Home Agent Gary Keller: Tech Firms’ Ancillary Service Strategy A ‘big lie’

Gary Keller: Tech Firms’ Ancillary Service Strategy A ‘big lie’

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During Inman Connect on Tuesday, Gary Keller discussed an array of topics with Inman founder Brad Inman. Keller said companies have to focus on “dollars in, expenses out” as they reach for profitability.

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Keller Williams co-founder Gary Keller this week expressed skepticism about the iBuying model and said the idea that techie real estate firms can achieve profitability simply by adding various ancillary services is a “big lie.”

The comments came during a Tuesday session of Inman Connect, during which Keller discussed an array of topics with Inman founder Brad Inman. Midway through the conversation, Inman asked Keller what he thinks of iBuying, which was pioneered by Opendoor and today is dominated by that company as well as Offerpad and Redfin. Keller replied that when the iBuyers began, they were buying homes for less than market rates but eventually had to increase their offers to become competitive.

He added that “we still are all wondering how you can buy real estate at those prices and make a profit.”

Opendoor’s initial push into the space eventually drew in other companies, most notably Zillow. But Keller said Zillow “overreacted and jumped into what is still proving to be a very difficult model to control.”

Zillow abandoned its iBuying program last year and just recently liquidated the stock of homes it had purchased. But the other iBuyers have pressed on — despite plummeting share prices — and one of their strategies has been to add a variety of ancillary services, such as mortgage offerings. This has also been a popular strategy for tech-oriented real estate companies more generally, with Compass, for example, making a series of acquisitions to beef up its own ancillary service products.

However, during his Connect session, Keller expressed deep skepticism that such a strategy will ultimately pay off.

“Here’s the big lie, you hear it across the board,” Keller said. “‘We’re going to attach mortgage and title and property management and insurance.’ You heard last year, you heard the public real estate companies, and they all said it. And by the way that proves to be a lie.”

Gary Keller during a session of Inman Connect Tuesday | Inman

Keller’s point was seemingly not that ancillary services are inherently bad — his own company also offers them — but that they are not a substitute for financial shortfalls in other areas, particularly during what Keller characterized as a historic downturn in the market.

So what does work? Keller suggested companies take a hardline economic outlook that prioritizes profitability.

“It’s dollars in, expenses out, what’s left over,” Keller said. “If you have a model that you can execute that, whether it’s good times or bad times, delivers you a reasonable profit, then I’d say you win. You get to go on. But if your economics aren’t sound, then you’re not going to win.”

Email Jim Dalrymple II

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