The traditional role of the real estate agent has long been challenged as the Internet has made it easier for people to search for and browse homes.
Historically, agents received a 6% commission on home sales – a practice that is increasingly being questioned. The argument against it is that many times buyers have already done a lot of the legwork when identifying a home to buy, so an agent’s job isn’t what it once was in pre-internet days.
Over the years, real estate tech companies like Redfin have tried to upend the model by hiring agents as salaried, but that hasn’t always been successful.
However, this has not deterred many startups in the space. based in New York Prev (pronounced preview) is one such startup. It hires agents as employees with health care benefits and pension plans and operates on the premise that “the role of the agent is changing.”
“It’s becoming much more of an advisor in a major transaction that’s more like wealth management,” said Prevu co-founder and CEO Thomas Kutzman. “So the agent really becomes an extension of a brand as opposed to being their own small business.”
Further differentiating Prevu’s business is offering buyers a discount if they purchase a home using its platform.
In an environment where interest rates are extremely high — hovering between 7.5% and 8% — and there’s a shortage of available homes in most markets, being able to get cash back when buying a home can be attractive.
Since launching its digital home buying platform in June 2017, Preva has helped more than 1,200 homebuyers purchase properties totaling more than $1.5 billion. Home prices ranged from $250,000 to an $8 million apartment in New York.
Over time, the company says it has saved consumers an average of $23,000 per home purchase with the rebate program.
Prevu aims to modernize the customer experience by allowing home buyers to search for homes, schedule tours, plan offers and work with a specialist agent through its digital offering. About 50% of its customers come to the platform ready to make an immediate offer on a home and are looking for expertise with the more complex parts of the buying process.
“People come for the discount, but they stay for the user experience,” Kutzman said. “Prevu offers an Amazon-like feel with the latest updates, such as text messages when tours are confirmed. It’s a lot more than what people are used to in every other area of their lives, but they haven’t received it in real estate.”
Image Credits: Prev
Today the company announces that it has raised $6 million in a Series A funding round that included participation from new investors Citi, Alpaca Ventures, Winklevoss Capital, RiverPark Ventures, Metropolis Ventures, Simplex Ventures and Liebenthal Ventures. They joined existing Alpaca VC backers, TYH Ventures and Blue Ivy Ventures, who put money into Prevu’s $2 million seed round in late 2019. Since that round, the startup has seen its annual revenue grow nearly 10x, according to Kutzman.
Prevu’s geographic footprint has grown to 12 major metropolitan markets from its initial market of New York at the time of the first round, with six of those markets going live in the past six to nine months. Currently operating in New York, Boston, Philadelphia, New Jersey, Washington, DC, Maryland, Northern Virginia, South Florida, Southern California, San Francisco Bay Area, Seattle, Denver and Austin.
The startup currently generates commission income on each real estate transaction — totaling 1% to 1.5% of the transaction value, excluding customer discount.
The buyer’s agent commission varies from transaction to transaction depending on what is offered by the seller. In a scenario where the buyer’s agent commission is 3%, for example, the home buyer would receive up to 1.5% as a rebate and Prevu as a company would keep the other 1.5%. Prevu agents earn a “small” commission on each transaction in addition to their salaries.
Buyers receive commission rebate via check after closing.
Next, Prevu plans to begin offering access to more services in the long term related to mortgages, titles and other buyer-related services. In fact, last year it bought mortgage technology from now-defunct proptech Reali, which shut down last year. Some of its new capital will go toward that, as well as accelerating growth in new markets and expanding into existing markets like Texas and Florida. In the long term, it aims to be a national brand.
Making buying a home ‘more doable’
So, discounts aside, what does Prevu do that’s different from its competitors?
It boils down to its proprietary technology, Kutzman believes.
“A lot of people have tried to change the cost of service, but they don’t really innovate on the actual technology that allows them to serve the business, and they end up having big scaling problems,” he said. “We’re creating a better consumer experience, but it’s also the back end of ‘how does this collaboration between the consumer and the dealer happen?’
This technology also helped the company stay lean in terms of hiring. Prevu currently has 25 employees, the majority of whom are agents.
“We’ve hired as we’ve gone into new markets, but we haven’t had hiring be a barrier like many other competitors,” Kutzman said. “If you look at traditional brokerages, it’s all about recruiting other agents. Our average agent does 40 deals a year, while a top tier brokerage will do somewhere between five and eight deals a year. So we have a higher level of efficiency where the wage can work.”
Co-founder and co-CEO Chase Marsh says shoppers use sales in a variety of ways.
“With the affordability crisis, interest rates having done what they’ve done and house prices not falling much, people are using cashback to do things like furnish their new homes, win bidding wars or lower mortgage rates by buying points on their mortgage,” he said.
Jeff Meyers, a director at Citi (which wrote the largest check in the Series A round), told TechCrunch via email that he was drawn to a few things about Prevu, including the Smart Buyer commission discount because it “makes buying a home more attainable . “
Additionally, he was impressed with its “shopper-focused platform” that gives individuals “more control and greater access to enhanced digital tools.”
Daniel Fetner, general partner at Alpaca VC, noted that his firm was also an early investor in real estate firm Compass and has watched “closely” as the home buying experience has changed over the years.
“We believe Prevu’s value proposition is a no-brainer for today’s ‘smart shopper’ who wants to use Prevu as a friend in the first mile and an expert at the end of the transaction,” he said.
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