A number of tech-driven real estate brokerages are popping up in Los Angeles in an effort to save homebuyers and sellers money on agent commissions, which have ballooned in tandem with housing prices.
Silver Lake-based Open Listings, which launched in 2015, closed a $5 million Series A funding round in May, according to a Securities and Exchange Commission filing.
The company said it has also raised another undisclosed amount in an effort to expand the business, which unbundles an agent’s role in the homebuying process. Customers locate homes on their own on the site and call agents affiliated with Open Listings if they have any questions, utilizing the company’s agent network to assist with showings. Open Listings connects buyers with an agent to assist in making an offer and negotiating a deal.
“We believe homebuyers today are vastly overpaying for their agents, especially with L.A. prices. Those agents are delivering a service model that is from the last century,” said Stuart Law, Open Listings’ vice president of operations.
Sell-side and buy-side agents typically split a commission of 5 percent to 6 percent of a home’s sale price. Yet buyers now need much less hand-holding given the rise of websites such as Zillow and Realtor.com, which have democratized access to listing data so that buyers can find homes on their own.
When a client buys a home through Open Listings, the company typically earns a commission of about 2.5 percent on the sale, Law said. Open Listings gives half of its commission to the buyer – essentially cutting the standard fee in half. It then pays an agreed-upon portion to the agent who helped the client negotiate the offer, and keeps the remainder as its revenue.
“We became obsessed with solving this problem after me and my co-founder Alex (Farrill) each went through the homebuying process for the first time,” Open Listings Chief Executive Judd Schoenholtz said in an email. “For me, I managed the entire process myself and my agent still earned a $20K fee for minimal work.”
Open Listings also counts Peter Sugihara as a co-founder.
Those fees are a pain point Open Listings and other competitors are trying to solve for buyers and sellers. Real estate tech funding in the United States rose to record levels last year, with $2.6 billion in funding across 277 deals, according to New York-based CB Insights. The research firm projects $2.9 billion in funding across 247 deals by the end of 2017.
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