For most of us, a house is one of the biggest purchases we’ll make in our lives. It’s an expensive, cumbersome process, not least because of brokerage fees.
For those millennials who, due to avocado toast consumption, can’t afford to buy a house, here’s how real estate brokers typically get paid: the broker on each side of the deal each take, on average, three percent of the selling price of the home. So, if a house sells for $500,000, the seller and buyer’s broker(s) collectively take $30,000 off the table for themselves.
Door Inc., a Dallas-based company building a tech-enabled real estate brokerage firm, aims to change that by charging a flat $5,000 fee to either the buyer or seller for the transaction. So, if it represented both the buyer and seller in that deal for a $500,000 house, its commission would be $10,000, saving each party a collective $20,000 on the deal.
The company closed the final chunk of an approximately $12 million Series A round, which was raised in multiple tranches. Door’s CEO, Alex Doubet, confirmed this in a phone interview with Crunchbase News.
Interestingly, the company has only raised a small chunk of its capital from traditional VCs, including a $500,000 Series A check from Picus Capital, a German venture fund started by Rocket Internet co-founder Alexander Samwer.
The rest has come from the private investment offices of several wealthy families in Texas. The lead investor in Door’s round, Court Westcott, is a Dallas-based investor and the son of Carl Westcott, a prominent entrepreneur in the area who founded 1-800-FLOWERS, among other ventures. Other investors include Jack Pratt, retired CEO of Hollywood Casinos, Door’s chairperson Roger Ochs, Thomas Hartland-Mackie, and “several members of the Murchison[s],” an oil family that also set up the Dallas Cowboys football franchise.
Why go to family investment offices? Doubet characterized Texas as a VC desert, remarking that, despite having four of the most-populous cities in the U.S., there’s a “surprising lack of institutional funding available.” It’s a trend that Crunchbase News has observed in its quarterly reporting on the Texan venture capital market.
Doubet remarked that although the large majority of his company’s capital did not come from traditional VCs, he’s confident in the guidance his investors, who he called “experienced operators,” can provide. He also told Crunchbase News that there’s a perception that “generational wealth” can be more patient with its capital appreciation, but he says Door is expected to grow at the same pace of any VC-backed startup. Door was involved in 75 real estate transactions in 2016, just over 300 in 2017, and is projected to do over 1,000 in 2018.
He says that the younger generation of high net worth families often lead the way in encouraging Texas’s family financial managers to extend beyond “oil wells, fracking, and shopping centers” to invest in technology startups.
Door is not the first or only company to tackle the home brokerage business with a flat-fee business model, which has seen some traction with investors. Los Angeles-based Open Listings has raised $7.5 million across two rounds. London-based PurpleBricks raised £66 million in VC and another £25 million in an IPO on the London Stock Exchange to enter the US market. And Doubet cited a number of other regional players in the US.
But, the home brokerage sector is huge and still fairly regional, even for these tech-enabled flat-fee brokerages. For now, there’s plenty of market real estate to go around.