New real estate players are trying to grab a piece of Canada’s booming real estate market, taking on traditional brokerages in the latest battle for a share of the lucrative business.
Properly Inc. and lower-commission brokerages Redfin and Justo are some of the latest to expand in Toronto and beyond. But gaining a foothold has proved tough in the past. Companies such as Purplebricks, Zillow and Zoocasa tried to shake up the status quo in Canada over the years only to retreat, stagnate or change their business model.
But the latest crop of players think they have a better shot this time. A new model has emerged with Properly, which offers home sellers a guaranteed sale and price. “People are craving a different way of doing things,” said Properly co-founder and chief executive officer Anshul Ruparell.
Like most of the industry, Properly charges the typical 5-per-cent commission on the selling price of the property. But unlike other real estate brokerages, it acts as a backstop for home sellers by providing them with a firm purchase agreement to buy their property at a set price. The purchase agreement has a 90-day closing period, which gives Properly 90 days to sell the home on the open market before they need to buy it themselves.
For homeowners, this agreement allows them to list their homes without worrying about whether their home will sell or how much it will fetch. In a frothy market like Toronto, it allows them to get a firm mortgage approval from a lender. In a depressed market like Calgary, it gives them peace of mind.
Properly’s capital is available regardless of market conditions, said Mr. Ruparell, who started his company in 2018 in Calgary, where he grew up. He expanded to Ottawa in January and in Toronto this summer. He plans to move further into Ontario.
Properly recently secured a $100-million line of credit, which will provide it with funding if it needs to buy homes that don’t sell on the open market. So far, Properly has not had to buy any. Its business model has been low risk in Ottawa and Toronto, where competition is fierce and houses sell within days of being listed.
If the market softens, as is starting to happen with downtown Toronto condos, that sale guarantee could become more attractive to customers. In a sustained downturn in which prices drop precipitously and demand dries up, Properly could be left holding multiple homes on its books. Mr. Ruparell said he set up the company so that it could hold homes up to a total value of $100-million.
Since its Toronto launch in the summer, Properly has been hired to list 18 homes. Of those, the company struck firm purchase agreements with 15 of the home sellers. The company excludes some types of homes from its list of guaranteed purchases, such as studio condos in Toronto. As well, Properly offers a sales commission discount to customers who list their properties without entering into a purchase agreement with Properly.
Redfin and Justo have been trying to win over customers with lower commissions and refunds.
Seattle-based Redfin expanded into Toronto and Vancouver last year. However, the company’s annual net losses have been growing as a percentage of its overall revenue for the past few years and Redfin has repeatedly said its business model depends on its ability to attract customers to its website.
In Canada, the 5-per-cent commission is normally split evenly between the realtor who lists the property and the buyer’s realtor. For example, the commission on a property that sells for $1-million is $50,000 plus tax. The seller’s realtor, or listing agent, earns 2.5 per cent or $25,000 and the buyer’s realtor earns the other 2.5 per cent or $25,000. (The customer pays the tax.)
By contrast, Redfin realtors charge a 3.5-per-cent commission on the home sale. It retains 1 per cent of that amount, while the buyer’s agent gets their usual 2.5 per cent. If the buyer is using a Redfin agent, they will receive cash back on Redfin’s commission. Redfin would not provide details on how that amount is calculated.
Justo, which started in 2018 in Toronto, expanded to London, Ont., in July and recently received a cash infusion from investors to bolster its marketing. It charges 3.75 per cent, of which it keeps 1.25 per cent and 2.5 per cent is collected by the buyer’s realtor. Similar to Redfin’s model, if a buyer uses a Justo realtor, the buyer gets part of that realtor’s commission if the price of the home is above $300,000.
The biggest problem for new entrants is that competition is fierce for a transaction that typically only takes place once or twice in a consumer’s lifetime. There are more than 130,000 licensed realtors in Canada. In Ontario, the largest real estate market in the country, there are 86,734 licensed realtors, according to its governing body.
“There are always new entrants trying to make a splash. But it’s difficult when you have two very large national brands that have such a large base," said Re/Max regional director Christopher Alexander.
Re/Max has 21,295 full time licensed realtors working under its brand name. Mr. Alexander estimates Re/Max’s market share is about 33 per cent across the country. Royal LePage has 18,000 licensed realtors and a national market share of about 20 per cent, according to the brand’s chief executive officer, Phil Soper.
“It’s harder when you have large dominant players to eke out market share,” said Mr. Soper, who said he takes every player seriously. Mr. Soper says that lowering commissions is no guarantee of winning business because home buyers and sellers want the comfort of a big name, a common argument made by established realtors. “Because the transaction is so huge, they tend to gravitate to successful realtors.”
Purplebricks tried to shake up the industry with a flat-fee model but wound up selling its business to Desjardins Group, which is only allowed to use the Purplebricks name until the end of next year. Zoocasa, which under its first owner, Rogers Communications Inc., tried to offer a low-fee service and sell ads and leads to realtors, now operates under new leadership as a full service brokerage with commissions.
With licensed brokerages able to access the database of property listings controlled by the local boards through their Multiple Listing Service (MLS) system, the new players believe customers are getting more comfortable with a new way of doing business. They are benefiting from the work companies such as Zillow and HouseSigma have done attracting people to their websites.
Redfin’s Vancouver broker, Brooks Findlay, says that the biggest barrier is becoming known in Canada, though he insists it is happening. Traditional brokerages are “working hard to become more digital,” he said.
Justo’s co-founder said prospective customers thought low commissions meant less service, but she said that is not the case. “In the beginning, there was no Purplebricks, no Redfin and it really felt like people did not understand. They thought, ‘Oh, you are a discount brokerage.’ Justo is not a discount brokerage. We are giving full service,” said Daphne De Groot.
New entrants in the mortgage business face similar obstacles. Toronto-based Pinch Financial, which launched in 2017, allows prospective home buyers to qualify for a mortgage with multiple lenders in less than 10 minutes.
It has the advantage of not competing with thousands of realtors and providing a niche service, though it does compete with banks' mortgage brokers and Filogix, which allows mortgage brokers and lenders to communicate.
Pinch is now providing its technology to eight real estate brokerages, including Sotheby’s International Realty, as well as a number of financial-services companies, and expects to be profitable next year.
“There are a lot of entrenched existing players,” Pinch founder Andrew Wells said. “You are only going to do your mortgage application once in your life. How do you make people comfortable with it? How do you get in front of the customer? We have to get someone before they walk to the RBC branch, before they ask their parents, ‘Do you know a mortgage broker?’ ” he said.
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