Deal To Watch: The New Way To Shop For Homes

Key Stats:

Summary

At time of publication, June 13th, 2019, SimpleShowing had raised, $51,586 of the $1,070,000 offering.

The SimpleShowing team has been selected as a “Deal To Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Problem

Millennials, are 8% less likely to be homeowners than previous generations. Millennials account for 37% of the home buying market, the largest age demographic buying homes today.

Millennials are characterized as desiring less relationship-based transactions and demanding high tech, frictionless interactions. In fact, 45% of Millennials reported buying a house without physically walking through it. 99% of Millennial homebuyers searched for a house online. 50% of all buyer found their home online.

90% of homebuyers use a traditional agent. Typically, this means a homebuyer is paying an average of 3% of the purchase price of the house to their agent to manage the transaction, whether they look at one house or 100 houses. Current incentives reward agents for quickly finding a house for the client to purchase.

This perverse incentive has been well documented as disadvantaging the buyer/sellers because when agents are selling a house for themselves an average the listing is 9 days longer and fetches 4% more.

The rise of the internet, democratized information, thus dramatically altered sectors which rely on information such as air travel, hotels, rentals, investments, etc.… Real estate has largely remained unaltered by technological advances.

Solution

Prior to founding SimpleShowing, Fred McGill, in addition to his full-time job, flipped houses on the side, so he got his realtor license to avoid commission costs. McGill got many requests from friends and friends of friends to use his real estate license to show houses or put a listing on MLS.  He kept hearing grumbling from fellow Millennials about being required to pay 3% of the property cost to a real estate agent when the client did most of the work.

SimpleShowing started with a narrow focus on buyers. SimpleShowing offers clients commission refund based on how much work the realtor put into the sale. If the client looked at three houses or less than they can receive up to 50% of the commission back. A client who requires the agent to do more work and looks at 13 houses will receive less commission back.

In some cases, a potential buyer will be given the code to a house and able to let themselves in to see the house without a realtor. SimpleShowing customers like the ability to book a house showing through the SimpleShowing app, independent of an agent.

Customers

McGill clearly defined the target market as late 20’s to early 30’s professionals who are looking to buy their first home. These people are tech savvy and probably already narrowed down the neighborhood, even the street they want to live. SimpleShowing’s customers are not interested in driving around all day to look at available houses with a middle aged, non-tech savvy soccer mom who is trying her hand in real estate.

SimpleShowing customers want a similar transaction experience to companies such as Uber, Amazon, OpenTable, AirBnB, etc. As this customer is new to real estate, is stunned at how little technology has disrupted the real estate.

Competitors

SimpleShowing’s biggest competitor is traditional real estate agents who take 3% commission for the buyer. According to the National Association of Realtors, 13% of buyers do not use a traditional agent. This has only risen 2% in the past five years.

Open Listings is probably the closest competitor to SimpleShowing, distinguishing itself by providing specialists for each step of the home buying process. Reali offers flat rate real estate services in California. Knock’s business model is geared to the non-first-time home buyer, buying your existing home and selling it once you have moved out.

Homie has automated much of the real estate transaction business, thus can offer a flat fee real estate service. PurpleBricks was one of the early non-traditional firms to launch and achieved great success in the UK. It expanded too fast to Australia and the US, recently it closed operations in Australia and is reevaluating its business model in the US.

Team

Fred McGill, Co-founder and CEO, has energy and passion towards serving his target market. Prior to starting SimpleShowing, McGill held several sales roles in companies such as SalesForce and Johnson & Johnson. His most recent sales role was building Redox’s sales team in 2016. His year long at Redox is his only startup experience. During these sales roles he was flipping houses on the side and got his real estate license to save on broker costs.

Jeremy Gamble, co-founder and COO, spent 16 years at the non-profit Orlando Health Foundation, rising to the vice president role. Gamble also house flipped on the side which lead him to get a real estate license. The other employee highlighted is Taylor Hayduk, Director of Engineering. According to his LinkedIn profile, his experience in software development began two and half years before joining SimpleShowing.

There is a noteable lack of serious startup chops, but in terms of industry experience and technical capability, we do think the team is capable.

Why We Like it

1.  Market Timing: Unlike most industries, real estate thus far escaped technology disruption. Real estate is currently popular among venture capitalists because there is opportunity to enjoy the efficiencies technology can provide. While various forces have prevented disruption in the past, Millennial’s ready to become homeowners are demanding products and services which meet their needs..
    
   

1. Millennial Focus: SimpleShowing began and has remained committed to the Millennial first time home buyer. McGill is clear about his target customer, defining him as a 29-year-old, renter, with a good education and job. McGill’s sharp customer focus is less common among young companies, which tend to trip up companies as they spend more resources on a vision of the product rather than focus on whose needs the product will address.
    
   

1. Product: SimpleShowing began to serve buyers. It takes discipline to focus on a niche market. After 18 months it became evident to the leadership team that happy customers wanted to sell their house via SimpleShowing, so the company met the demand. Understanding the value of focusing on a niche part of a large market rather than being everything to everyone is strong corporate stewardship. The ability to reassess the market, listen to customers and adjust a strategy is critical for a young company.
    
   

1. Expansion Plans: SimpleShowing is planning geographic market expansions to Nashville, Miami, Washington, DC and Charlotte in 2020. These are strong target markets recognized by other players in the field as opportunities. More interestingly, SimpleShowing is focused on extracting more revenue out of the channel. In August 2018, SimpleShowing secured a partnership with Lemonade a technology enabled insurance provider. In January 2019, SimpleShowing partnered with Divvy to show homes to potential customers in their network.
   
   According to McGill, SimpleShowing is about to establish partnerships with mortgage companies to offer pre-approval and technology consistent mortgage offerings to customers. This strategy of serving more of the target market’s needs as opposed to expanding the market will likely be an effective strategy.
   

Summary

SimpleShowing is a Deal To Watch. McGill, “Now is the time to disrupt the real estate industry.” There is compelling evidence to agree with this statement, as investment in real estate ventures has grown from $138M in 2013 to almost $3B in 2018. Despite this excitement, the real estate industry has some of the largest lobbying efforts of any industry. The National Association of Realtors spent over $70M lobbying in 2018. This is the 2nd highest lobbying group, second only to the US Chamber of Commerce.

Why does real estate lobbying matter? Many states still have legislation in place to protect full-service realtors. The Department of Justice’s website has the following statement on their website, “The most obvious way consumers lose the benefits of a competitive real estate industry is when state laws shield brokers from competition.” In fact, there are still ten states in the US which do not allow commission rebate.

SimpleShowing has a strong start. The company slashed its self-reported customer acquisition cost in half during 2018. Self-reported revenue is on a steady incline, reporting $80k in revenue in April 2019.

SimpleShowing’s biggest issue is the lack of experience or advisors. McGill has sales experience in large established companies. Gamble has 16 year’s experience in non-profits. Neither has experience in startups or real estate. There are plenty of success stories of people with little experience building great companies, but those folks usually acknowledge the advice and mentorship from skilled experienced folks. SimpleShowing would strengthen their position by creating an advisory board to assist them in real estate and building a startup.

Though they are in a challenging industry with some lacking experience, we still think the early traction, strong investors and large market opportunity can serve to make this an intriguing investment opportunity.