deliver some of the value. (Not all of the value, mind you, but some of it.) Furthermore, as buyer agency gets devalued, it isn’t as if seller agency — the listing side of the equation — won’t be affected.
This degradation of the value of the buyer agent is why Surefield is worth discussing. Today, far too many buyers are misled by the idea that the buyer agent’s services are free. “The seller pays for all of the costs” is a common misunderstanding, since only the buyer is bringing any cash to the deal. Should Surefield be successful — and I have a number of questions and reservations on that — simply forcing the buyer to confront the issue of payment, by including his agent’s fees into the offer as a contingency, may change how consumers look at the costs of the transaction.
The orthodoxy of the commission-based compensation suffers if the buyer starts asking too many questions. Even if he thinks his agent is a real local expert, who has been invaluable to the process, and worth every penny… if he looked at two houses, one worth $500K and the other worth $550K, then chose the latter… did his agent really do more work for him to buy the $550K house than the $500K house? Is there some logic as to why his agent should make an additional $1,500 in payment simply because he chose to buy the more expensive house? Or conversely, if he chose the less expensive house, did his agent do less work such that he should make $1,500 less?
These are the kinds of uncomfortable questions that models like Surefield forces consumers — and therefore the industry — to ask. And within the industry, we all know the answer, and seek to obfuscate it from the consumer (and from regulatory authorities).
I guess my view is that if the trend of technology is to decrease the value of buyer agency, and to force transparency on the process and the illogic of the situation, perhaps decision makers in strategic positions ought to spend time thinking about contingencies.
Either way, I wish the Surefield folks luck, because they’re trying something new. I have my reservations, and I’m sure you will as well, but hey, if the consumer buys in, then the consumer buys in. Through such courage and conviction of the entrepreneur, we progress, step by inexorable step.