News of TheRedPin’s demise last week may have sent shockwaves throughout the Toronto real estate industry, particularly for virtual office websites, but it also raises questions about the brokerage’s value proposition.

TheRedPin was one of the major VOW disruptors that was featured prominently in the Commissioner of Competition’s lawsuit against the Toronto Real Estate Board, but it was also the first real estate venture for start-up entrepreneur extraordinaire Keith McSpurren.

However, TheRedPin eventually buckled under the weight of its investors’ demands and folded owing about $6.4mln.

William McMullin, CEO of Viewpoint Realty, a Nova Scotia-based VOW, notes that many business models currently work for brokerages, but they’re all underpinned by the value they offer their agents: leads.

“The VOW business model is all predicated on generating leads for agents and charging agents for those leads,” said McMullin. “My guess is the product wasn’t strong enough to retain users to (TheRedPin’s) website. If you’re going to have a web-based value proposition and the website is your calling card, it needs to, in my opinion, generate enough leads to sustain the brokerage.”

During the Competition Tribunal, in which TREB was sued, TheRedPin’s co-founder claimed that, in three years, the brokerage had grown to conduct over $325mln in business.

However, McMullin furthermore states that leads devoid of quality will deplete a brokerage of its agents.

“Not all leads are quality, but there has to be enough of a quality percentage—where they turn into transactions—that, if you can do this, you will attract agents and retain them.”

Realosophy is another VOW, and according to its president and founder, the margins of running a brokerage are extremely narrow.

“The brokerage business is a tough one to disrupt and monetize,” said John Pasalis. “It’s a tough business to just change and make profitable because the margins are very tight.”

While Pasalis doesn’t have the inside track on TheRedPin’s demise, he surmises that its venture capital roots could have played a role.

“We didn’t go out and raise money, which takes some pressure off of us,” he said. “We get to focus more on quality and getting the right people and training them, rather than growing as fast as possible, because there’s always tension between being excellent at what you do and growing as fast as possible.”

 

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