The thing here is that there is an issue with terminology. Kodit isn’t really what we would classify an online agent. This means my article is perhaps less bearish than it could have been.
All of us will understand the nature of those businesses. My opinions are well versed on this topic for the UK market in that it is a particularly difficult business model to sustain.
I agree with Russell Quirk on his statement recently at the FUTURE event when he said that he had changed his original claim that online agents would take 35% of the market to “no more than 10%”.
The Aussie VC wanted to know more about this side of the iBuyer market (he was classifying them as such) and I just told him to be careful. The money needed to ‘disrupt’ this market to scale appropriately is a considerable amount.
The branding needed to establish a new entrant and offering to Joe Public is on a huge scale, as Purplebricks have found in both Australia and America. For that reason alone I told them to be wary.
So is Kodit any different? I will admit I initially sighed when I saw the copy in Techcrunch:
“Traditional real estate agents rarely make the process any less stressful, leaving the industry ripe for disruption by tech companies which can automate many of the existing processes” being just one of the opening quotes.
I also had the initial feeling this was just another online agent. I was sighing as I felt this would just be $13m down the drain for the investors.
But, I then realised there was a little bit more to it than that.
Consider your customer for a minute. Let me give you that quote again but with the opening sentence included:
“As anyone who has ever tried to buy or sell a home knows, the entire process can be the most stressful of one’s life. Traditional real estate agents rarely make the process any less stressful, leaving the industry ripe for disruption by tech companies which can automate many of the existing processes.”
We have to focus on that first line and ignore the rest. “The entire process can be the most stressful of one’s life”. I put this down to one of several factors but the one huge pain point that I hear time and time again is that of uncertainty.
Customers are unsure if their home will sell. If there is an offer they are unsure if it will pass a survey or indeed a more detailed and rigorous legal process to completion.
What if this was taken away?
Those who are in the know will already be aware of others in the market. Indeed in the UK we have Nested. Originally I thought it was a crazy concept. Matt, the founder, had history as an entrepreneur (originally having founded Go Cardless, the London based direct debit start up) and had secured early traction.
I didn’t understand the pain point of the consumer at this point and it was the assertion that Nested were to be “the Amazon of the property market” that was putting me off (I have seen so many investment decks with new starts ups claiming to be the ‘Uber of this’ and the ‘Facebook of that’) but..but, I get it.
Let me be clear on the business model here for a second. Companies like Nested in the UK and Kodit will put a valuation on the property - rumoured to be around 95% of the market value - and then try and sell the property.
If they sell in 90 days (in the case of Nested) you get the money minus fees (traditionally 2.5%). You they don’t sell, they will pay you the agreed amount anyway.
In there you see both the best bit about the model and the worst. Putting the under valuation to one side for a minute. It is the security that goes with the model. Customers know they will have ‘sold’ their property within three months whatever the situation. Bringing back the valuation here.
Yes, it is a little less than they expected, but the customer has certainty. You can’t put a price on certainty.
However, look at the risk in that business model. What happens when the market tanks and they are left with a load of property on their balance sheet that they a) can’t shift and b) is now worth a load less than their algorithms suggested in the first place.
That is perhaps what I admire here though. They are fully backing the combined weight of their very complex auto valuation models AND their human valuers to ensure they pick the best properties to actually decide to include in this process.
Sorry, I forgot that bit. Don’t assume they will take any property. No, no, that wouldn’t work. They know what they are doing.
Having said that, they need a war chest. Nested, according to our figures at Unissu, have raised in excess of $100m.
And that was my final thought when I considered this news about Kodit. This concluding thought was another sigh. I like the model but is $13m really going to work?
Nested are only in the UK with a huge chunk of money. These guys are all over the place with offices in several countries. Just not enough to really get it going in any way.
Going back to my opening line about “You say tomato, I say tomato”, its perhaps a coincidence that the song which contains that line is called “Lets call the whole thing off”. I hope these guys know what they are doing because they may just have to do that in the near future.
*James Dearsley is a leading PropTech influencer and commentator, and is co-founder of PropTech platform Unissu. You can follow James on Twitter here.
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The US does have online agents on pay on result model, payupfront online agents (or classified ads as i prefer to call them) and Ibuyers.
IBuyer services just about work in the US for three reasons...
High frictional cost of real estate agent fee gives the Ibuyer a margin to play with as they deal with consumer direct.
They dont have a quarter of their housing stock built over 120 years ago and can easily target very large areas of homes built less than 20 years ago, which are easier to price and mitigate the ibuyers risk.
The likes of Zillow have pricing algorithms that have been running for years and years at scale that make the accuracy of our housing data look like someone just guessed a number and wrote it on a fag packet. Again mitigating risk of the ibuyer by making sure they purchase at a sensible price.
Ibuyers wont get any real traction in the UK as a result of the above and if they do the investors behind it will be in for a very high risk high stakes ride, with amazingly low upside.
Investors should keep their cash firmly in their pocket.
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