This past summer, TheRedPin, a Toronto-based real estate start-up, closed and is now in the hands of MNP Ltd., a receiver. TheRedPin was supposed to be a disruptor in the real estate sector, envisioned as a virtual office website that would offer all the services customers might expect from a standard brick-and-mortar brokerage, alongside artificial intelligence resources, online research tools, and additional data to assist customers in their real estate searches.
Larry Weltman, customer service representative at AccessEasyFunds Limited–a Canadian company that provides pre-closing commission advances to real estate agents on their commissions–spoke about one of the more unfortunate aspects of TheRedPin’s closing.
“There were pending commissions receivable when the company closed its doors, and the creditor claimed first right,” he said. “There was no specific language in the agreements between TheRedPin and their realtors about the disbursement of commissions in the event of bankruptcy. Realtors should take a lesson from what happened.”
John Pasalis of the Realosophy brokerage, a virtual office website based in Leslieville, explained that TheRedPin may not have been able to grow fast enough to stay ahead of investor expectations. “When you raise money from investors they want meteoric growth. They don’t want a small, profitable business. They want to get a steep profit out of it. That’s why they’re investing,” he said. “If the business was struggling to begin with in a booming market and all of a sudden sales go down 30- or 40 percent, that means their sales are going down close to that much as well,” said Pasalis.
Romana King, director of content at Zolo, wrote about TheRedPin’s closing in a blog entry on Zolo. “Why didn’t it work? […]The quick and easy answer is that the industry isn’t that simple. It’s a multi-layered, multi-faceted and (despite the headlines) heavily regulated business. Plus, there are some big players with lots of money and lots to lose should the rules of the game change. To borrow and paraphrase a well-known parable: This means that any new, up-start business in the residential real estate sector must refrain from blowing the horn outside the walls of Jericho and learn to play within them. But that isn’t the big reason why TheRedPin is shutting down. The big reason boils down to the black and red. To succeed in the residential real estate space, a start-up must create a profitable business model.”
As Larry Weltman mentioned, the closing of TheRedPin also offers a harsh but valuable lesson for realtors. “Realtors should make sure that when they are working with a brokerage, their commissions are held in a commission trust account and that their agreement with the brokerage specifies what will happen in the event of the brokerage’s failure; and moreover hire a competent lawyer to advise them on such agreement,” Weltman said. “If the brokerage does not have a commission trust account or does not include this kind of language in its agreements, realtors should encourage the brokerage to take different action and establish a commission trust account.”
