One thing the internet is good at is getting rid of intermediaries.
Bankers, insurance agents and middle management have all been replaced by software. So have many real estate agents. But there are lots of services within real estate, like title fees, mortgage fees and insurance, that remain, robbing sellers of equity and buyers of bargains.
Those are the fees Nada wants to eliminate. The company — based in Dallas and backed by the University of Texas’ Accelerator and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Startup Program — is raising up to $1.07 million through crowdfunding. At this writing it already had the $25,000 minimum needed to get going.
Should you invest in Nada?
The company’s website describes both what it does and what it aims to do. Its tag line is “buy and sell your home online, pay nada.”
Essentially, it’s a low-priced real estate agent building a web back-end to market and process transactions. Only 5% of brokers provide mortgage, title and insurance services. Nada hopes to do all this online. Nada also hopes to take brokers on directly and share savings with buyers and sellers.
Its main target right now is commissions. A typical $400,000 house will generate $24,000 in commissions, split between the buyer’s agent and the seller’s agent. Nada takes just half the seller’s commission as a flat fee, listing homes through Zillow (NASDAQ:Z), Trulia and its own site. If a buyer uses the service, they can also get nearly half their side of the commission back.
Nada has big plans. According to its U.S. Securities and Exchange Commission documents, it hopes to create a mortgage unit called Nada Loans within the next 12-18 months. It also hopes to expand beyond its present market through partnership agreements. The document also describes a Nada Home Eco, a monitoring device and service it says rewards good ownership behavior.
The leaders at Nada are CEO John Green, who comes out of the mortgage business, and chief strategy officer Mauricio Delgado, who comes out of the credit business and Stanford Business School. The company was launched in late 2018.
The fact that Nada is starting in just one market tells you how open the market is to disruption.
Homes are essentially the opposite of liquid, yet homeowners move regularly. Each time they move, they lose about 15% of their equity, between sales commissions, buying commissions and moving costs.
This is a rich seam of financial ore, but getting to it requires licensing in every state, training and marketing. My late mother was a real estate agent decades ago, and despite the wealth found in commissions, it can be a hard life. Much of the hassle involves getting listings. Many homeowners, knowing the cost, start the process with the aim of doing it themselves. The vast majority switch to agents within a few months.
Yet buyers increasingly use online tools to pick a home. One new buyer on my street just bought his house sight unseen. With the front end of the business being automated, the opportunity is there to automate the back end.
Should You Invest in Nada?
Nada has an unfortunate name. It’s shared by groups like the National Automobile Dealers Association, with all its sales guides carrying the NADA name, the New Art Dealers Alliance, and even taco joints.
But getting a business up and operating, and proving the model, would create something that can quickly scale or be sold to a larger company. That’s what Green and Delgado are aiming for. If you decide they have the right stuff for this, you can get in for as little as $100, with a valuation cap of $12 million.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks