Philadelphia real estate startup Houwzer sees a massive opportunity as residential brokerages across the country brace for the fallout of a court ruling that major brokerages conspired to inflate commissions.
A federal jury in Kansas City in late October found that the National Association of Realtors and other prominent real estate firms like Berkshire Hathaway and Keller Williams are liable to pay up to $1.8 billion for unfairly conspiring to drive up fees and commissions. Houwzer’s model since its inception in 2015 has flown in the face of traditional brokerage models, charging flat fees and commission on home sales. Now, Houwzer and its parent company, Newfound, feel they stand to gain in a changing industry.
Newfound CEO and Houwzer founder Mike Maher said at times being a “maverick” in the sector was a challenge, but now with the court ruling he wants to be active to ensure Houwzer and Newfound are set up to take advantage of what he called a “watershed moment for the real estate industry.”
“This is the beginning of a long, long process where change might not happen overnight. But this is like a crack in the door, the first domino,” Maher said. “There will be countless more lawsuits, there will be countless more decisions.”
In August, Houwzer formed a parent company, Newfound that oversees Houwzer and Trelora, the competitor it acquired in December. In the wake of the decision, Maher said Newfound is penning an open letter to the real estate community to outline a “pro-consumer blueprint for what real estate reform should look like.” That will be accompanied by blog posts and other content centered on what’s happening with the ongoing litigation in the industry.
He said that Newfound is looking to be a “thought leader” in the conversation.
“We’ve got to get to a place where we can lead this conversation and we have to pivot from justifying our commissions and costs to actively seeking ways to reduce them,” Maher said. “This is in the best interest of the consumer.”
Houwzer’s model includes paying its agents a salary, charging a flat $5,000 listing fee for selling a home and a 2.5% commission fee for buyers, compared with 5% to 6% typically. Trelora operates much the same way as Houwzer. With the launch of Newfound, it also added a do-it-yourself home listing platform, Homerise, that allows buyers to circumvent using an agent for a one-time fee starting as $95.
Maher sees a real estate industry that will hemorrhage agents as a result of the litigation. He predicts the number of agents in the National Association of Realtors could drop from a record high of over 1.5 million in 2021 down to around 500,000. That could be a boon to hiring and growth at Newfound.
Maher also envisions commissions falling in line with what Houwzer’s rates are, settling around 2% to 3%.
“Many more dominoes will continue to fall,” Maher said. “Ultimately, we’re going to get to a place where the traditional real estate brokerage in 24 months will look drastically different than it looks like today, in terms of what the average commission structure in America looks like.”
In the current real estate environment where inventory and transactions are still low with mortgage rates high, Maher doesn’t expect to see a major impact of the court ruling on Newfound’s bottom line immediately. But he’s plotting to position the company so when the market does open up, buyers and sellers look to models like Newfound.
Maher expects to grow “on the heels of consumer awareness” in 2024 as litigation in the real estate world continues. In 2025, he projects a “catalytic curve” in revenue as mortgage rates come down and more buyers and sellers return to the market.
He added Newfound will also be aggressive and “opportunistic” on the mergers and acquisition front. That could be a listing platform like Houwzer or Trelora or it could be a search engine, an enhanced mortgage lending business or a buy-before-you sell program, according to Maher.
“In chaos, there’s opportunity,” Maher said.
