How Has REX Pushed Past Outmoded Practices & Reshaped Real Estate Landscape?

Arguably considered an antidote to the corruption, waste and inefficiency that infects the current industry, REX brings in massive and transformative steps forward in how Americans shop for homes.
REX Homes marketing and sales reps team
Source: REX
By | 10 min read

Pushing past the outmoded practices of conventional real estate brokers, REX has fundamentally redefined the landscape through harnessing the power of big data analytics, AI, and machine learning to “bring residential real estate into line with today’s expectations”. The six-year-old startup, co-founded by former Goldman Sachs partner Jack Ryan, is arguably considered an antidote to the corruption, waste and inefficiency that infects the current industry, offering massive and transformative steps forward in how Americans shop for homes.

So, how has this “ground-breaker” been conceptualized and changed the real estate game ever since? Whether REX will become the future of residential real estate sales? Let’s read on to uncover.

How REX Has Been Changing the Real Estate Game?

To grasp a crystal-clear insight into how REX has revolutionized the residential real estate scene, let’s step back to understand how conventional real estate agencies operate – as well as why and how they have forestalled the technology-driven fee reductions seen in the travel, financial services and every other consumer-facing agency industry.

When it comes to the traditional model, brokerages typically hire agents on a commission basis and take a cut of up to 50% of the fees collected when homes are bought and sold. On average, the seller pays 1-3% for the services of an agent and another 2.5-3% to the so-called “buyer’s agent” that, though ostensibly representing the interest of the buyer, is actually compensated by the seller (who in turn recoups the fee by raising the cost of the home).

Traditional brokerages argue their agents provide a better outcome because of their deep local market knowledge, their expertise in the intricacies of real estate transactions and their personal relationship with the parties. And they require, as Multiple Listing Service (MLS) members, that both seller and buyer fees are paid irrespective of the value the agents bring to the deal.

“They passionately argue their value; personal touch, local expertise, etc.” commented John Fulton, Real Estate Advisor. Then, he stressed, “Their defense seems to suggest that they are slightly missing the point: Neither disruptors nor homeowners disagree that agents provide value, the major disagreement is over whether paying a 6% fee against the full sales price of a home is in proportion to the value being provided. Being that the 6% commission hasn’t been unfixed since its inception in the 1940s, it seems like the conversation about the relationship between fees, modern technology and value is long overdue.”

people work at REX Homes head office
Source: REX

Notably, without keeping commissions at that high level, the traditional brokerage business would collapse.  Since agents are paid on commission only, they are forbidden by law from earning revenue from the provision of all the other services that are typically required when buying or selling a home — escrow, title insurance, mortgages, and home insurance. Once the home is bought or sold, the realtor typically collects the fee and walks away.

That explains one unusual situation in the U.S, where brokerage commissions are three times higher than in other major markets, including China, Sweden, South Korea and the U.K. Whilst technological advances empower buyers to find homes at their own online comfort and the work the agent does — from photos to open houses — have become commoditized, the commissions agents collect have stuck at the same sky-high level for 50 years.

“It’s a vicious cycle — commissions are high because there are two million agents and there are two million agents because commissions are high. Residential real estate is what you get when you design an industry that is perfectly opposed to progress.”

Beyond any doubt, neither U.S. realtors nor the conventional brokerage agencies that employ them are incentivized or equipped to help homeowners on a longer-term basis. Indeed, their business model and practices were performed at a different time, with various technologies and instead of adapting, they have usually fought to maintain their privilege through anti-competitive and ultimately, anti-consumer behavior.

“Nascent next generation brokerages pose a threat to traditional brokers who are happy with the status quo. Startups, conscientious and forward thinking by nature, want to challenge the way it’s always been, look at the fee through a 21st century lens and redefine value to mean that which helps homeowners retain their hard-earned equity. In response to an otherwise admirable goal for society, Realtors attempt to undermine their credibility by referring to these mavericks as “discount brokerages”,” noted John Fulton.

REX Homes staff at a booth in a trade show
Source: REX

The Inspiration Behind the Formulation of REX

Whereas the “traditional brokers who are happy with the status quo,” homeowners and buyers are definitely not – this is exactly what inspired REX which came to cut out middlemen!

“When I was a partner at Goldman, I was involved in moving the trading of shares and bonds from middlemen who cost a lot to electronic trading with personal attention. We were able to save customers lots and lots of money. I realized I could do the exact same thing in the real estate industry,” shared Jack Ryan, Co-founder and CEO of REX, Former Goldman Sachs partner.

In fact, the CEO himself did suffer irritating experiences with the traditional real estate model. “When it was time to sell my first home, I had a vague understanding that it was going to cost me 5 to 6% of the value of my home, which seemed like a lot. But then I did the math and realized that the agent’s fee would be close to 50 percent of the appreciation of my home.” He noted, “I had put my money at risk, made the improvements, maintained the home, and someone else would get the profits. The price was going to be higher for the buyer and lower for me because of the large fee for the middleman. So, I put the house on the market myself, quickly found a buyer near the asking price, and had a lawyer handle the documents for a small fee.”

REX Homes CEO and founder
Source: REX

And ironically, when Jack Ryan was ready to buy a home, “we contacted the seller’s agent, who introduced us to his client … and then the agent left for a two-week trip to Italy.” While the agent was vacationing in Italy, Ryan and the owner did negotiate and nearly complete the sale on their own. Yet upon his return, the agent still collected his large fee.

This is when REX – a technology platform that replaces the conventional real estate model with a digital alternative for home-selling – came into place.

“We have three big beliefs: We believe we can make the experience of buying and selling a home much better at a fraction of the cost. We believe we can improve the process by removing the impediments between buyers and sellers. And we also believe we can share our success with children and families who lack safe, comfortable homes.”

REX: The AI-Empowered Disrupter to Compete with Conventional Real Estate Agents

Established in 2015, REX aims to “be the first licensed residential brokerage that uses AI and big data to push past the outmoded business practices of traditional realtors with the goal of providing dramatically better outcomes and experiences for both buyers and sellers at a dramatically lower cost.”

Critically, the digital-enabled real estate platform exists outside the MLS system, the loose confederation of around 750 realtor organizations that maintain restrictive practices and artificially high fees even though the Internet has radically reduced the value traditional realtors offer to consumers. That is also what sets REX apart from other real estate firms that claim themselves as tech-based disrupters but remain compliant with the MLS.

“We believe our business model and what we’ve accomplished to date sets the stage for a transformation of the US residential real estate market that could break the grip of the MLS system, massively driving down consumer costs and unleashing greater purchasing power to benefit the broader economy,” Eric Rothman, Market Lead & Relationship Manager at REX.

Let’s take an overview look over the real estate landscape. The stakes are enormous: Whereas Americans spend around $1.5 trillion annually on consumer products, they do spend staggeringly $4.5 trillion annually on consumer services — several of which are related to the home. Nevertheless, according to poll, 2 in 5 first-time buyers described buying a home as the most stressful event in modern life.

REX Homes application on the tablet
Courtesy: REX Homes

So, how does REX do things differently from – and better than – traditional agents?

“REX is not a discount broker substituting savings for service. In fact, REX does everything a traditional agent does, but better. REX has simply taken an outdated industry and transformed it through data-driven algorithms and machine learning technology that makes residential real estate transactions more efficient and effective than ever before,” he stressed. “More than 90% of home buyers search for homes online without the help of an agent. REX quickly targets the most likely buyers and continuously tracks their activity to optimize advertising and ultimately sell homes faster than the competition, while providing full service and charging a fraction of the traditional fees.”

As a technology company, REX started by collecting data from a wide variety of sources — from census data to purchaser habits at big box retailers — and then organizing it in a secure cloud environment where it can be easily accessed and studied. Leveraging machine learning, the company has invested in establishing predictive analytics that can target and accurately match sellers and buyers of properties.

For instance, when it comes to selling a home, REX computers disseminate an initial batch of ads based on a hypothesis about where and who the likely buyers are. Of the people who clicked on the ad, “the computer in real time, like right now, can figure out what those 500 people have in common,” shared Ryan. “Let’s go find more people who look just like those 500 people who clicked on the ad.”

Customers use REX service for morgage needs
Source: REX

Should someone click on an ad, the computer will then tailor future ads for that individual based on what their behavior on the website demonstrated about their interests. Besides, the platform will identify potential home buyers and sellers by harnessing data from retailers and businesses that record changes in people’s purchasing behavior.

That piece of information, coupled with data about individual’s homeownership history – whether he or she actually owns a home and has positive equity in the home in order to make a down payment on a new one, does wonder. Likewise, if someone just purchased a big-screen TV, it’s unlikely they are about to sell their home or move into a new one.

Since REX’s algorithm is powered with artificial intelligence, it can refine itself in real time. For example, as regards ads, REX does tailor them to specific audience by determining which features about a home or its surrounding community can increase its probability of selling faster or at a higher price point. As the platform analyzes data about comparable home sales in the area, REX data scientists will then input the facts about the home for sale and introduce new variables to define how they affect the probability the home will sell for a certain price – in a certain number of days. “It says to us, hey, don’t know why but apparently the probability of success goes up by 3 or 4 percent if it’s within 2 miles of a Starbucks or something,” Ryan said. “There are dozens of pieces of data, each of which changes the probability by one or two percent.”

REX staff at a trade show for real estate industry
Source: REX

Notably, whereas the majority of houses sold on the platform are under $1 million, REX did sell a mega-mansion in Malibu for $44 million in February 2015, just a few weeks after its inception.

“The AI is better at selling a $500,000 dollar home because there’s much more data,” Ryan stated. “To do probability theory you need lots of data points to say with 85 percent certainty or 92 percent certainty — this is a buyer for a home.” So, to successfully sell mega mansions, REX has to scour the globe for similarly priced homes. After all, only so many people can afford a home that expensive. “There are only 2,000 people in the world with a net worth over a billion dollars.” Then, the company likely drops ads on the likely owners of those homes — identified by the IP addresses that consistently show up at that address. Whenever that IP address shows up at a particular social media platform or website, it will be served those ads.

What should also be noted is that REX is one in a number of alternative tech-driven real estate brokerages that charges lower fees and diminishes the role of the real estate agent. That has put downward pressure on agent commissions across the industry.

“REX has brought disintermediation into the residential real estate industry by removing the superfluous buyer agent from the transaction, and by using advanced analytics to identify and deliver targeted marketing to likely buyers. They charge 2%, all-in, sellers pay no buyer’s agent fee,” shared John Fulton.

By 2018, in its three years of operation, REX has demonstrated that it can sell homes as effectively as conventional realtors but just at one-third the cost to homeowners and with significant savings for homebuyers throughout the process.

The reduction in fees alone is already a huge benefit to consumers — some $60-70 billion annually if the cost of brokerage were 2% instead of what MLS members charge. Yet, more importantly, the REX model opens a path to far better understanding and managing the value of a home over the long term.

REX Homes website homepage
Courtesy: REX Homes

“The REX vision of the US residential real estate market is that fees go way down — enabling consumers to use that money how they see fit — and that technology is leveraged to make it a pleasure for families to manage and enhance the value of their most financially and emotionally profound investment, their home.”

The Bottom Line

Within the landscape where transactions remain deliberately constrained and obscured by business practices that predate the advent of incredible technological advances, REX comes up as one wave of ReTech startups hoping to upend the status quo. “We’re excited about tackling the big challenges of improving the deeply dysfunctional but critically important U.S. residential real estate market. And we are thrilled by the notion we can take some of the dollars that would otherwise be lining the pockets of real estate agents to build homes for families who might otherwise be living on the streets.”

Whereas technology has continuously evolved and more players are expected to come, REX is likely to remain the future of residential real estate sales, at least in the foreseeable future.

  • As a Market Strategy Analyst, Kaley is passionate about strategically matching individuals and organizations with unique outsourcing solutions ranging from ecommerce, healthcare to hospitality and travel. Having gained working experience…