Is it the early days of a real estate revolution? Online realtor Redfin launches in Canada

U.S. real estate brokerage firm Redfinlaunched in Canada this weekafirmthat positionsitself as a tech-poweredcompany ready toshake upthe way consumers buy and sell homes.

Founded in 2004,the Seattle-based Redfinislooking tochallengeconventional brokerages through its primarily online operationand one per cent listing fee. The companyoffersasuite of onlinetools, including3D video tours, butalsohiresagents on salary, who offerthesame servicesas conventionalbrokers.

Turning to technology is what allows the company to keep its buying and selling process efficient, Redfin says.In Canada, alisting fee with aconventional brokerageis typically around2.5 per cent.

"Our track record in the United States is that we sell homes for more money, and we sell them faster and with more certainty,"saidRedfinCEO GlennKelman. "We hope to do the same thing here in Canada."

The high tech-low commission combination has helpedRedfingrowinto 85 marketsin the U.S., as well as raise a lot of money through aninitial public offering(IPO) in 2017.Now worth about $1.7 billion US,the company has the moneyto expand even ifit'snot yet profitable.

The brokeragelaunched in Toronto on Tuesday, with plansto open in Vancouver by spring, before expanding to other Canadian cities.

Redfin's entry into the Canadian market also comes on the heels of two other web-based operators: Purplebricks, a commission-free, U.K-based brokerage, and Zillow, a popular U.S.listing service and mobile app.

It also comes just months after the end of a years-long court battle that saw the Toronto Real Estate Board (TREB) ordered to allowits brokers to publish more sales data online, such as sold pricesand delistings amove touted as a way to start opening up the market to data innovation.

Tech transforming home-buying for Americans

The arrival of these potentially disruptive new playersmight be the early days of a real estate revolution long-awaitedby industry watchers, according toWillStrange, a professor of economic analysis with the University of Toronto'sRotman School of Management.

"It's the kind of industry that is really ready to be revolutionized," said Strange, who has been predicting change in the real-estatesector formore than twodecades.

While Strangeinitiallybelievedthat revolutionwould come to real estateas quickly as it came to the travel industrystarting in the late 90s.Now there are signsitmay have finally arrived.

Over the past two years,investorshavepoured billionsintoreal estate firms that are using technology to do more than just list and promotehomes.

And while online realtorslikeRedfinmay challengeconvention in Canada,much more radical changes arebeing rolledin the U.S. market.

The 'iBuyers'

One of the biggest disruptions south of the border has come in the form ofreal estate companiesknown as "iBuyers," or institutionalbuyers.

These investor firms usealgorithms, or automated valuation models (AVMs),to determine the market value of a home, before making an initial offeron the property, often sight unseen.They'llthensend in staffto inspect the home, finalize theprice and close the deal within a week.

The process is aimed at speeding up and streamlining the selling process for homeowners, providing certaintyabout the sale, the price and giving them control over the timeline. The seller picks the closing date and can changeit as neededan ideal scenario for people who might unexpectedlybe relocating for a jobor moving into a house still under construction. There's also the bonus of not havingto spruce up your home for showings.

But the convenience also comes at a cost:iBuyerscharge a fee ofanywhere from six per cent, up to as much as 13per centthe top end being significantlyhigher than a traditional commission.

Still, the iBuying space is taking off in the U.S. Opendoor got it started in 2014;Offerpad quickly followed. Both have raised hundreds of millions in investment and are expanding rapidly.Zillow and Redfin have, too, recently moved into iBuying, and growth in the sector convinced traditional brokerages, likeKeller Williamsand Coldwell Banker, to test the concept.

Offerpad, which operates in nearly a dozen U.S. markets, says the fee modelnot profit on resaleis the key to the business.

"Our intention is to get people as close as possible to what they think their home is worth," said Cortney Read, Offerpad'scommunications director.

Offerpad'ssweet spot is in cities with diversified economies, buyinghousesbuilt after 1960 that are generally priced under $600,000. The company believes its model could work in Canada,even accounting forseasonalbuying trends.

Trading in your houselike a car

Another radical iBuyerapproachcomes from Knock,which essentially arranges a home swap for itsconsumers.

The company buys their clients' newhome for them in cashand moves them in. Then it does the needed repairson the homeowner's old home, before putting it upon the market as a Knock listing.

Knockco-founder Sean Black says the trade in model solves a chicken-and-egg problem because"70-plus per centof people in the U.S. that are buying homes every year are also selling one."

Knock advances up to $10,000 UStothe homeowner to payfor repairs on theold house, which is paid back when it sells.The client alsocontinues topaythemortgage on their old home until it is sold,when the title and mortgage for the new property is finally transferred over.

Knock makes its money by takinga threeper cent commission from the homeowner on the sale of their old house, and another three per cent from the seller ofthe new house.Tech is at the core of the company, which usesalgorithms to determine how much a home is likely tosell for, and to help choose which markets to enter.

Black believeshis company, and theother innovators in the space, likeRibbonand Bungalow, are the long-awaited real estate revolution in an on-demand world, where consumersexpect consistency and transparency.

"The big picture here is what you're witnessing is the transformationof this industry," he says, moving from a world where going individual agents have control to one where institutional buyers can "give you a really professional, certain and hopefullycost-effective solution."

Black admits the change could a take a generationa sentiment echoed by industry-watcher Strange.

Still, there's also the potential for the snowball effect to take hold, Strangesays.

"I would expect change to happenovernight, I just don'tknow which night."

WATCH:Tech-brokerage Redfin hopes to shake up Canada's real estate market

Tech-brokerage hopes to shake up Canada's real estate market

6 years ago

Duration 2:53

As the price of a home in Canada has shot up over the years, the corresponding fees have skyrocketed as well. Now Redfin, a tech-focused U.S. brokerage, is hoping to change that by promising lower fees in a push to shake up Canada's real estate market. But will it work? And if so, at what cost?