Keller Williams recently announced a “$1 billion” technology fund to “combat disruptive technologies”.

Disruption might be over-hyped in the real estate industry, but Redfin’s valuation and investment into real estate technology should give brokerages pause about their future.

Keller Williams announced a $1 billion fund to help protect the franchisor against potential industry disruption.

(Josh) Team announced that Keller Williams is taking steps to protect the agent and the brokerage, setting aside $1 billion for technology development in the near future and encouraging others in the industry — franchise-based and independent brokers alike — to follow their lead by working to elevate real estate agents.

Founder Gary Keller and CEO John Davis “realized that the next 12 to 18 months will be the most important months in real estate,” Team told Inman. “That was a soul-defining moment where they said, ‘We can’t let money be a deterrent.’ So they’ve committed a fund so that if and when we need to accelerate and make aggressive moves, money isn’t a factor.”
Disruption is real?

The home sale pie isn’t getting bigger, but there are more companies today that want to take a bigger slice of that pie.

Team mentioned Redfin’s IPO (initial public offering) and noted how the company’s stock rose. “Redfin’s valuation has shown that the market thinks they have a chance,” he explained.

In other words, investors think there’s an opportunity to close that gap in real estate — and they’re willing to put money down to back a potential winner.

“The only way our industry stays protected is if the other big franchises and brokers enter the platform wars,” Team told Inman. “If they don’t get involved, then all these non-traditional players will — and that’s not good for the industry.”

A February, 2017 press release noted that Keller Williams’ franchises include “more than 800 offices and 154,000 associates”…

Presumably, a “$1B” disruption protection fund seeks to monetize their associates. Is a KW associate worth $6,493 (simple math $1B/154,000)?

More or less depending on the projected multiples of that “$1B” fund?

Commentary on Redfin’s Public Market Valuation and Long Term Prospects

A case in point for skeptics is the experience of ZipRealty, a maker of a real estate technology platform that went public in 2004 and peaked at about a $500 million market capitalization before selling to Realogy for $166 million in 2014 after the housing crisis hit home sales nationwide.

“What happened to ZipRealty is a pretty good indication of what the future looks like for a business model that sounds new, disruptive and sexy, but always loses money, year after year,” said Patrick Carlisle, an executive at Paragon Real Estate Group, an independent real estate brokerage in San Francisco not backed by venture capital.

Redfin plans to use cash from its IPO to fuel growth in its existing markets. Nationwide, it controls slightly more than a half-percent of home sales, it said in its IPO prospectus. Even in Seattle, Redfin’s biggest market, the company only has about a 4% to 5% market share of housing units sold, according to industry estimates. Redfin has higher costs than similar firms because it employs brokers full time rather than having them work on commission. The company tries to use that model to offer cheaper commissions to home sellers.