Trends in the USA that are also likely to reach the Swiss brokerage world.

Round brokers on the rise

Comprehensive Real Estate brokerage models that satisfy individual transaction-related needs are coming our way; real estate services relating to brokerage will be offered in a bundled form in future. This will also include the brokerage of insurance, mortgages, fiduciary and other services. With these additional services, the estate agent should be able to establish new sources of income and thus compensate for falling commissions in the transaction business. Here is an entertaining advertising video of a broker who promotes himself with all services and fixed commissions.

Workflow automation

Digital systems are being used more and more: paper has finally had its day. This not only eliminates duplication and sources of error; digital tools can also control and support all transactions with workflow.

Alternative financing models for residential properties

More and more providers are entering the financing market. In addition to banks and insurance companies, pension funds and private equity companies are now also involved. The institutions offer a combination of brokerage and financing solutions, guarantee fixed purchase prices or provide interim financing so that the new house can be purchased before the old one is sold.

Digitized buildings

In the future, more and more buildings will be planned and constructed digitally: They will send data and make decisions. This will not only save energy and manpower, it will also make it possible to intervene in the building at certain points during conversions and renovations.

Marketplaces for commercial real estate

Marketplaces are currently sufficient for the sale of residential properties. This will change so that commercial properties, hotels, shopping centers, etc. can also be sold via online marketplaces. This is aimed at the large brokerage companies (JLL, CBRE, etc.), which are still happy to conduct their brokerage business on their own platforms and marketing channels without a marketplace. In view of the sharp drop in margins, the digitalization of the sale of commercial properties via marketplaces is foreseeable.

Blockchain technology for mortgages

Blockchain technology is particularly well suited to the unbureaucratic administration of the owners of land charges and the transfer of titles to new mortgagees. Blockchain never forgets and may mean that land registers will no longer be needed. The technology will be used more quickly in America than in Switzerland, as land purchases in the USA can already be processed completely digitally today.  

Marketplaces become service machines  

Marketplaces will expand their business model, which is currently still based on an advertising platform. They are already attacking brokers’ commissions. They also want to earn money by brokering financing, insurance, relocation services and other services. Marketplaces are thus mutating into service providers that are trying to displace traditional estate agents. They want to get closer to the transaction with the aim of processing more of the transactions.

Marketplaces want a share of transaction costs  

The great added value of the marketplaces no longer lies in the (rising) listing costs, but in the high brokerage fees, which in the USA still account for 6-7% of the purchase price. Disruptively, the marketplaces want to participate in the commissions of traditional brokers or replace them outright. But other sources of transaction costs such as insurance, mortgages, relocation costs, etc. are also being tapped into.

iBuyer programs as an alternative to traditional sales between private individuals

iBuyers are investors who use hedonic property valuations and other technologies to place quick offers on properties that have been put on the market too cheaply and distressed sales, complete purchases within a few days and then sell the properties again.

The iBuyers usually carry out minor repairs and maintenance work, put the property back online after a few weeks and sell it at a profit of 4-8%. The key to the business model is to buy as many properties as quickly as possible and resell them at a higher price.

In America, companies for iBuyer programs are financed to the tune of billions. Zillow, Open Door and Offerpad are currently the leading companies in the iBuyer market. The iBuyers still have a small market share of 0.2% nationwide; in some regions such as Phoenix, for example, the market share is already 5%. The average purchase price is around USD 250-300,000.

iBuyer programs as lead generators

The activities of the largest American internet marketplace Zillow are exciting. The company offered 20,000 homeowners the opportunity to buy their property, but only 200 bought. Zillow was then able to generate 19,800 leads with the iBuyer program, which it was able to offer to other brokers as potential seller leads. Here, too, the focus is on disruptive business models (brokering the lead with participation in the broker’s margin).

Purple Bricks and Compass Group attack traditional brokers

In the USA, the companies Purple Bricks, Redfin and Compass are being financed with billions in order to attack or wipe out traditional brokers.

Compass has raised over a billion from its investors (e.g. Softbank, Bain Capital and Goldman Sachs). They are buying up competitors, investing heavily in technology and creating a broker-friendly platform. Opponents accuse Compass of luring high-performance brokers with low fee share programs and high sign-on bonuses. The aim is to eradicate the traditional broker guild; thanks to the holistic IT platform, the value chain of real estate services is to be better utilized.

Purple Bricks and Redfin work with fixed transaction fees and in some cases no guarantee of success, meaning that costs are incurred in each case depending on the market and country. Both companies are still making large losses as a result of their expansion strategy, and the question is how long investors will stick with them. Purple Bricks recently saw the departure of its CEO as a result of disappointing business figures. In the USA, the business model is also on the brink of collapse: a commission model is being examined.

Axel Springer, a German media company, has invested USD 177 million in Purple Bricks. In Germany, Axel Springer and Purple Bricks are participating in Homeday with EUR 20 million. It can be assumed that Purple Bricks is planning a major market entry in Germany via Homeday and possibly other start-ups (e.g. Maklaro). Axel Springer also has digital partnerships with Ringier in Switzerland (e.g. Admeira AG), which in turn has a 50% stake in Immoscout AG.

A few copycat products from Purple Bricks have also already gained a foothold in Switzerland. They require an advance payment and offer brokerage at a fixed price. The models are based on selling services without having to be successful. If such a company acquires five sales mandates of CHF 7,000 each, CHF 35,000 in income is collected in advance. If only one property is successfully brokered, a commission of CHF 35,000 is generated on the transaction. With an average Swiss house price of CHF 700-800,000, this amounts to 4-5% per successful transaction.