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Good morning and Happy Tuesday. Welcome to all those joining us for the first time this week. If you aren’t subscribed yet, you can join the crowd of intelligent, curious investors below. 

Back at the beginning of March, Nada maxed out its offering on Republic at $1.07 million. Taking advantage of the revised equity crowdfunding regulation, it reopened the round at the end of April. I've been wanting to dig into Nada for months now, so I was thrilled to see that it came back to the crowd with room for more funding.

Coming back full of surprises, Nada provided the first glimpses of a few intriguing updates that are soon to come. With so many moving parts to its business and long-term plan, I am extremely excited to share with you in this week's research a piece-by-piece breakdown of Nada's story and how it is working to create a better way to buy, sell, and own a home.

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Deep dive - Nada
Pay zero, zilch, nada to sell your home
Nada is a vertically integrated real estate technology company offering residential realty, insurance, title, and financial services to customers. On a mission to create a brand-new real estate experience, it’s working toward helping homeowners, homebuyers, and home sellers around the country save money and build their real estate wealth.
  • Nada is transforming the complicated and disconnected real estate transactional model into a long-term user-based platform model by reimagining how everyone views, experiences, and participates in the residential real estate markets.

The inefficiencies of buying and selling a home
In a time where it feels as though technology has seemingly disrupted every aspect of our daily lives, it’s remarkable to consider that the process of buying, selling, and owning a home doesn’t look all that different from what it did a decade ago. That can’t be said about many industries.

Approximately 90% of homebuyers rely on a real estate agent to purchase a home. Despite this, only a fraction of agents are capable of actually providing all of the financing, title, inspection, and insurance services that are needed.
  • As a result, the “traditional” home buying process has long been plagued with fragmentation, low transparency, and unnecessary bolt-on costs. Those who have bought or sold a home have likely experienced these inefficiencies firsthand.
Everyone knows real estate agents help you buy or sell your home, but the details of what that entails are debatable depending on the agent you’re dealing with. So, I wanted to find out what the responsibilities of a real estate agent actually are. According to the National Association of Realtors (NAR), a buyer agent is responsible for:
  • Providing information detailing current market conditions.
  • Assessing financial information and determining a price range that the buyer can afford.
  • Guiding the buyer through the purchase process.
The NAR goes on to indicate that a buyer agent can also:
  • Help the buyer understand real estate values, taxes, utility costs, municipal services and facilities, and local zoning ordinances.
  • Research homes for the buyer using tools like Multiple Listing Service (MLS).
  • Show the buyer homes that are best-suited to their needs.
  • Negotiate the home purchase.
A selling agent should:
  • Use up-to-date information on the market to determine an appropriate asking price.
  • Present the seller with the terms and conditions of competing properties.
  • Create a marketing plan. This generally entails repair suggestions, open houses, advertising, etc.
  • Provide the seller with security while their home is shown to strangers.
  • Manage the sale process, renegotiate as needed, and resolve issues prior to closing.
Technology has the ability to render that entire list obsolete by managing the homebuying process from beginning to end. With the rise of the internet age, real estate agents, for the most part, lost their edge. In the past, real estate agents were granted exclusive access to the Multiple Listing Service (MLS). This powerful tool allowed them to list properties, see transaction histories, and review market analyses. In order for buyers and sellers to review this information, they had to hire a real estate agent who could provide them with their desired details.
  • Nowadays, there are dozens of websites where buyers and sellers can go to review available properties, home comparisons, market reports, etc. What used to only be available by means of hiring a real estate agent has for the most part been made entirely visible to anyone.
How broken the traditional process really is:
If I were looking to buy a home with the help of a real estate agent, I would first contact an agent and share with them my desired criteria. I would likely then begin to receive daily emails from the agent that detail new listings matching my criteria.
  • There is nothing proprietary about these listings, however. The same information can be found publicly. As many homeowners can attest, what would usually happen is I would do my own research and share with my agent the listings that I was interested in viewing. We would likely then pursue the listings that I put together.
Where information regarding taxes, education systems, community demographics, crime rates, etc. all used to be available only through the knowledge of a local real estate agent, it’s now all online.
  • Virtually anything a buyer or seller could possibly wish to find out about a property is just one google search away.
Having found the home of my dreams, it’s time to put in an offer. This is where the agents earn their commissions, right? HGTV’s House Hunters, Netflix’s Selling Sunset, Bravo TV’s Million Dollar Listing, or one of the many other homebuying shows out there would have you think so. But if you’ve bought a house with an agent, you probably already know it doesn’t always happen like it does on TV.

Upon telling my agent that I’m interested in putting in an offer, they’ll likely come back to me and ask at what price point. I’ll then ask what they think I should offer. “This is what it’s listed at and the comps look like this”, they’ll say to me. We’ll agree to an appropriate price and the agent will submit the offer. For the most part, the real estate agent is just playing the role of the messenger here.

Great news, I got the house and it’s time to finance it, insure it, and transfer the title. The agent can help with all that, right? Some can, but most can’t. In fact, according to the NAR, less than 5% of agents will be able to help me.
  • For the overwhelming majority of those that can’t carry out these additional services, they’ll refer me to the service providers that they know and trust. Or at least that’s what they’ll tell you. Some agents have agreements with specific lenders, for example, and may be obligated to suggest them, whether they think it’s the best option or not. And, of course, these services come at an extra cost.
So does the real estate agent I hired at least manage and oversee the transaction? Some will and others won’t. In a forum asking realtors how many hours are wasted on average during a transaction, the average answer was 40 hours.
  • Agents primarily spent time coordinating disclosures, appraisal issues, scheduling and attending home inspections, and managing repair requests. These 40 hours may not seem like a lot. It is their job after all. But when you scale those 40 hours across 25 transactions each year, an agent could expect to spend 1,000 hours each year focused solely on managing the transaction.
As a result, more and more agents have begun to use a transaction coordinator. Some use online transaction management systems. Others don’t use any tools at all and they just do it the old-fashioned way.
  • Transaction coordinators handle the required filings, schedule inspections and appraisals, manage communications, and carry out anything else that may be required in any given closing. While this is great for real estate agents, it adds one more piece to the puzzle and presents an additional opportunity for a bottleneck.
  • Using a transaction coordinator, the agent effectively distances themselves from the transaction and moves more so into a messenger role between myself and the coordinator.
After *helping* me buy my new home, it’s time to pay my agent. Real estate agents are paid by commission and are compensated after a transaction has been completed. Though there is no required percentage, a typical commission is 6% of the sales price. This 6% is typically split evenly between the listing agent and the buying agent. On a $500,000 house, that’s $30,000 that the agents are receiving.

There has to be a better way, right?
Nada co-founders John Green and Mauricio Delgado think so. In 2018, they came together to create “Vámonos”, a real estate services company focused on serving the Hispanic market. They quickly realized the market they set out to serve was not the only one experiencing a substantial disconnect between what the consumer wants and what the industry delivers. So, they created Nada to address the problems faced by the modern homeowner.
  • Charging fair, value-based services, Nada helps its homeowners save an average of $10,000 when compared to traditional real estate brokerage.
Nada is transforming the complicated and disconnected real estate transactional model and reimagining how everyone views, experiences, and participates in the residential real estate markets.
  • Through its digital platform, Nada provides online tools, resources, and products for consumers who own a home, want to buy a home, or want to invest in single-family homes.
Offering a simple value proposition of better service for a fair price, Nada launched its Realty service in early 2019. During its beta rollout period, over 75% of its realty clients relied on Nada to secure mortgage financing and title services.
  • Demonstrating strong demand with just its MVP, Nada validated the market need for an integrated solution. This validation led to the launch of three additional verticals in 2020: Finance, Title, and Insurance.
Saving money with Nada
Buying
When a home seller lists their home on the MLS, they’ve agreed to pay a buyer agent commission (BAC). At closing, the seller pays the buyer what is typically 3% of the home’s price. As the buyer, you don’t pay your agent directly out of pocket. However, this 3% buyer’s agent commission is baked into every single MLS listing. In other words, if a seller wants $1,000,000 for the house and they know they’d have to pay a $30,000 BAC on that price (3% of $1M is $30K), then they’ll price it at $1,030,000. At the end of the day, the buyer is left indirectly paying for the BAC.
When buyers choose Nada as their agent, Nada collects its standard 3% buyer’s agent fee. But instead of pocketing that full 3%, it turns around and refunds its buyer with up to $2,000. Made possible by its use of automation and ability to streamline the home buying process, Nada is able to partially refund its buyer. This refund can then be used by the buyer to help with closing and loan costs.

Selling
For sellers, Nada takes it a step even further by charging a 0% commission.
  • To put this into perspective, in 2018 there were 112,000 homes sold in North Texas. Nearly $1.7 billion was paid in traditional real estate commissions on those 112,000 homes. If all of these homes were sold using Nada, North Texans could have saved nearly $1 billion of their hard-earned equity.
Nada believes it has a responsibility to inform and empower its customers with the knowledge and tools that will help them get the most out of their equity. It does not see a flat fee as a discount service. Rather, it believes a transparent and fair flat fee should be the new way for all real estate brokerages who offer consumers full-service support.
  • Nada charges a flat fee of $4,000. If the seller also uses Nada to buy their home, they’ll receive a full refund of $4,000. According to Nada, nearly 70% of its customers are both selling and buying a home (two separate transactions).
Nada does not charge its sellers upfront. It only gets paid once the sale has successfully closed. Saving the seller an average of $6,000, Nada provides everything that a traditional real estate agent offers, plus much more.
  • You can check out all the bells and whistles of its sales process here.
Reimagining how you can leverage your most valuable asset to grow your wealth
Nada’s mission to help its community of users save money and build real estate wealth doesn’t just stop at its ability to help people buy and sell their homes. It has set its sights on so much more. Nada is positioning itself to become an all-encompassing tool that helps homeowners discover new ways to build and grow real estate wealth, and it’s doing it by starting with their most valuable asset – their home.
  • Nada users gain access to a free real estate dashboard and portfolio manager app with personalized insights to manage their real estate assets. Users never miss an opportunity to save or build their real estate wealth.
How it works:

Homeshares
According to Nada, the typical American family has over 2/3 of their total wealth trapped in home equity. That’s over $12 trillion in wealth locked up in a single, illiquid real estate asset. For those in need of liquidity, options are limited. So, Nada created Homeshares.

Homeshares allows homeowners to trade fractions of their home equity for up to $50,000 in cash. By helping homeowners unlock their equity, Homeshares makes homeownership more flexible.
  • Homeshares isn’t a loan. It’s an investment by Nada into the homeowner’s equity value. Homeowners who have earned equity in their home and meet other qualifying criteria are eligible to trade a fraction of their equity interest in their home. With cash in hand, they maintain control of their home and use their unlocked cash for whatever they may need – paying down debt, renovating, investing, etc.
In exchange for the cash it invests and pays the homeowner today, Nada receives a lien-secured equity interest in their home’s future appreciation.
  • Nada is partnering with the homeowner to share in the upside or downside of their home value over time. Nada is repaid when the homeowner sells, refinances, or chooses to repay. Its repayment is based upon its share of the home’s appreciated value at the time of repayment.
  • The maximum investment that Nada will make is the lesser of $50,000 or 10% of the home’s market value.
For a practical example of how Homeshares works, consider the two scenarios below. In both scenarios, I, the homeowner, have a home with an estimated value of $500,000.
  • In scenario 1, I have elected to give 50 Homeshares ($100 each) to Nada in exchange for $5,000 in cash today. Depending on the value appreciation of my home, Nada and I can expect our respective shares in my home to be worth the following:
  • In scenario 2, I have elected to give 500 Homeshares ($100 each) to Nada in exchange for $50,000 in cash today. Depending on the value appreciation of my home, Nada and I can expect our respective shares in my home to be worth the following:

Capitalizing on its strong start
In the midst of the global Covid-19 pandemic, Nada grew its core realty revenues by 280% to $600,000. Having built one of the first fully integrated online real estate brokerages of its kind, Nada’s focus now is on capitalizing on its innovative solution and expanding its user base. Offering realty services for as low as $0 in efforts of attracting new customers, Nada expects to expand its revenues by progressively stacking the sales from its various services and increasing the lifetime value of its customers. By expanding its margins and improving its core unit economics in recent months, Nada expects to reach profitability during Q2 2021.

Prior to the introduction of Homeshares and Cityfunds, Nada’s revenue growth expectations were as follows:


Over the next 12-18 months, Nada intends to achieve the following:
  1. Extend purchase and refinancing services by fully launching its mortgage service vertical.
  2. Extend the functionality of its digital platform by integrating each service into its digital platform.
  3. Release its new consumer financial product (Homeshares – currently only accepting waitlisted submissions).
  4. Establish a partner channel to extend the Nada digital platform and consumer products to other independent real estate brokerage companies.
  5. Grow market share within its existing markets and expand to additional markets.
Cityfunds
Nada and Republic have teamed up to create a more intuitive and accessible way for anyone to invest in a single city’s housing market. Coming 2021, the joint venture will begin to launch an entire family of Cityfunds, allowing investors to experience real estate markets as if they were public stock exchanges.
  • Though information pertaining to the Cityfunds product remains limited, what can definitively be said is that, if executed effectively, this joint venture with Republic will help Nada expand into new markets without the high marketing costs/risk in market expansion. Nada will serve as the real estate, title, and insurance provider for each new market that a fund is launched in. Additionally, Nada will participate in the fund management revenue that is generated through the joint venture.

Consumer application development
According to Nada, its tech team has made tremendous progress in the development of consumer application. Offering a user-friendly mobile interface will be a major step for Nada as it looks to expand its reach and draw in a larger audience looking for a new way to participate in real estate. For some context on the importance of this, 420 million homes on Zillow are viewed each month from a mobile device, and 48% of online searches for real estate originate from a mobile device.


Overcoming the online real estate juggernauts
Zillow
When you think of online real estate, you probably think of Zillow. Founded in 2006, Zillow was among the first online tools built to empower the homebuyer. When it started, it was just a website where people could list their homes for sale or for rent.
  • Both in the form of display advertising and advertising with real estate agents and landlords, it first made money simply through ads.
Zillow used this first business model to go on and create what would be part of its core business – Premier Agent. Premier Agent allows Zillow to sell its leads to real estate agents and landlords. How it works:
  • If I go to Zillow in search of a new website or apartment, I’m probably going to scroll through a number of listings before identifying a select few that I’m interested in learning more about. But how do I contact the buyer? For any particular offering, there might be an advertisement for an agent covering that zip code. Naturally, I’m now inclined to click that ad and get in contact with the agent who can facilitate the transaction.
  • Those agents, as described in the above example, have paid Zillow to be a part of its Premier Agent platform. As marketed by Zillow, it’s a way for agents to get more leads and “engage with millions of home shoppers on the largest real estate network on the web”.
With 245 million unique visitors in 2020 and over 100 million properties listed on its database, Zillow has created an empire that few homebuyers haven’t used in their homebuying journey. Where real estate agents at one time had a monopoly on information, Zillow and similar websites that have emerged in the last decade have leveled the playing field.

Drawing in so many visitors to its website, Zillow has been focused on how to capitalize on its massive audience and treasure trove of data. For over a decade now, Zillow has provided a phenomenal tool allowing individuals to do their own research. Rather than build out the brokerage services that would allow buyers and sellers to bypass the agent and transact directly through Zillow, it has gone another direction.
  • Starting with its Home segment, which it refers to as “Zillow Offers”, Zillow uses its proprietary dataset and computer-generated analysis to make near-instant cash offers to sellers. Zillow’s speed, convenience, and data-driven advantage allow it to theoretically purchase these homes for less than they’re worth and turn a profit when it resells them at their fair market value. In the world of online real estate, this is known as an iBuyer.
  • Zillow’s Internet, Media, and Technology (IMT) segment generates revenue from the sale of marketing services as well as software and other technology solutions. This business includes Premier Agent, Rentals, and Other.
  • Its Mortgage segment, which it refers to as Zillow Home Loans, allows borrowers to take on loans or refinance their homes. Zillow acquired Mortgage Lenders of America in 2018, allowing it to become a licensed lender and offer these services to its customers. Zillow also works with more than 50 other nationwide lenders on its platform.
After building a first-of-its-kind tool for homeowners, Zillow spent years focused on monetizing its business by funneling prospective homebuyers to real estate agents. Though it has gradually expanded its revenue streams, its fourth-quarter $500 million acquisition of ShowingTime has made it clear where its focus remains.
  • ShowingTime makes software for prospective buyers to arrange showings with agents.
With its recent move into buying and selling homes, Zillow is also looking to tap into a much larger market – real estate transactions. According to Borrell Associates, 2019 U.S. real estate transactions totaled $1.9 trillion in value. In comparison, the market for real estate advertising was estimated to be worth a much smaller $19 billion.
  • Generating over $1.7 billion in 2020 revenue, Zillow’s home segment accounted for over half of the company’s annual revenue. Having not even remotely begun to chip away at the total addressable market, it looks as though Zillow will lean on this segment as a strong driver of growth ahead.
Opendoor & Redfin
Opendoor
Similar to Zillow Offers, Opendoor is an iBuyer. Known for its cash offers and quick closings, Opendoor purchases homes and refreshes them before re-listing them on the market. Opendoor requires that sellers pay for all closing costs and any repairs that may be necessary. For its convenience, it charges sellers a hefty fee that averages 8% of the home sales price but can be as much as 14%. According to Opendoor, its process can take anywhere from 10 days to 2 months.
  • A recent study by Collateral Analytics shows that iBuyers cost home sellers ~13-15% of a home’s sale price while agents charge anywhere between ~5-7%, making them significantly more expensive to sell with. MarketWatch supported these findings by stating that iBuyer sales netted owners 11% less compared to sales on the open market.
Redfin
Founded in 2002, Redfin was among the very first to pioneer online real estate. Evolving over the years, Redfin has built itself around the premise of advancing the home buying and selling process with the use of technology.
  • Its do-it-yourself business model was created to let customers buy houses for a fraction of the cost of the traditional process.
When the company was first created, its core revenue stream came from charging an agent fee for every sale made through its platform. Two decades later, it now also makes money from flipping homes, selling mortgages, and advertising service professionals. How Redfin works:
  • Buyers – Redfin allows buyers to purchase a home in over 1,000 cities across the U.S. and Canada. Homes can be found through Redfin’s marketplace and they can be purchased from Redfin directly, or from the seller. Either on-site or online, one of Redfin’s 1,000+ agents guides each buyer through the process. When a buyer purchases with a Redfin agent, Redfin will give them a portion ($1,500 average) of the commission it receives.
  • Sellers – The seller can either sell their home directly to Redfin or work with one of Redfin’s agents that can assist them during their journey.
  • Borrowers – For borrowers, Redfin’s marketplace allows you to compare loans from over 50 lenders nationwide. This may sound similar to what was briefly mentioned above about Zillow’s mortgage marketplace. It’s because Redfin’s marketplace is powered by Zillow.
How does the pricing compare to Nada?
Redfin charges a 1.5% listing fee when you sell, and a 1% listing fee when you buy and sell with it. The seller is also responsible for the buyer’s agent fee, which is typically between 2.5% and 3%.
  • As a result of the cheaper fees, Redfin claims that sellers can save, on average, $2,800 when selling their home through its platform.
Buyers typically pay closing costs as part of the process. Closing costs can include expenses related to title, insurance, taxes, appraisal, lending fees, etc.
  • As mentioned above, buyers that work with Redfin, however, will receive a refund that will be applied to the closing cost total.
Accounting for ~1% of all U.S. home sales in 2019, Redfin saved homebuyers an estimated $180 million through Redfin Refund and lower listing fees.

Joining Zillow and Opendoor, Redfin entered the iBuyer space via the creation of its new segment, RedfinNow. No different than its competitors, Redfin makes money when it sells a home for more than it purchased it for. In addition to the profit it keeps from flipping the homes, it charges a service fee that ranges from 6-12%, on average. Up to an additional 4% is charged for estimated closing costs and required repairs.


Nada's advantage - vertical integration
Nada is improving on the online real estate presence that its predecessors built and is working toward being so much more than just an online brokerage. By creating an all-encompassing integrated product that is capable of serving buyers, sellers, and owners at any point in their journey, it’s positioning itself to create lifetime-lasting relationships with its customers. The same cannot be said about Zillow, Opendoor, Redfin, or any other online real estate company.
  • Addressing Redfin as Nada’s closest competitor, co-founder, John Green, said: “Think of Redfin as ‘E-Trade’ and Nada as ‘Robinhood’. Yes, we have some surface-level similarities, yet Nada is advancing what Redfin started and paved the way for – with advanced technology and by building lasting customer relationships – well beyond a streamlined and discounted transaction. Today, Robinhood has twice as many accounts as E-Trade”.

Thanks largely to Zillow, 89% of people interested in buying a home begin their research online. As such, real estate websites collectively record over 120 million visits each month. Sites like Zillow, Opendoor, Redfin, etc. have done the hard part for Nada. They’ve made searching for real estate online a norm. Though each are powerhouse businesses in their own respects, none of them have fully addressed the needs of the market that Nada is going after.
  • Nada believes that the industry is just now beginning to embrace innovation and that it will experience an “all ships rise with the tide” boost from any early progress. This is not a winner-take-all market – Redfin controls 1% of the market and is valued at $6.8 billion.
Disrupting the disruptors
A shared concern among a few investors, some have questioned how Nada intends to overcome the billion-dollar real estate companies that have already established their dominating presence. I believe that Nada becoming a massively successful company, however, is less about its ability to compete with what its competitors have created and is more about capitalizing on what they haven’t. 

In the ’90s, professors Clayton Christensen and Joseph Bower coined the phrase “disruptive innovation” in their Harvard Business Review article titled Disruptive Technologies: Catching the Wave. In his piece, Who Disrupts the Disruptors?, Packy McCormick, a newsletter author writing about business, strategy, community, tech, and real estate, broke it down as follows:
  • “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more suitable functionality – frequently at a lower price.
While Zillow, Redfin, Opendoor, Trulia, etc. have each improved varying aspects of the real estate ecosystem, none have created a product that fully addresses the broken end-to-end homebuying and homeownership experience. As these various companies have focused on their respective markets that have yielded such strong success, the needs of Nada’s target audience have remained unmet. Can these incumbent companies move in and beat Nada to it? Sure. But that can also be said about any other startup attempting to address a new market.

Offering details and fundraising history
Nada first opened its Reg CF round on June 17, 2020. Because it launched its campaign before March 15, 2021, the maximum investment it was legally permitted to accept from the crowd was $1.07 million. After maxing out the offering at the beginning of March, Nada filed paperwork with the SEC to extend its campaign. Closing on August 1, 2021, Nada is now legally able to raise up to $5 million in its Reg CF offering.
  • Nada currently only has board authorization to raise up to $2 million under the current terms. Once it hits that target, it will need to analyze capital requirements, market conditions, company traction, and other relevant action items needed to get the board approval needed to raise additional capital at higher terms.
With a $12,000,000 valuation cap and a 20% discount, individuals can invest a minimum of $100 in Nada’s Crowd SAFE document.
  • Important to note, investments made before June 1, 2021, will be done so at a $12,000,000 valuation cap while those made after June 1, 2021, will be done so at $16,000,000.
Prior to this round of crowdfunding, Nada raised $500,000 in pre-seed capital at a $10 million valuation cap. While its Reg CF round was open, Nada received a separate investment at the beginning of February from Capital Factory Ventures.
  • Capital Factory has been the most active investor in the state of Texas since 2013.
Want me to take a deep dive look into a particular offering, ask any questions, or just reach out and introduce yourself? Shoot me an email at drew@thecrwd.com. Otherwise, I'll see you next week.
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