Real estate product audiences and monetization strategy

Unlike travel, most real estate in the US still involves an agent. As a result, product offerings often have to involve a real estate agent. This creates an interesting ecosystem of approaches:

  • Consumer-focused: address an end-to-end problem for buyers, sellers, or renters. This means that the company often owns properties or employs brokers and agents.
  • Consumer- and agent-focused: connecting buyer, seller, or renter interest to an agent problem. This is often a way to appeal to consumers but get paid by agents.
  • Agent-focused: tools that make agents more effective at their job. This is usually helping them grow their business or become more efficient. Or being a traditional brokerage.
Comparison of consumer- and agent-focused real estate business strategies
Real estate products typically address agent or consumer problems. Sometimes they bridge the gap between the two.

Consumer-focused real estate products and approaches

Products focused on consumers are often a translation of offline process to online. To be fully consumer-focused, a company has to either buy or sell homes and/or run a brokerage. This enables the company to offer an end-to-end experience, and the company can get paid for it. If the company doesn't buy/sell homes directly or act as a brokerage, it's virtually impossible to get paid working only with consumers.

Some customer problems being solved and a corresponding example:

  • I want to buy or sell a home with an agent (and find a home): Redfin
  • I want to buy or sell a home without an agent (and find out what it’s worth): Opendoor 
RedfinNow product overview marketing
Redfin addresses two consumer problems. It offers agent services and the ability to purchase a home without an agent. Source: Redfin.

Consumer- and agent-focused real estate products and approaches

The most popular online real estate products help consumers find homes. Because agents capture commissions from home sales, they are essential to monetization. Agents want to generate more leads from buyers. They also want to market their listings for sellers better. Companies focused on consumers and agents bridge home search needs of consumers with marketing needs of agents.

Most of the companies in this category are real estate portals. They showcase data on homes easily for consumers. Before Zillow and Trulia, it was virtually impossible for consumers to access home inventory and pricing data. This data was only available to agents in the multiple listing service (MLS). Portals have removed the agent data advantage over time. But these platforms rely on agents to post listing data and pay for marketing. Other products have recognized that customers also want to search for agents separately from homes and focus on that need.

Some customer problems being solved and a corresponding example:

  • I want to find a home or learn what mine is worth: Zillow/Trulia
  • I want to find an agent who will help me buy or sell a home: Homelight
  • I want to more customer leads: Zillow/Trulia, Homelight
Zillow Zestimate view
The Zillow Zestimate is an automated valuation model. It solves the core problem for consumers trying to understand what their home is worth. Source: Zillow.

Agent-focused real estate products and approaches

Many products focus on helping agents. These can either help agents grow their revenue or save on time or costs. These products target one or multiple stages of what agents do every day.  Because these tools are only marketed to agents, they are often less well-known. That said, they are still capturing a portion of the $70B in commissions, just simply after agents get paid. There are a lot of different categories here which I will discuss in more detail later.

Some customer problems being solved and a corresponding example:

  • I want manage customer leads better: Follow Up Boss
  • I want to grow my business by getting better at sales and marketing: Moxi Works
  • I want to be more efficient with my business and save time: Docusign, Dotloop
Dotloop feature overview for real estate brokers
Dotloop offers transaction management software which helps brokerages and agents save time and effort so they can spend more time selling. Source: Dotloop (Zillow).

Monetizing real estate products

There are a number of different ways that real estate products generate revenue. The approach is closely attached to the audience they target and the problem they solve.

Impression, lead generation, and referral models

Companies that drive consumer interest but are not brokerages often charge agents for marketing. They usually rely on one of three payment methods:

  • Monthly or impression-based fees: charging a fee for a number of views or location of an ad. Many real estate portals allow agents to take over a zip code with an unlimited number of views. In other cases, the payment may be like a traditional marketing platform based on specific number of views across many geographies.
  • Lead generation: charging per customer inquiry. This is not based on if that inquiry turns into a transaction or not. That said, most agents paying for leads monitor the quality of leads they receive. They will pay more for leads they think are more likely to convert into a sale.
  • Referrals: this is a murky area that likely requires a real estate license. With referrals, you only pay for closed transactions. The fee will be much lower than the full commission but substantially higher than the cost of a lead.
HomeLight feature overview for real estate agents
Homelight, an agent search portal, charges agents for leads that turn into deals. Each closed transaction costs 25% of the agent's commission. Source: Homelight.

Monthly/annual subscription models (SaaS)

Many agent-focused tools charge monthly or annual subscriptions. The pricing is usually based on the number of users (agents) or the amount of business the agent/brokerage does (volume). This is common for tools that don’t have measurable performance impact but help an agents save time or win more business. This model is often broadly associated with Software-as-a-Service (SaaS) companies. SaaS refers to companies that deliver products digitally through subscription licenses.

RealScout feature overview for real estate agents
RealScout, a search and collaboration tool, charges agents on a monthly basis. The pricing varies by team size or brokerage need. Source: RealScout.

Charging per transaction

Many companies that solve consumer problems end-to-end charge a fee per transaction. Often this is simply the commission a real estate brokerage would get. But sometimes it’s a flat rate instead.

These companies can also make money by reselling on a marketplace or selling leads to other services. For example, a company that buys homes from consumers may make money from fees initially. But they then increase the price of the home and sell it to a buyer. Afterwards, they may sell that buyer title insurance. Title insurance would be an ancillary revenue line. This is because it is not related to the core real estate commission. Finally they may sell the buyer lead to a moving company, and generate affiliate revenue. This would be affiliate revenue because the moving company is only paying for traffic for confirmed moves. Many new brokerage and iBuyer models are based on capturing revenue from initial fees and these ancillary revenue lines.

Offerpad pricing and features for home sellers
Offerpad, an iBuyer, generates most revenue from service fees. It also can make money from the profit on home appreciation and vendor partnerships. Source: Offerpad.
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