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Real estate startups flock to Houston with aims of low fees, quick offers

September 7, 2018

Matt Sprague’s family spent a year planning and building their home, but it only took them 15 minutes to sell it.

Sprague turned to an internet real estate service called Opendoor, where he filled out an online form. The quickly struck deal closed in three-and-a-half weeks.

“The money’s already in the bank,” his mother, Roberta Sanford, said as she watched the moving crew empty her home of twenty years. “This company, Opendoor, is going to give realtors a run for their money.”

San Francisco-based Opendoor opened its doors in Houston on July 24. The startup makes quick offers on homes in the $100,000 to $500,000 range that were built in 1960 or later. It charges a 6 percent to 10 percent fee to buy the home, then it allows sellers to choose when they are ready to move out before selling the home itself.

Within its first month in Houston, Opendoor averaged 1.5 contracts a day, marking its most successful launch city yet. This week, it will begin selling the Houston homes it acquired. Its app allows prospective buyers to take self-guided tours of its properties by unlocking doors with their phones.

“Our mission is to make real estate a much less friction-filled transaction and to make it easier for people to move, to get on with their lives,” said Chris O’Riordan, Opendoor’s regional general manager.

And it’s not the only startup working to disrupt Houston’s real estate industry.

A similarly named company Door, which entered Houston in March, doesn’t outright buy homes like Opendoor. It charges a $5,000 flat fee for real estate services, instead of the traditional 6 percent commission split between buyer and seller. Then there’s REX, which charges a 2 percent commission and is readying to expand into the city within the next few weeks.

“This is the biggest opportunity in the whole economy to disrupt something,” said Andrew Barkett, vice president of data and engineering at REX. “Consumers pay around $80 billion a year in those fees to the agents. And our model knocks 70 percent off of that.”

Barkett, a former senior engineer at Facebook, said he’d thought real estate was boring until he learned how much money home sellers were paying real estate agents in fees. “That’s when I started getting excited,” Barkett said.

He now oversees a team of engineers hailing from companies like Google and Yellow Pages. Instead of finding customers through the multiple listing service, REX finds customers through targeted marketing. Information culled from sources including public records and anonymized consumer data allows the company to advertise homes to the people most likely to buy it.

“We call it the four ’D’s,” Barkett explained. “It’s really not just this four, but we look for diapers, divorce, diamonds and deaths. Because that means they are probably looking for another house.”

A family with three children living in a three-bedroom house, for example, may be looking for a four-bedroom house once the youngest child reaches school age. A family with a long commute may be looking for a place closer to work.

The question comes down to whether a team of data scientists can use that information to market and price a home more effectively than traditional real estate agents. Chaille Ralph, who is on the board of the Houston Association of Realtors’  listing service, pointed out that most agents already use such data.

“There are all sorts of people who sell and consumer data and research,” she said. “That information is out there for all of us.”

While new startups are heralded for their potential to disrupt real estate, Ralph said she has seen many different models over the decades, such as forsalebyowner.com. “They kind of ebb and flow,” Ralph said. “We’ve seen more recently, but that’s not abnormal — when the market is strong as well — to see the different models grow in the market.”

Ken Morris, president of real estate company Coldwell Banker’s Houston region, doesn’t see the startups as a threat to what his real estate agents offer. “I still think real estate is a relationship business,” he said. “If you’re trying to buy groceries online, that’s one thing. But you typically don’t buy a house or a car online.”

However, Jefferson Duarte, an associate professor of real estate finance at Rice University, said the real estate industry is vulnerable to disruption — it’s just a matter of how and when. He said that the major services real estate agents provide, finding customers and providing guidance through the buying or selling process, have become easier to obtain.

For example, while 87 percent of buyers in 2017 purchased their home through a real estate agent or broker, only 30 percent found the home they purchased through the real estate agent according to the National Association of Realtors. Fifty-one percent found the home they purchased online instead.

“It’s difficult to justify why — with all of the technology we have these days — why these fees are so high at 6 percent,” he concluded.

He said he hoped a disruptor will be able to provide the same service that listing agents offer in a cheaper way but was on the fence about whether the models used by Opendoor, REX, or Door would provide that change.

Fans of the new startups, however, say the real estate industry is about to transform. Jordan Lake, who recently used Door to sell his Pearland home and move to the Heights, said he would have paid $15,000 more in fees if he had paid 6 percent to the listing and buying agents.

“I definitely think they’re a disruptor for the real estate industry,” he said. He framed it as a matter of logic: These days buyers like himself exhaustively research the homes they are interested in buying online before asking an agent to take them in person.

“The work is done by the buyer up to that point,” he said. “So it makes sense of them to take out those extra percentage points.”

rebecca.schuetz@chron.com; @raschuetz

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