Innovation of the Week: Real estate app aims to help Bay Area buyers save | Crain's Silicon Valley

Innovation of the Week: Real estate app aims to help Bay Area buyers save

Reali cuts the middlemen out of real-estate purchases. | Photo by Reali

Since the dawn of capitalism, businesspeople have cut out the middleman to gain a price advantage over the competition. Today, San Mateo, California startup Reali is putting a high-tech twist on this strategy with a real estate app that removes the buyers’ agent from the home-purchasing process.

Taking buyers’ representatives out of the equation also eliminates their commission from the transaction cost, saving purchasers an average of $31,335 per some sale, according to Reali. 

The company moved to bring these savings to a much wider audience, announcing via press release last week that its service is now available throughout the San Francisco Bay Area, expanding from its base in the Peninsula and South Bay. This expansion will double or triple Reali’s previous market reach, according to the company. Reali also announced its app is now available on Android.

Changing the model

“Many industries are taking steps to cut out the middleman, but in our industry there are actually two middlemen: the agent of the seller and the agent of the buyer,” said Amit Haller, co-founder and CEO of Reali. “Reali is about changing the entire business model."

The company said it employs a sophisticated technology platform that automates much of the buying and selling process.

"We’re changing it from having two agents talking to each other, where there’s a lack of transparency between the buyer and the seller, and a lack of transparency in general. Instead, we’re trying to simplify everything and make it streamlined," said Haller.

That streamlining involves allowing buyers to act as their own real-estate agents in some regards. This is being made possible by the increasing level of information available to prospective homebuyers.

“Today, buyers—particularly millennials—are very educated and they do a lot of research,” Haller said. “The data is out there today—not like 10 years ago when you needed to go and dig to find data about real estate from agencies. Everything has been democratized."

Reali takes the 2.5 percent commissions typically charged by buyers’ agents and gives them back to the buyers. It also reduces the selling agent’s charge, which averages about 3 percent, down to 1.5 percent.

"We didn’t find any reason why we as licensed brokers and the facilitating agency, should charge commissions on the transactions. We charge a flat rate just shy of $5,000 , no matter how expensive or cheap the house is," Haller said.

Home sweet home

These reductions can make purchasing a new home can become much more affordable.

Given that the Bay Area is one of the most expensive places in the country to buy a home, such cost savings could be critical. A 2016 analysis conducted by the Point2homes.com and PropertyShark websites named San Francisco as the costliest housing market in the U.S. and Canada, with a median home price of $1,085,000. The South Bay city of San Jose ranked third at $700,000.

“If you are looking at a market like San Francisco, or the greater Bay Area, shaving down the traditional 5 to 6 percent commission on both sides and reducing it to 1.5 percent, is a significant price impact on the entire cost,” Haller said. “For some people, this can make the difference between being able to buy a house and not being able to buy at all.”

These costs can add up quickly. Reali estimates that Bay Area home buyers and sellers have spent $731 million on agent commissions so far in 2017.

May 25, 2017 - 7:16pm