Putting some zip into realty

Scott Kucirek, President and cofounder of zipRealty, Inc
March 26, 2004
Scott presented his company, zipRealty, a very successful realty company enabled by Internet technology.

In the US, 5-6 million homes are sold annually, representing 10+m transactions, $1,2trillion property value, and $70b brokerage commissions and fees. Typical commissions on house sales are 6%, shared with (normally) 3% to the realtor representing each side. The US realty business has brokerages (who are the only ones allowed to handle the money and settle the transaction,) each with independent agents, who are responsible for their own prospecting, expenses and marketing. The agents split the profit with the broker (usually 25% broker, 75% agents.) ReMAX has a slightly different model, with a fixed monthly fee and 100% of the commission to the agent – it now has 70,000 agents and typically gets the most productive agents. Most brokerages have a 4-5% margin, even though the commission is typically 6%. An average agent does 12 trades per year, only a few make a lot of money – and those are the ones you see.
zipRealty make their money as any other realtor, by representing either the buyer of the seller, bringing both parties together. The difference is that their agents are employees, not contractors. This changes the economics – the commission split is 55% to zip, 45% to agents. The advantage to the agent is that they don’t have to look for leads – they are provided by zip.
Scott sees the key to his success as empowering the client – the house purchase or sale is the biggest transaction they will ever make, so they want to feel in control. So zipRealty provides a consolidated Multiple Service Listing, with all the information they can get on each house. Clients want good service from their agents, so zip hired the agents, sets strict service standards and provided the leads. They also normally charge 1% below market for the seller, but the co-broker fee (what they pay the realtor representing the buyer) stays the same – otherwise they would not get the business.
Payment to agent depends on how the customer fills out the customer response form – they carefully track the customer satisfaction rates and are at 94% – the industry average is around 54%. The agents work from home, with high speed Internet connection and the zip Agent Platform (ZAP) which allows the agent to see the information they want. Can see client behavior – for instance, if someone print out homes with maps, they are going to see them, and then you need to be there. You can see difference between what people say vs. what they do. We give agents 60-90 leads per month – about 3% will transact. This is the value to the agent – they don’t have to look for leads.
Scott is very focused on providing all kinds of information for the customers, letting them choose by themselves what they think is important: “As soon as you start thinking you know what people want, you’re dead.”
The value proposition can be summed up as follows:
Agent value: 80 to 100 leads per month (all warm); transaction coordination; health and other benefits, stock options; systems designed to allow agents to achieve 2x to 3x productivity; part of a growth company culture.
Company value: 40-45% gross margins; 20-25% EBITDA margins (industry 5%). Virtual office and central HQ structure benefits from economics of scale. No inventory costs or receivables; cash received at closing and agents paid later.
Q: Why aren’t others doing this?
A: Hard to change from one business model to another, hard to change a corporate culture of broker-agent antagonism. Most of them have adoption issues – the great thing for us is that if ZAP goes down, we don’t have any backup system, so we have had to make it very good.
Q: How do you recruit?
A: We have our own recruiters, but a good source is our own agents. It is hard to find good agents, so that has a high priority.