“Asset-light” businesses have a competitive advantage.

Patricia Nakache explains that COVID-19 has altered the competitive landscape, putting asset-light businesses at a competitive advantage.

“When you go through disruptions like this and you potentially take a major hit to your revenue line, you want to be able to be nimble and flexible and be able to adjust your cost structure accordingly. It's very hard to do that if you are burdened with assets that you can't offload easily, she says. 

Clelia Peters agrees, noting that brokerage has historically been a really asset-heavy business. “Most brokerages operate with margins that are like grocery stores. If you can get to a 10% margin in brokerage, you're an exceptionally high-performing brokerage because there are so many fixed costs related to the historical brokerage model.”

According to Clelia, Side offers “double the asset light benefit,” being not just asset-light for investors, but also for entrepreneurial agents who want to build their own business in this way. 

COVID-19 served as an accelerant—not just for technology, but also for underlying industry shifts towards new business models.

COVID-19 exposed how vital it is to be able to continue functioning in an effective and efficient manner. In real estate, the most obvious example of this is technology enabling remote transactions—with no need for a physical office space or in-person meeting.

Patricia highlights that “Side obviously was at a big advantage because their platform already enabled that. And I think that their agents were able to take advantage of that capability.” She surmises that accelerated adoption of technology will continue not just in transaction management, but in virtual tours as well.

Clelia points out that COVID served as an intense accelerant, not just with technology but with underlying shifts in the industry, whether it was different forms of disintermediation like iBuying, or hybrid models like employed-agent models or reduced-commission models. It’s also given rise to a new focus on secondary services as a way that brokerage companies make money.

“As people accept that they're giving up more and more of the actual value of the transaction…[and] taking a more and more reduced commission, they're going to look to make money through title, through mortgage, through home insurance, and really try to create more integrated platform products,” says Clelia.

The pandemic will usher in a golden age for exceptional agents

Clelia explains why she feels bullish for top agents in markets everywhere: “Some of the noise in the market is going to be cleared out as people who are not professional agents find it harder to compete against tech offerings that facilitate things more easily. And what [will] endure is people who really take this seriously as a career, or entrepreneurs who are offering the level of really meaningful value that a top agent who knows what they're doing can offer.”

Patricia likens this shift to a stock market downturn, where there's a flight to safety and quality. “In a downturn, there is a flight to the established agent, the high-performing agent, and for good reason, because they have established processes; they have track records. As a consumer, you want that extra sense of security of going with a very proven agent.”

At the same time that low-performing agents will likely feel a negative impact, Clelia believes that more platform and service providers will vye for the attention of top agents. 

“I think you're going to see the legacy brokerage companies really have to radically rethink what the value proposition they're offering to agents is. And I think you're going to see competitors like Compass under a lot of pressure to show that what they've brought into the market is sustainable.”

As we continue to navigate the ever-evolving real estate landscape, Side is grateful to PropTech insiders Patricia Nakache and Clelia Peters for sharing their investor insights and wisdom with our community.