Disruptor eyes Canada expansion

Real estate technology startup Properly Inc. has raised $44 million to expand across Canada as it bids to disrupt an industry “largely focused on serving itself.”

The funding round for Toronto-based companey — which allows buyers to purchase a new home before listing their current property on the market — was led by California-based Bain Capital Ventures. Boosted by surging demand in Toronto's heated housing market during the pandemic, the round values Properly at $220 million.

Intact Ventures, the venture arm of Toronto-based insurance provider Intact Insurance Company Ltd. and real estate technology provider FCT participated in the round, as well as individual investors including Wealthsimple co-founder and chief executive Mike Katchen, SoftBank Vision Fund partner Lydia Jett, Zillow cofounder Spencer Rascoff and Opendoor co-founder and CEO Eric Wu.

The Toronto housing market, in which Properly operates, saw a surge of activity during the pandemic as homeowners sought more space and raced to lock in low interest rates. The boom translated to more business for the company as buyers facing an intensely competitive market sought out new resources in an industry that has been reluctant to change even as prices have been on a decade-long tear, Properly co-founder and CEO Anshul Ruparell said in an interview.

“There's been very little focus on changing the way that things have been done,” Ruparell said. “Despite the fact that home values have doubled in Canada and that the percentage of commission has stayed the same, the actual experience to buy and own a home hasn't evolved at all.”

As with most real estate brokers, Properly charges five-per-cent commission on the sale price of the property. In addition, it provides sellers with a purchase agreement based on the equity in their home. The homeowners then provide their mortgage broker with the agreement to secure financing to purchase their new home before selling the existing property.

Properly has 90 days to sell the home before it is required to buy it themselves. If it sells the home for a higher price than the sale agreement, it refunds the customer the difference.

The Canadian market is long overdue for new ways of purchasing real estate, Bain partner Merritt Hummer told Financial Post.

“There's an even greater need for a Properly in Canada than there is in the U.S.,” Hummer said. “When we think about things like home prices growing really quickly and getting out of reach for consumers, or how difficult and onerous it is to secure a mortgage … those are some of the pain points that we've thought about a lot in the U.S., but they're felt by Canadians to an even greater extent.”

Ruparell grew up with real estate aficionados. When his grandfather immigrated to Canada in the 1970s, he got his real estate licence. His father, brother and cousin all work in the industry.

But Ruparell launched his career in finance, working his way through investment banking and venture capital before building and selling a few of his own startups in the United States. After watching startups offer new ways for people to shop for and purchase homes in the U.S., Ruparell set his sights on the real estate market in Canada.

He co-founded Properly in 2018 with chief technology officer Craig Dunk, who co-created BlackBerry Messenger at BlackBerry Ltd. (then known as Research in Motion), and chief operating officer Sheldon McCormick, who launched Uber Technologies Inc.'s UberX platform in Canada.

Since then, Properly's team has grown from three employees to 60, with plans to triple its staff in the next year. It also employs 30 real estate agents.

While Ruparell would not disclose the number of customers that use Properly, he said that its customer base has grown almost 100 per cent per quarter in the past year. He plans to use the funding to expand across Canada, starting with Vancouver and then other cities in Ontario in the next 12 months, and invest in new technology that will provide customers with tools to help them navigate the home buying process from beginning to end.

The expansion comes as concerns mount that the real estate market is in a bubble and could burst — something that could leave Properly on the hook for properties it has already purchased. Hummer said the company will need to be diligent in assessing the properties it agrees to purchase.

“The thing that a company like Properly has to get right is that they have to understand how to value homes,” Hummer said. “There's only a risk if they overpay for a home and then can't sell it, but they're going to have to put controls in place to ensure that they're paying fair prices for homes and that they'll be able to sell it to the market at a comparable price at which they buy it.”

As the startup looks to grab market share from the traditional real estate brokerages that dominate the industry, Ruparell says that the greatest barrier Properly faces is convincing potential customers to trust its services and technology while they make one of the most expensive purchases of their lives.

“Buying a home is one of the most significant milestones that somebody goes through in their life, and in almost all cases it's one of the biggest financial commitments that they're making, so the stakes are high and the cost of getting things wrong are high,” he said. “It's about ensuring that our customers recognize that they're not leaving anything on the table when choosing to work with Properly over a traditional agent.”