Can artificial intelligence outflank human real estate brokers? REX, a tech-powered firm, thinks so.
A home for sale on Feb. 15, 2017 in Boulder, Colorado.
A new technology-driven real estate firm is launching in Denver this month with plans to crack the traditional real estate brokerage industry’s thick walls in a way no other startup has ever managed.
REX Real Estate Exchange, based in Woodland Hills, Calif., will roll out the large siege engines of artificial intelligence, big-data analytics, targeted social media marketing and even robots in its push to lower commissions on home sales to 2 percent from the current rate of 5 to 6 percent.
REX plans to break through the brokerage industry’s defenses by recruiting the people most likely to sell or buy a home before they ever reach an agent. Effectively, it seeks to create its own marketplace.
“We can predict who will be the buyer for your home. We are not relying on the multiple listing service (MLS) to find us a buyer,” said REX founder Jack Ryan, who in an earlier career helped automate stock trading at Goldman Sachs.
Many firms over the years have offered big discounts to sellers, often with lower levels of service, but they held little to no sway on the buying side. Agents resentful of getting squeezed had the ability to steer clients away or refuse to transact a deal or just insist on the traditional commission.
Psychographic data and online behavior helps the firm understand who might be interested in buying a particular house. REX uses predictive analytics to target potential buyers in an effort to get them to show up at an open house or make an offer, and it hones its understanding with each sale.
“We targeted your buyer. They called you. We know your buyer and you can’t stop the buyer from viewing the home,” Ryan said as if talking to a real estate agent.
If an agent lies and says a home is sold, REX will send them notices that the home is still for sale. If a buyer insists on paying their agent the full fee, it will still bring the seller that offer, even though it probably won’t be as competitive. And if potential buyers don’t have representation, or they want to make a change, it offers its own licensed and salaried agents.
Michael and Mina Vlamakis were in a hurry to sell their Long Island home after Michael needed to move to the Dallas area for a new job late last year. An ad for REX popped up when Michael was searching online for an agent — and the chance to save major money resonated with the couple.
“We had never seen or dealt with REX, but they did the same exact thing as a real estate agency and for a 2 percent commission,” said Mina Vlamakis.
Many people are searching for homes directly on Zillow, Trulia and even Facebook, which has made multiple listing services less relevant than before, she said.
Long Island isn’t considered a hot real estate market, but a REX agent began advertising the couple’s home on a Wednesday. It had three offers by that weekend and the couple went with a buyer who also turned to a REX agent and was able to close within 30 days.
Artificial intelligence also helps find sellers who are ready to list, and helps in setting the best price. Listing prices are typically based on recent or comparable sales. But there are other, subtler correlations that influence what buyers are willing to pay.
For example, having a Starbucks within three-quarters of a mile adds 1 percent on average to a home’s value, Ryan said.
After an ad wave goes out, REX knows what kind of response a home should get. If more clicks than expected come through, the price was set too low. If fewer do, then the price might be too high. Adjustments can be made quickly.
Licensed agents help list a home and show it, and they are there to carry the sale through the last mile. But over time, Ryan sees more tasks getting automated, which will further reduce transaction costs.
As for the “robots,” they have much better memories than humans and can precisely answer all 75 questions that research shows people will exhaust themselves in asking at a showing. Imagine if Siri or Alexa knew everything there was to know about a home for sale.
“These guys are proposing another step in creating another alternative marketplace,” said Steve Murray, the president and owner of REAL Trends in Castle Pines. “It has a real chance of succeeding and building a nice business.”
But Murray, who has seen many firms come and go over the years, said he remains skeptical that REX or other alternative platforms will move beyond niche players. Just as Uber hasn’t killed off taxi companies and Amazon hasn’t killed off Walmart, he sees co-existence rather than conquest.
One key concern for sellers using a platform outside the MLS is whether they are getting the best price out there, he said. The strength of multiple listing services is that it goes out to thousands of agents, reaching more potential buyers, which means more offers and a better price.
Ryan disagrees. Few people lament the good old days of full-service stock brokers and humans trading stocks on the floor of an exchange and the costs that involved. Electronic exchanges and much lower commissions on stock trades are the norm now.
Commissions, Ryan said, represent a huge “friction” in home sales, one that consumers will be increasingly less willing to absorb if a viable alternative is offered them. And the home-selling process is made more complex than it needs to be.
“Reduce fees and transaction volumes will go up,” Ryan said.
In February, the average price of a home sold in metro Denver was $500,000, which works out to $30,000 in commission on a traditional deal. REX would charge $10,000 for a full-service transaction.
In January, REX brought in $15 million from investors to increase its total raise to $30 million. Besides Southern California, it operates in New York and is looking at several other states.
Backers of the company include Scott McNealy, the co-founder and former CEO of Sun Microsystems; Gordon Segal, the founder of Crate & Barrel; Dick Schulze, the founder of Best Buy; and Amit Singhal, former senior vice president of search at Google.