Thursday, February 23, 2006 | A couple of years ago, entrepreneur Burke Smith came up with a new way to sell homes.
ipayOne, a San Diego company which Burke helped found in March 2004, put Realtors, mortgage specialists and escrow agents under one roof, creating a one-stop-shop for buyers and sellers.
By grouping these services together and by abandoning traditional advertising methods for Internet-based marketing and branding, Smith and his partners planned to vastly reduce the costs incurred by the Realtors working for them. The idea was to pass that cost-saving on to clients in the form of a 1-percent sales commission. Hence: ipayOne.
But less than two years down the line, Smith decided ipayOne’s future wasn’t all that rosy. In an ironic twist, he left the Internet upstart last June to work for Prudential California Realty, a 138-year-old company that in many ways embodies the “old guard” of California’s real estate industry.
Indeed, Smith said he has largely lost faith in the ideas that he once hoped would revolutionize the industry.
He said he has come to see that the traditional role of the Realtor as a counselor to both sellers and buyers is not easily replaced by technological wizardry. The world’s not yet ready for a concept like ipayOne, he said, especially in an industry that’s notoriously skeptical of newcomers.
“ipayOne minimizes the importance of the real estate agent. When you do that, you are essentially thumbing your nose at the establishment, so it loses the support of the cooperating brokers that you rely upon to help sell your property,” Smith said.
Sal Benti, ipayOne’s current president and CEO, said that’s simply not true. He said his company is receiving new applications every day from local Realtors who want to become part of their organization, and that ipayOne continues to grab a larger and larger portion of the San Diego market. Benti doesn’t pay much heed to Smith’s predictions.
“It’s one man’s opinion. I don’t think there’s any basis in fact in it,” he said.
But, of course, that one man happens to be the guy who came up with the concept of ipayOne in the first place.
Smith’s not a Realtor. His task at Prudential is to take the marketing lessons he learned with ipayOne, combine them with his extensive knowledge of Internet-based businesses and help Prudential compete with the best of the new kids on the block.
“I’m essentially spring-boarding a traditional Realty company into the 21st century,” he said.
Smith said there are many things holding ipayOne back, not the least of which is the quality of the brokers the company is able to recruit.
He said individual brokers know they are taking on something of a gamble when they join ipayOne because of its experimental nature. ipayOne is not an established business, he said, and it’s not doing things the traditional way, therefore the company is limited in the Realtors it can attract.
“You’re dealing with very inexperienced agents. We were basically backing the bus up to the test center downtown and saying ‘come on in,’ ” he said of his days at the company.
That’s disputed by Benti, who said his company gives their agents as much training as anyone else. Indeed, he said, he recently took on a Realtor from East County who was one of the top agents for Prudential California.
But Smith’s main concern with the ipayOne business model is that, ultimately, a discount broker cannot afford to invest the amount of capital that’s needed to successfully market people’s homes. That’s especially true in a buyer’s market, he said, where properties spend longer on the market and sell for lower prices. It may be possible to sustain a business model like ipayOne’s when buyers are clamoring to buy anything that comes on the market, he said, but these days, things are different in California.
Hence Smith’s move to Prudential.
Benti maintains that his company is doing well. For a company that’s not yet two years old, he said ipayOne has done a remarkable job, and that the business model they designed is still feasible. At the end of the day, he said, there are lots of levels of cost in the traditional home selling process, and his company can cut out a good chunk of those costs.
As far as attracting good Realtors to work for ipayOne, Benti said that the lower commissions are no problem considering the volume the company is doing.
“The average real estate agent in San Diego probably sells between four and six homes a year. Our agents are selling between four and six a month,” he said.
Though Smith talks in rather disparaging tones about the ipayOne business model, it’s clear that he still harbors some pride in the concept that he was so involved in creating. He seems a little like a father, concerned about the fortunes of his wayward son, when he talks about ipayOne’s future prospects.
Smith still clearly believes that technology has a massive role to play in the evolution of the real estate industry. The difference is that these days he seems to be admitting that he underestimated the role that Realtors will play in that evolution.
That’s going to be essential for the old school of real estate companies to maintain their grip on the market, he said. In essence, that means cherry-picking the successful elements of ipayOne and incorporating them into Prudential.
Does he expect Prudential Realtors to lower their commission to 1 percent?
“The commission means nothing if you end up in court because you worked with an agent who didn’t know what they were doing,” he said.
That’s a no, then.
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