Swiss hybrid broker the latest to enter fraught German residential market

Consolidation continues in the fractured German brokerage industry

Just when potential residential property buyers are retreating in droves from the marketplace, another new foreign-owned broker group has arrived in Germany to try its luck in grabbing a piece of the broker commission pie.

This time it's Swiss hybrid brokerage Neho, which comes with a 6-year track record of expanding in its home market and a business model that aims to undercut existing overall commission rates in the market through its cost-saving platform.

The new arrival enters the market at a time when existing big hybrid brokers like McMakler and Homeday have been slashing their payrolls and letting large numbers of staff go, so there will be considerable interest in how the newcomer beds itself into the market.

The Neho business model for Germany envisages overall commissions on a property sale of 3.5%, or about half the rate prevailing in the market. Given the current revised laws on splitting commissions between buyer and seller, Neho says it can sell a property for 1.75% commission to the seller.

This is different to how it operates in its home market, says its COO Sebastian Eraghi, as Germans are much more used to commissions paid on the sale amount. For the German market the goal is to undercut the competition by at least 50%, Neho says on its website.

The company is starting in Germany with partners in 18 locations in southern Germany, close to the Swiss border. It says it plans to roll out operations in all German A- and B-cities within 30 months, through a combination of employees and franchise partners. Neho's owners, Proptech Partners in Lausanne, say they plan to finance the German expansion through their own resources, and intend to remain majority owners of the business.

In Switzerland the company employs 80 staff in 20 regional offices, and bills itself as "The Property Broker Without Commissions". Instead, it offers its services for for a fixed price of CHF 9,500 irrespective of the final sales price of the property. At a typical commission rate in Switzerland of up to 3%, a seller could save more than CHF 20,000 on a property selling for CHF 1 million.

Eraghi is bullish on the timing of his company's arrival in Germany. "We are entering the German market at a perfect time. We have proven in Switzerland that our concept of maximum efficiency and quality of advice and brokerage at an uncompromisingly low price works. In the current market phase, the cost and quality argument is becoming increasingly important for end customers - we can meet this."

"We've managed to make the broker's job incredibly efficient through the targeted use of digital tools." Paperwork is reduced to a minimum, he says, and unnecessary visits are avoided through targeted pre-selection of prospective buyers and virtual tours. There are no representative offices, but there is a lot of artificial intelligence on the computers. That saves time and money. "But we only digitize where it makes sense," says Eraghi.

"We can also offer our brokers above-average compensation through cost-saving processes. For our customers and brokers, we combine efficiency, low costs and a human approach. It is our philosophy to provide human contacts to all our clients."

The hybrid broker market in Germany has been going through a tough time in 2022, with market leaders McMakler and Homeday drastically cutting back on staff numbers from the second half of the year. Their businesses are based on the same idea as Neho's - through their digital platforms, undercutting the traditional brokers on service and commission.

Both of these companies maintain bricks-and-mortar offices in addition to their digital platforms. The market was also recently joined by other high-profile broker platforms, a number of which - like French group iad Deutschland and American group eXp Realty - have only arrived in Germany in the last eighteen months.

Since the fundamental re-arrangement of broker compensation starting back in 2015, the market has been flooded with new digitally-based business models for matching sellers with potential buyers.

The introduction of the so-called 'Bestellerprinzip' - 'who orders, pays' - in June 2015, changed things in that many owners and landlords were no longer prepared to pay hefty commissions to brokers to move or rent out their properties after the law had changed in favour of buyers and renters. This led to a surge of more than 50 new digitally-based start-ups with matching models to replace the old structures.

Now many of those models are coming under severe pressure for the first time as the market goes into reverse, while the venture capital investors who have fuelled the helter-skelter expansion of these start-ups are now exerting pressure on their charges to cut their cloth to adapt to new realities.

Already a casualty of the downturn is Realbest, founded in 2013 to blend the classic property brokering business with a digital platform, which filed for insolvency in August last year. After several financing rounds, followed by the departure of its founders, Realbest ended up in the sole ownership of serial entrepreneur Rolf Elgeti, a man with a sterling track record in profitably owning and managing German listed real estate companies. He pulled the plug last year, and when we last heard he was looking for a buyer for the company's technology and platform, and hopefully some of its 40 employees.