EVENT UPDATE: Court Cunningham, CEO at Orchard, will take the stage at Inman Connect New York, Jan. 28-31. Discover the future at ICNY. Click here to learn more …
It’s been a busy first month of the new decade for Orchard. The New York City-based real estate technology company rebranded from Perch to Orchard and raised a fresh new equity round of $39 million to bolster its offerings and hire more technical staff and agents.
The name change came as a natural part of the company’s evolution, according to CEO Court Cunningham. “As our customer offering has evolved, we took the opportunity to rethink our name and choose a brand that reflects the things our customers tell us they love about us: warmth, friendliness, and humanity,” he said in a statement announcing the rebrand.
Orchard aims to serve dual trackers – consumers buying and selling a home – which its CEO Court Cunningham estimates is roughly two-thirds of all home buyers, by offering a more simplified transaction. Orchard guarantees a home sale in 90 days – or they’ll buy your home – and allows consumers to use that offer as capital for their own homebuying.
Cunningham will be joining a panel discussion at Inman Connect in New York this month, where the topic of discussion will be the future of the transaction, something his company is actively working to change.
Inman spoke with Cunningham about where Orchard is headed, how iBuyers will continue to impact transactions and why agents will always be a key part of the process.
Do you think we’ll ultimately see just a few big players, or a lot of fragmented tech companies working in the space of trying to disrupt the transaction to make it easier for consumers?
It’s a huge market. Fee revenue across title, mortgage and brokerage is over $130 billion. I think there will be probably five-plus very large players. If you look at used cars as an analog, there are three multi-billion dollar companies there: CarMax, Carvana and Autonation, and that market is half as big as real estate.
What’s really important is, a lot of people have had this vision, but if you’re a Zillow or traditional realtor, it’s really hard to deliver this vision if you don’t control your sales distribution. All these independent agents are going to do what’s best for them. This is what’s known as the agent adoption problem. Being able to control your sales distribution to intermit all this stuff around that is really, really important.
Redfin obviously has that advantage. Why are their attach rates on title and mortgage are so low? I don’t know. Delivering a delightful transaction means that people need to use you for title and mortgage. So maybe that’s their sales team, maybe that’s the technology, I don’t know.
[Orchard] is seeing much higher adoption. Obviously, it’s optional. People don’t have to use our title and mortgage, but we want to make it so simple and so easy that they wouldn’t think twice about using it.
Speaking specifically to the iBuyer aspect of Orchard, do you someday see iBuyers as becoming live offers across the industry and eventually replacing automated valuation model (AVM) estimates?
I think it’s different. HomeLight is creating a kind of live offer marketplace, and I think there are others who are looking into doing it. Just like comparison shopping on airline tickets with Expedia, that kind of thing will grow over time.
The problem is, the iBuyer offer is, from our assessment, despite what everyone says, is not a full offer for the house. When you go through the math of all the transaction costs, the friction costs, you need to down bid it on the house, 3 to 5 percent. I think there will be live offer marketplaces but it’s not a replacement for an AVM because it has a downward bias.
Zillow is saying it’s 100 percent accurate. But you’re holding the house for 120 days, you’ve got taxes, you’ve got insurance, you’ve got maintenance, you have costs to buy the house, costs to sell the house. Who’s paying for that? Are you just donating that to the transaction? Is the buyer paying for it? Is the seller paying for it? It’s one of the three and the answer, of course, is that the seller is paying for it.
I know Orchard isn’t an iBuyer; it just has a guaranteed sale component, but what percentage of consumers do you think won’t go the traditional route and end up selling to an iBuyer?
We’re not at all in that space, because [with Orchard], you get the best of both worlds. You get a market price, and we’ll work with you with an independent agent, who is an Orchard employee, who’s working for you to get the best price. You’re only going to take our offer if you can’t get that market price; 85 percent of the time that house is selling on market, so it is a much better deal for the consumer.
What we’ve seen in market research we’ve done is that 8 to 10 percent of consumers are urgent sellers, meaning there’s a death in the family, they’ve got to move for a job, they’re house is distressed, whatever it is, and so they’re willing to trade that discount for convenience.
But 90 percent of people – a 4 percent discount on the average house is $10,000, that’s a lot of money – say ‘no, thanks, I’ll deal with the hassle.’ What we’re doing is eliminating that choice of, ‘Do I want convenience or do I want full price?’ and giving you both.
I’d note, the iBuyers, in general, are also charging a premium brokerage fee at 7 to 7.5 percent, and we’re charging a traditional 6 percent brokerage fee. For the price of a traditional broker, you’re getting all this value.
To take a step back, the way we thought about this problem from the beginning, is, if you go back 15 years, agents added a ton of value, much more than they do today, because they have this proprietary data source in the MLS and they can print out a pack with listings and tour books and they knew what was for sale.
Obviously, Zillow and others commoditized that; I can now find that on my own. When you do consumer research, 80 plus percent of consumers find their home themselves on one of the public MLS sites. It’s no longer the agent saying, ‘Hey, here’s the inventory,’ it’s the consumer saying, ‘I want to go see 123 Main Street on Saturday,’ and 80 percent of the time, they buy it.
The agent is basically providing advice. They’re helping you navigate this complex transaction and they’re opening doors.
The thing about our model, is we can go the Redfin path, that agents are adding less value today than they were 15 years ago, so let’s lower the price and have the place match the value.
But what we’re saying is, let’s leave the price where it is and let’s add value to the transaction. Let’s make the closing automated and easy, so it’s not complicated. Let’s give you certainty on your old home. Let’s turn you into a cash buyer. Let’s do all that for the same price as a traditional agent.
That’s been the mindset: Adding value while maintaining price, rather than the opposite, which is what Redfin’s been doing.
What do you think is the biggest misunderstanding about real estate companies trying to disrupt the transaction experience?
I think that the mindset that the industry has is the wrong mindset. Berkshire Hathaway has been focused on this for a decade. They have the highest attach rates — on average about a 30 percent attach rate on title and mortgage, which is double the industry average. They view it as a monetization opportunity: There are these other people in the value chain who are extracting value, so how can I capture some of that for myself? That is the mindset.
We think that is the wrong mindset because that assumes that the value chain is the right value chain, that the consumer should have to deal with three people to close their house. Our view is that the value chain is antiquated and the consumer should be able to deal with one person and one technology stack to close that transaction.
So if you start from the north star of customer delight, all your decisions are very different than what a Long & Foster, or Keller Williams, or any of these people are doing.
The side benefit is that when you take a tech-driven approach where everything’s integrated and automated, not only is it a better experience for the customer, they actually tend to use it more. You actually get the monetization benefit as kind of a derivative by focusing on customer experience.
Why are agents still important to the future of this? We talked so much about digitizing and automating things and making things as easy as possible for the consumer and making a really complicated transaction much easier. So why will agents continue to have a role?
Having talked to customers who have recently bought and sold real estate, there are a bunch of reasons. One is that it’s a big transaction. Two is that people do it infrequently — on average, every 12 to 15 years — and there is a complication to it.
Given those set of facts, this is not buying an electric toothbrush on Amazon. Getting it right or wrong is a big financial difference to people, and they want to get it right. And they want human hand-holding to do that.
But the other lens to look at it is, buying a toothbrush on Amazon is a transactional purchase. You don’t really care, toothbrushes are all the same. The home purchase is highly emotional.
This is actually one of the things that we think the iBuyers miss. Nobody wakes up in the morning and says, ‘I want to sell my house.’ That’s just not how it works. They wake up and say, ‘I am having another child, or a first child and I want to buy a house.’ Or, ‘My kid’s going to high school, I want to move to a better school district,’ ‘My kids are going to college.’
There’s some life event that triggers a desire to get into a new home and that new home is filled with hopes and dreams and desires — it’s a very emotional thing. I don’t believe that with that kind of financial value and emotional value of the transaction, that there’s ever a place where the agent isn’t involved.
That said, as technology automates a lot of the humdrum stuff, agents need to be really good at what consumers care about, which is providing good financial advice and helping mediate a lot of the stuff between husband and wife, which is a big part of what agent’s do.
Agents need to be really good at that part of the job. There will be many fewer agents 10 years from now, but they’ll be adding a lot more value.
Are you ready for what the industry holds in 2020? Inman Connect New York is your key to unlocking opportunity in a changing market. At Connect you will gain insight into the future, discover new strategies and network with real estate’s best and brightest to accelerate your business. Create your 2020 success story at Inman Connect New York, January 28-31, 2019.
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