Getting a higher attach rate on affiliated services like mortgage, title and escrow, has long been heralded as a path to more profitability for real estate brokerage and iBuyer startups.
The key to success is in the type of agents you employ and your business model, said Paul Hurst, the vice president of venture investments at First American, during an Inman Connect in New York panel Friday entitled “Integrated Services: The Pot of Gold?”
Paul Hurst | Photo credit: First American
HomeServices of America has had an integrated model for more than 20 years, but only about 20 percent of brokerage service consumers are also using HomeServices of America for an affiliated service, said Clelia Peters, the president at Warburg Realty and editor at large at Inman.
That low attach rate is a result of the agent as an independent contractor business model, according to Hurst. His company finds the 1099 model, which most brokerages are, has about a 20-23 percent attach rate.
“And frankly, you have to offer a panel of best-in-class providers,” Hurst said.
With the W2 model — like Redfin, for example — you can start to direct the transaction a little bit more, Hurst explained.
“Again, choice is still important, but I think they will have a higher success rate,” Hurst said. “We start to see that in early-stage businesses, they have attach rates in the 60 to 70 percent range.”
But in both cases, where some of those models struggle is that traditional real estate agents don’t like to send business to their in-house agencies, so there’s a natural tension between the buy-side and the sell-side and agents will push the transaction towards their preferred advisor, according to Hurst.
The highest attach rates are companies that buy and sell homes themselves, like Zillow Offers or Opendoor. Zillow has been public about its goal to offer both mortgage and closing services within its platform to consumers and Opendooor offers those services to its clients on the heels of a title and escrow services company acquisition.
Sean Black | Photo credit: Knock
Knock, a home trade-in startup that lets consumers use the equity in their homes to buy a new one, boasts a 100 percent attach rate on mortgage and title because it is the product they are offering, according to its CEO and co-founder, Sean Black.
Knock, which uses its capital to buy homes for consumers, does all the work upfront on those services, getting consumers pre-approved and income verified.
“When we go to buy them a house, we know exactly how much house they can buy,” Black said. “When we get an accepted offer with them on a home, our partner gets the house appraised in 10 days or less, so that if that mortgage doesn’t attach to the house we can renegotiate her back down and the rate can be locked in.”
“You have to control the user experience if you want that kind of [service-level agreement] in place, if you want to have the consumer experience be seamless and certain,” Black added.
Drew Uher | Photo credit: HomeLight
As Black notes, one of the theories behind adding affiliated services is streamlining the transaction process. Drew Uher, the CEO of HomeLight, a real estate referral company, explained that people don’t necessarily want a faster closing experience, but they want the certainty that a timeframe provides.
“Nobody really cares about speed, they care about certainty,” Uher said. “But speed is often a barometer of certainty.”
“When you say, we can close in three days, what that means is we’re certain we can actually close.”
