Collapse in buyer demand sees abrupt about-turn at hybrid brokers

The worsening economic outlook, and in particular the abrupt collapse in demand for home purchases, is leading to a rapid reversal in the fortunes of many of the hybrid and cloud-based broker enterprises that have sprung up in Germany over the last few years.

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 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.

Hitting the headlines most recently has been the insolvency of the Realbest sales platform and the sizeable layoffs announced by the hybrid brokers McMakler and Homeday. Both of these companies maintain bricks-and-mortar offices in addition to their digital platforms. These two will certainly be followed by less 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 year.

Realbest, which was founded in 2013 to blend the classic property brokering business with a digital platform, has had a chequered past with the departure within a few years of its start of its two founders. Early-round investors gradually exited, and by 2020 the sole owner was serial entrepreneur Rolf Elgeti, a man with a sterling track record in profitably owning and managing German listed real estate companies.

This time, however, Elgeti appears to have decided that Realbest, which has so far never been stand-alone profitable, has come to the end of the road. That it still has ongoing partnerships with many brokerages which use its platform may give it a chance, should a buyer emerge soon to pick up the business with its 40 employees.

McMakler, founded in 2015 and which had been growing rapidly, had earlier this year received a further multi-million investment from Scottish investment manager Baillie Gifford on top of earlier financing from Warburg Pincus, and had been talking about an imminent stock market listing. Last year the company increased turnover by more than 70% to more than €92m, doubling its market value.

As recently as April McMakler had made a splash in welcoming a further 48 new staff to 17 of its German locations. Now it looks as if up to 120 staff will be departing, more than 10% of its headcount, according to start-up platform Gründerszene.

Homeday, also founded in 2015, is letting at least 60 people go from its 260 staff at its Berlin and Cologne main locations, from where it services about 230 self-employed brokers throughout Germany. The company has brokered more than €3bn of transactions since then.

Another broker network, REMAX Germany, had earlier announced a new technical alliance with property portal Immowelt, which it hopes will give it a higher profile to support its 850 independent brokers operating out of 215 offices, who last year turned over more than €2bn in transactions. REMAX said it believed that, with only 45% of property sales in Germany being handled by a broker, there was big potential to marry up the technology of a portal like Immowelt with the local knowledge and expertise of its independent brokers. REMAX CEO Kurt Friedl said of the co-operation with Immowelt: "The boundaries between brokerage services and portal technology are becoming increasingly blurred. Portals like Immowelt are now viewing themselves as a technological partner for high-quality and professional brokerage work."

Immowelt itself recently predicted that 10 of the top 14 biggest German cities would see either stagnating or falling property prices by the end of this year. The emphasis for brokers would now be on shifting their focus from sellers to buyers, who as a group in the current climate are much more likely to be familiar with available online and digital tools. The marriage between technology and the real-life needs of buyers and sellers to have access to real advice looks like it still has plenty of road ahead.