Can artificial intelligence (AI) disrupt the residential real estate industry? A growing number of companies seem to think so, although some realtors have doubts.
Last summer, I wrote about how one such startup, Reali, had raised a $20 million Series B. Today, we’ll look at how REX, a licensed residential real estate brokerage using AI and big data, has closed on a $45 million Series C round that included no institutional investors.
With this financing, the five-year-old company said it has raised a total of $75 million from a group of private investors including Sun Microsystems co-founder and former CEO Scott McNealy; Richard “Dick” Schulze, founder of Best Buy; Gordon Segal, founder of Crate and Barrel; Amit Singhal, former SVP search at Google, among others.
Like many other online brokerages, Woodland Hills, Calif.-based REX says its commissions are 2 percent to cover both sides of a transaction, compared to an industry standard 6 percent. CEO and co-founder Jack Ryan said in a statement that REX is “more affordable, convenient and transparent” than “brokerages that depend on the MLS model that uses protectionist practices to maintain outrageously high fees.”
“We exist outside the MLS, the loose confederation of realtor organizations that maintain artificially high fees even though the internet has radically reduced the value traditional realtors offer to consumers,” Ryan told Crunchbase News. “That sets us apart from other real estate firms that describe themselves as technology-enabled disruptors but remain compliant with MLS rules.”
The startup helps people through the home buying and selling process, with things such as escrow, titling, mortgages and shopping for insurance. Revenue climbed 150 percent in 2018 compared to the year prior, according to Ryan.
“REX is delivering a residential real estate solution in step with how consumers actually behave and what they actually want,” said McNealy in a statement.
Last year, REX expanded to Colorado, Texas, Northern California, and New Jersey from its roots in Southern California and New York. The company said it increased listings by 300 percent year-on-year in 2018, representing homes cumulatively valued at over $1 billion. The startup has a social component too, which is kind of refreshing: For every fifty homes it sells, REX builds one new home for a family in need.
This month, REX said it’s launching in two new markets: Sacramento, Calif. and Portland, Oregon.
The 90-person company plans to use the latest funds to speed up its national expansion, enhance its technology and add to its service offerings.
Currently, REX uses a broad range of data sources that are aggregated in the cloud. It applies predictive analytics models that Ryan said are “constantly refined” through machine learning.
“We use that modeling to more accurately match potential sellers and buyers online, to price homes and, as we add capability, to make suggestions to homeowners on how they can enhance and maximize the value of their home, like deciding whether to go solar or stay on the grid,” he added.
With all these startups claiming to disrupt the real estate industry, we thought it would be a good idea to get the perspective of a Realtor.
Alex Comsa, who works with Coldwell Banker Palo Alto specializing in luxury Silicon Valley real estate, believes that the industry deals with micro-climates and as such, “there is no ‘one-size-fits-all’ option.”
He also thinks that these startups’ claims to lower commissions to be a bit misleading because the industry is adapting. For example, Comsa personally believes broker compensations should be variable and as such has implemented a dynamic structure in his own business. First, he factors in the price point. He then increases commission if the sale price is up to 10 percent over list price, and then even further if the sale price is more than 10 percent over list price.
“It really feels like a partnership, and sellers like the fact that both parties benefit from a higher sale price,” Comsa said.
In general, he noted that most services are based on hourly compensation and maybe a bonus for a positive or quicker-than expected outcome.
“I believe that the same concept could be applied to real estate based on the type of market, price point, execution time, and the final price versus list price ratio,” he told Crunchbase News.
As a Silicon Valley resident, Comsa is skeptical of startups serving as discounted online brokers. Typically, only a small percentage of all startups actually succeed. But in particular, he believes they are less appealing to those buying and selling in a high-end market.
“Most of them are VC-funded and they are far from breaking even,” Comsa said. ”Redfin has been offering a reduced commission for a number of years now, and we don’t run into them in the high-end market like Palo Alto…. In the high-end segment, we deal with very sophisticated sellers and buyers and they expect nothing short of full service.”
Comsa is also skeptical of claims by online brokerages that they’re using AI and big data to enhance the home buying or selling process.
“AI in real estate is in a very early stage of development, and these startups need maybe a decade to get it right,” he told Crunchbase News. “These startups and their algorithms could be a good resource to predict prices or potential profits for investment properties, and maybe types of markets, but there is a lot more to factor in such as political environments and the impact of the stock market.”
Real Estate Funding Boom
In general, there’s been a surge of funding in North American companies focused on residential real estate. The last time we checked, funding in the first half of 2018 had surpassed the amount raised in all of 2017, according to Crunchbase research. Startups in the category had raised a total of $532 million in the first half of 2018, compared to 45 companies raising $314 million in 2017. 1
Part of last year’s big numbers could be attributed to San Francisco-based Opendoor raising $325 million in a Series E round that reportedly valued the company at more than $2 billion. The startup offers an online home-selling service aimed at streamlining the sales process to a few days. It has raised $645 million since inception in 2014.
Includes twenty-six startups with descriptions containing keywords like “home buyer,” “real estate agent,” “residential real estate,” and related terms.)↩