Real Estate

Toronto real estate start-up TheRedPin has shut down.

  • Last Updated:
  • Jun 17th, 2018 11:59 am
[OP]
Newbie
Mar 11, 2018
13 posts
2 upvotes

Toronto real estate start-up TheRedPin has shut down.

"On Friday, the company’s Church St. office was closed. A man who answered the door identified himself as a representative of a corporate receiver but would not give his name. He said the company was placed in receivership on Thursday."

https://www.thestar.com/business/real_e ... doors.html

The traditional brokerage isn't going away any time soon.
11 replies
Banned
May 29, 2018
114 posts
34 upvotes
Incredible for a brokerage of any type to go under so shortly after the market cooled. The market has been red hot for years. You'd think that a team of 80 agents could keep the business afloat, but I suppose scaling the business model to make it suitable for investors would be tough, as noted in the article.
Deal Fanatic
Jul 3, 2011
5028 posts
2205 upvotes
Thornhill
Too bad. I think The Redpin had a worthwhile business model, and they certainly upped the ante for other such web type services but no brokerage can survive when they give away, give up whatever you want to call it, much of their revenue.
Deal Addict
Jul 3, 2007
1374 posts
1470 upvotes
Toronto
Salaries and overhead probably killed them... They gave commission rebates to clients as well....
Banned
May 29, 2018
114 posts
34 upvotes
I think the business model may be able to work, but they suffered from faulty execution. Someone may do something similar in the future and find success.

What salaries? The developers? If so, they were overpaying. Agents are commission based so no overhead there. An office lease? Small change.

We'll probably find out there was a lot of mismanaging and/or corruption in the future.
Member
Apr 5, 2017
365 posts
41 upvotes
RELord wrote:
Jun 15th, 2018 11:39 pm
I think the business model may be able to work, but they suffered from faulty execution. Someone may do something similar in the future and find success.

What salaries? The developers? If so, they were overpaying. Agents are commission based so no overhead there. An office lease? Small change.

We'll probably find out there was a lot of mismanaging and/or corruption in the future.

Real estate agent is prob one of the most over paid job in Toronto!
Deal Fanatic
Jul 3, 2011
5028 posts
2205 upvotes
Thornhill
The Redpin was a salaried brokerage. Along with salaries comes the cost of cpp, ei and other benefits which a a commissioned sales person solely pays for.

The cost to carry their particular type of website is not cheap, even though the owners were themselves the technicians. The costs to carry such websites were disclosed by several brokerages to the competition tribunal during the CB V TREB hearings.

They also waived all of their retained portion of the listing fee if a seller also bought from them.

Those operating decisions are one surefire way to put a business into the red.

Realtysellers initially started as salaried sales positions, then had to switch to commission based. But they too gave away most of their revenue and failed not because of TREB but because they couldn't make the business model work.

Rogers' Zoocasa had a similar web platform, no Realtors, but collected advertising fees from Realtors willing to pay for the privilege of having their name appear on their own listings. It failed because it was a money loser.

Numerous others have come and gone along the same route both in Canada and in the U.S.
RELord wrote:
Jun 15th, 2018 11:39 pm
I think the business model may be able to work, but they suffered from faulty execution. Someone may do something similar in the future and find success.

What salaries? The developers? If so, they were overpaying. Agents are commission based so no overhead there. An office lease? Small change.

We'll probably find out there was a lot of mismanaging and/or corruption in the future.
Banned
May 29, 2018
114 posts
34 upvotes
Wow, great info. Yeah, a salaried agent model is simply not going to work. Imagine paying 80 agents on a salary basis, developers, and simultaneously giving commissions back to sellers and buyers.

Let's say they paid at least $50k/year to agents which is only $10k above the median wage in Toronto. That alone is $4 million per year in expenses. In house developers another great expense (I currently outsource work to Ukraine and India)..
Sr. Member
Apr 17, 2017
793 posts
574 upvotes
RELord wrote:
Jun 16th, 2018 2:03 pm
Wow, great info. Yeah, a salaried agent model is simply not going to work. Imagine paying 80 agents on a salary basis, developers, and simultaneously giving commissions back to sellers and buyers.

Let's say they paid at least $50k/year to agents which is only $10k above the median wage in Toronto. That alone is $4 million per year in expenses. In house developers another great expense (I currently outsource work to Ukraine and India)..
We do all of our development in-house but have toyed with the outsource idea. How has it worked out for you? Would you recommend that route?
Deal Guru
Aug 2, 2010
13195 posts
3411 upvotes
Here 'n There
licenced wrote:
Jun 16th, 2018 10:19 am
The Redpin was a salaried brokerage. Along with salaries comes the cost of cpp, ei and other benefits which a a commissioned sales person solely pays for.

The cost to carry their particular type of website is not cheap, even though the owners were themselves the technicians. The costs to carry such websites were disclosed by several brokerages to the competition tribunal during the CB V TREB hearings.

They also waived all of their retained portion of the listing fee if a seller also bought from them.

Those operating decisions are one surefire way to put a business into the red.

Realtysellers initially started as salaried sales positions, then had to switch to commission based. But they too gave away most of their revenue and failed not because of TREB but because they couldn't make the business model work.

Rogers' Zoocasa had a similar web platform, no Realtors, but collected advertising fees from Realtors willing to pay for the privilege of having their name appear on their own listings. It failed because it was a money loser.

Numerous others have come and gone along the same route both in Canada and in the U.S.
Losing money is not a factor in a business closing. Amazon lost money for many years after starting up and so have many startups. Even Wealthsimple, the index fund money manager, hasn't made any money since inception. The key is to show incredibly high revenue increases each quarter so that you can convince investors you have a lot of promise. Thereby you can stay afloat while you lose even more money as you grow. Redpin obviously was not able to achieve this due to factors beyond their control so they could not raise money to stay afloat.

As long as MLS has a stronghold on listings I don't see how real estate commissions are ever going to change except partially on the listing side.
Banned
May 29, 2018
114 posts
34 upvotes
elpresidente wrote:
Jun 17th, 2018 6:01 am
We do all of our development in-house but have toyed with the outsource idea. How has it worked out for you? Would you recommend that route?
There are pros and cons. While it's much cheaper when it's done overseas, quality control and communication can be an issue (e.g. different time zones, for starters; availability of support when things go bad on a weekend), but my experience has been very positive.

It would also depend on the nature of your business. Highly critical or complex stuff should be done in-house.

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