Tech disruptor real estate brokerages can survive and prosper but only if they have the right business models, says Romana King, director of content at Zolo.
She was commenting on last week’s closure of TheRedPin, which shut its head office doors at Church and Front streets in downtown Toronto after being in business for seven years. The online brokerage went into receivership almost a year after CEO Keith McSpurren, who has a solid background with start-ups, was hired to revamp the company.
TheRedPin “couldn’t figure out how to make it profitable enough to keep being a disruptor,” says King. She maintains that Zolo, founded in 2012, has been profitable since its second or third year of operations.
According to The Toronto Star, TheRedPin’s investors included the Trilogy Growth fund financed by ONEX Corporation founder Gerry Schwartz.
“It was a high-risk, high-reward situation,” McSpurren told The Star. “If I figured it out there would have been great rewards.”
The closure of TheRedPin affects an estimated 80 real estate agents and a number of office staffers, including a team of software and artificial intelligence (AI) developers who had been brought on by McSpurren. Representatives of TheRedPin could not be reached for comment.
Although it was well-financed, TheRedPin closure shows that “real estate is a hard industry to disrupt and tech brokerages are hard to scale,” John Pasalis, president of another tech disruptor brokerage, Realosophy, said on Twitter.
Tech disruptors such as Zolo, Zoocasa, Realosophy and TheRedPin have viewed real estate brokerages as old businesses that can be improved upon through the use of technology that provides solid market intelligence, King says.
But “the difficulty with real estate in Canada is that you have to work within board regulations and you have to work within the rules of real estate. For that reason, there’s only a certain number of ways you can structure a real estate business.”
In addition, new tech start-ups face an uphill battle because established real estate brands have decades of marketing behind them. “That’s why I think it’s so important that a tech start-up that really wants to be part of this business needs to address whether or not they’re a profitable business model before they go out and make their waves.”
The “very tried, tested and true” real estate industry in Canada will require more than a couple of tech start-ups to change the way the business is conducted, she says.
King suggests that TheRedPin over-relied on providing discounted services and commissions to buyers and sellers. “A place that markets itself on discounts – when I’m talking about my largest asset, I have trouble with that.”
She adds TheRedPin was trying to develop AI applications when it shut down. “We’re not there yet” she says of the use of AI in real estate. “When you double down on new tech to try and build your business model, that’s risky. You either have to have deep pockets or a really great business model.”
King says Zolo “flew under the radar” for years while it built its business model and only “popped our heads up” and started marketing significantly when that model worked consistently.
Zolo’s gross revenues have increased from $148,471 in 2013, its first year of operations, to $16.1 million this year, 39 per cent higher than last year. “We’re still growing year after year, even though the market has turned in the GTA,” King says.