While The Housing Market Is Hot, Startups Aim to Disrupt Buying Homes

While the discovery of residential real estate buying has been disrupted by the likes of Trulia and Zillow, the transaction side has remained relatively untouched. But a number of startups are looking to change that by tapping into the $31 trillion U.S. housing market.

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Funding in North American companies focused on residential real estate in the first half of 2018 alone has already surpassed the amount raised in all of 2017, according to Crunchbase research. Startups in the category have raised a total of $532 million in the first half of 2018, compared to 45 companies raising $314 million in 2017.¹

Notably, this year’s total is 511 percent higher than the $87 million raised by such startups in 2013.

Part of this year’s big numbers can 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.

Atlanta-based GreenSky in late May exceeded expectations when it raised $874 million in its public debut. The company, which facilitates loans for home improvement projects via a smartphone app, was founded in 2006. According to Forbes, it “has quickly and quietly become one of the largest (and most profitable) financial technology upstarts in the nation.”

But it’s not just giants that are doing well. There are smaller startups also causing a stir in the space.

Reali

Last week, Reali raised $20 million in a Series B round led by Zeev Ventures, with participation from Signia Venture Partners and other investors. The funding brings the company’s total raised to date to $30 million.

When Amit Haller and Ami Avrahami founded Reali three years ago, they did it out of personal frustration as real estate investors.

After decades working in tech, Haller and Avrahami decided to branch out into another industry and create a real estate investment company called Dragonfly Group in 2008. That Bay Area-based company went on to be a successful venture. But during that process, the pair grew increasingly frustrated with the quality of service provided by agents and the high commissions they paid out.

So the pair combined their extensive technology background to build their own platform with the aim of making the real estate buying and selling process more transparent, honest, and professional.

“We took it upon ourselves to look at tasks that traditional agents would perform. Our initial intention was to serve our own needs, but we realized very quickly that if the process was painful for us as professional real estate investors, it was probably 10 to 100 times more painful for the consumer who didn’t do weekly real estate transactions,” Haller told Crunchbase News. “So our mission became to help everyone else too.”

During its first year, the company was in stealth mode. It took the pair one year to build the platform and perfect the business model. Their goal was to not only lower fees for buyers and sellers but to build a scalable business that could provide a “superior” service, Haller said.

“There were already lots of players discounting price and services, but we were not wanting to do that,” he told Crunchbase News. “We wanted to create true and real innovation that could change the entire rules of the game without compromising service or product quality.”

In the fall of 2016, the company launched its platform initially in micro markets across the Bay Area. It has since expanded to across the Bay Area and Sacramento.

Reali’s new round of capital will drive expansion to all of California, with the launch of Southern California and additional states in 2018 and 2019. The company also intends to expand its product development efforts in artificial intelligence, double its current headcount of 40, and build out its customer-centric model.

The way Reali works is to hire its own licensed real estate agents, who are salaried and not paid on commission. Buyers and sellers pay a flat rate of $5,000 to $10,000 depending on the price of the property, rather than a several percentage commission.

So far, Reali has processed hundreds of millions of dollars in homes bought and sold on its transaction platform with 40 percent of its buyers and sellers reaching the company organically, according to Haller.

The company has plans to launch AI-driven features so that buyers and sellers can make better decisions when pricing and bidding on homes. And overall, its lead investor seems content to let Reali continue on its ramp up to more growth.

Taking The Leap

Oren Zeev, founding partner of Zeev Ventures, believes the real estate industry is one of the biggest verticals that has not yet adapted itself to the new reality of technology.

“The way transactions take place today in general is pretty much identical to how they took place 30 years ago with very minor changes. The transaction side is very antiquated and manual,” said Zeev, who personally led a Series A round in Houzz in 2010. “There’s 8-10 different parties involved on different platforms. Communication is done in a very basic way. Fees are too high. With advances in mobile, Internet and AI, there’s a huge opportunity to disrupt the market.”

As for Reali, Zeev admits it took a little while for the idea to grow on him. He first made what he described as a “small investment” in the company last September because he had faith in the founding pair’s tech background and the fact that their real estate background gave them firsthand insight into the industry’s inefficiencies.

“But when I started to see the actual transactions happening, I became much more engaged with the business,” he said. “Since then, the company has done phenomenally well. Growth is evidenced by a quick improvement in unit economics in terms of the cost of acquiring new customers; it also became obvious their vision was much greater than we had even initially realized.”

While this sector has most certainly seen traction in recent months, it’s important to note that none of these companies have yet to experience operating in a down housing market. That will be the true test and when we will likely see the survival of the fittest.

1. Includes twenty-six startups with descriptions containing keywords like “home buyer,” “real estate agent,” “residential real estate,” and related terms.

Update: A prior version of this post included Redfin with Zillow and Trulia in the first paragraph. However, it was an accidental miscategorization of the former company with the latter two. As such we removed it.