Better.com, a digital mortgage lender that is set to go public later this year, unveiled Thursday another expansion of its in-house real estate group, one that has a unique business model in the world of brokerage.
The seven-year-old, New York City-based company will also soon provide an instant cash offer program to homesellers, said Christian Wallace, Head of Real Estate Services at Better. Wallace, a former regional sales manager for iBuyer Opendoor, said that Better would provide more details on the instant homebuying program in the coming weeks.
Meanwhile, Better has expanded Better Real Estate into Alabama and Michigan, the 15th and 16th state the company’s real estate arm has entered.
Real estate brokerages announce geographic expansions all the time. But since agents are usually independent contractors, who in many cases pay the brokerage to use their branding and resources, the company’s financial commitment is often unclear.
However, Better’s expansion will require hiring dozens of agents who are salaried employees, receiving base yearly pay of $70,000 plus health care and retirement benefits, Wallace said.
A handful of brokerages including Redfin and Austin, Texas-based REX also have salaried workers instead of freelancers getting paid strictly on sales commissions. Better seems to go a step further – their agents snare no commission at all from orchestrating a home sale.
For the seller, Better charges between a 0-1% commission on a sale with the company itself collecting the commission money. This is a marked discount from the customary 2-3% percent earned by a sales agent, and the 4-6% commission forked over by the home seller, who also pays the buyer’s agent.
Agents instead receive monthly bonuses based on overall sales performance, Wallace said.
Also, a traditional core part, if not the core part, of an agent’s job – lead generation – is mostly done by Better.
“About 10 to 15% of leaders are sourced by agents who are family, or friends, or a previous customer,” Wallace said. Otherwise, customers are connected to agents through Better’s app that is focused on mortgage applications.
Better hopes to recruit 500 agents by the end of the year. Wallace, a former Sotheby’s Realty agent herself, said she has been encouraged so far by the recruiting process.
“The stability that this provides agents is good, especially with health insurance,” Wallace said. “It depends on the type of agent. Obviously, if you are the top agent in the market, we may not be the brokerage for you.”
Better Real Estate started in 2019, and the company reported $694 million in real estate transaction volume in 2020, a 414% year-over-year increase.
That number comes from a May Securities and Exchange Commission filing by Aurora Acquisition Corp., a special purpose acquisition company that seeks to merge with Better and become a publicly traded business.
The deal is set to close in the final three months of 2021, a Better spokesperson said. Better has a hoped-for valuation of $7.7 billion.
Better, founded by its current CEO Vishal Garg, meteorically grew in 2020 primarily thanks to refinancing homeowner’s mortgages. Better reported $875 million in 2020 revenue, a 980% jump from the company’s $89 million generated in 2019.
Also, Better turned a $252 million profit in 2020 after losing $65 million the prior year.
Following its breakthrough 2020, Japan-based SoftBank gave Better a reported $500 million in venture capital money this April.
The SEC filing, though, anticipates possible setbacks.
“We believe our recent growth rates have been partially driven by increased use of online services as a result of the covid-19 pandemic and interest rates being at historic lows,” it reads. “In the quarter ended June 30, 2021, we expect a significant sequential decline in revenue that is primarily attributable to the raising interest rate environment.”
Better Real Estate is one way the company hopes to diversify beyond mortgage, with title and home insurance other paths.
Better is part of the growing trend of one-stop shops in which mortgage companies offer real estate services (see Rocket) real estate companies offer mortgage services (see Realogy, Compass, eXp, the list goes on) and everyone promotes a title division.
Such end-to-end services may run against the federal Real Estate Settlement and Procedures Act, or RESPA, a 48-year-old, routinely amended law that generally calls for a separation between the real estate deal and the mortgage transaction.
For example, a real estate agent is banned from getting a referral fee for sending a client to a mortgage loan officer.
Better’s SEC filings states that how RESPA, “will be applied to Better Real Estate is unclear to the extent those laws and regulations were created for more traditional real estate brokerages.”
Wallace said Better is in RESPA compliance, stating that the mortgage and real estate divisions operate on “separate platforms,” and that, “We also do not pay for a lead.”