Cloud-based and digital brokers seek more of the German commission pie

Two new foreign real estate broker platforms have recently entered the German market, drawn by what they see as a very fragmented market in the residential sector, with still enough potential for their particular business models.

The French broker association Iad is now making a serious attempt to put down roots in Germany, while last year saw the launch of the American franchise concept eXp Realty. Both companies are entering the German market a year after sweeping new German laws regulating brokers' commissions were introduced nationwide. These have ushered in a new era for thousands of independent German brokers, the effects of which are only now really being felt, to the pain of many.

eXp Realty is a Washington D.C. headquartered cloud-based franchise broker that has been growing rapidly in its home country the USA, as well as in the 21 other countries it has entered since its foundation in 2009, including nine new markets last year. The company has 72,000 brokers worldwide, and pushed its turnover to over $1.1bn last year, an increase of 97% on the previous year.

The German operations are headed by Ilka Vietz, who runs her own brokerage and consulting business in Biberach an der Riß in Baden-Württemberg, after gaining several years experience with Postbank Immobilien. The company bases its business model on a virtual 3-D platform through which its connected local brokers network.

The parent company provides its brokers with a range of sales and real estate technology tools, including a brokerage model for residential and commercial properties, as well as tools such as an individual website or a programme for creating 3-D viewings.

On the cloud-based 3-D platform for its broker partners, the brokers can control an avatar like in a computer game and use it, for example, to take part in virtual training courses, interacting with other participants and the lecturers in an animated lecture hall. The avatar can also control the virtual head office and participate in conferences. Driving this is a virtual work model developed by Virbela, a software platform bought by eXp in 2018.

iad is a French brokerage group, headquartered in Lieusaint, south of Paris. Its newly-established German operation, headed by Marcus Walthaner, is based in Frankfurt and is actively recruiting new partners for its franchising operation.

The company's business model is based on three main pillars - brokerage with no physical company offices, its digital platform, and a network marketing approach to building up nationwide coverage through independent entrepreneurs.

According to Walthaner, iad's business model is tapping in to the big technological and structural changes taking place across the real estate and labour markets. "Driven by the relentless high demand for private housing and low interest rates, the real estate industry is one of the most dynamic growth sectors in the country," he says. In the classical manner of network marketing organisations, the absence of physical infrastructure in the form of offices and managerial overhead means the company can re-invest that revenue in its network of brokers and their independent operations.

As with other network marketing businesses, really active broker members can build up networks internationally, and are not limited to a geographical territory. The business model sees brokers having to pay Iad a licence fee of 31% of their commission, in return for Iad offering the digital structure, the back office support, and training and consulting.

Iad says it has 16,000 broker/advisors in its network, with the parent company having an annual turnover of more than €500m. The company is active in France, Portugal, Italy, Spain and Mexico, and now Germany.

REFIRE: Both of these companies - iad and eXp Realty- are representative of a new breed of proptech-driven estate agency businesses that are disrupting traditional broker structures around the world - now very much including Germany. As traditional brokers shed staff, individual agents are setting up on their own as self-employed operators, lured by the dream of better remuneration and perhaps that elusive work-life balance.

In the US, the charge is being led by companies such as eXp Realty and Keller Williams, bitter rivals in a battle for supremacy in the the new digitally-driven brokerage space. In the UK, companies such as Spicerhaart and Fine & Country (which also has a presence in Germany and Switzerland) are also creating their own mark on the industry, with their own business modest based on individual estate agents supported by the parent brand.

There is likely to be a wave of consolidation as companies slug it out with each other, and their business models face tough tests in delivering on their promise. The reality is that many of the companies are constructed as multi-level marketing businesses, where the dream of providing an honest and diligent service to end-consumers often gives way to the more pressing (and likely more lucrative) activity of building a downstream network, on whose efforts one can earn more commission. Such businesses tend to be profitable for those at the top of the pyramid, but it does require the constant input of quite a lot of 'gung-ho positivity' from the company apparatus to prevent disillusionment setting in among the foot soldiers, and the ability to deal with a high level of 'churn'.