There hasn’t been much concern around San Diego about the ibuyers because they have been cutting their teeth in the lower-priced and more homogenized housing markets, where valuations are easier.
Hat tip to the reader who sent this in though – Offerpad did purchase a Talmadge home in December. They took title as Offerpad, and they used their regular Gilbert, AZ address too:
They paid $564,000, and tried all year to do better:
But the market didn’t come their way, and they ended up selling for less:
Even if they get a discounted commission (two different agents were involved, and the buyer’s agent got 2.5%), losing money on flips has to get old quickly!
A softer market should cause more of these guys to ‘self-sideline’.
Everyone is getting into the home-buying business. First it was the well-funded disrupters like OpenDoor and Offerpad, and then Zillow, Redfin, Knock and others jumped in – which caused Coldwell Banker, Keller Williams to also announce their programs (plus Compass and others won’t be far behind).
What will the real estate world be like if sellers have multiple choices of cash buyers? Which ibuyer will have the advantage? Zillow is already in the driver’s seat, and they include the additional service of offering a third-party realtor’s opinion too.
From Mike DelPrete – an excerpt:
Zillow announced its Zillow Offers program in Phoenix earlier this year, and started buying houses in May. It is heavily promoting the program across its site. While looking in the Phoenix market, a prominent message is displayed on all active for sale listings.
In its latest quarterly results, Zillow revealed how effective the promotion was: “Since launch, we have received more than 10,000 offer requests from potential sellers.” And: “…in Phoenix, for example, we are seeing about 15% of all dollar value that’s being sold in Phoenix any given month.” That translates to about 1,600 offer requests per month.
Opendoor is on record saying that more than “one in two sellers who received an Opendoor offer” will accept it. It’s currently buying around 300 houses per month in Phoenix, so that’s about 600 offers made per month.
There’s a difference between an offer being requested, and an offer being made. What’s clear, though, is that Zillow is generating a massive amount of offer requests each month, at volumes that rival (and exceed) Opendoor.
Most importantly, Zillow’s leads are coming with zero incremental customer acquisition cost, while Opendoor and other iBuyers must advertise directly to consumers to generate leads.
They aren’t in San Diego yet, but it’s coming. Read Mike’s full article here:
The ibuyer is the sexy new shiny object in the real estate game. While the idea of a quick and easy sale sounds great, the reality is already much different – and, as the market transitions, their quotes and repair costs should get more conservative (and home sellers be less enamored).
The only local story I’ve heard was one where the ibuyer checked out the property in person, but then didn’t offer, saying it was outside their buying range. You can’t blame them for being picky, and only take the gravy. They will probably stick to the lower-end vanilla properties that are more predictable.
Opendoor, which launched in 2014, says it’s not a house flipper. “We aim for fair market offers, making money on the fees we charge, not the profit on resale,” says Jim Sexton, head of Opendoor’s broker development. The company says it sells 800 homes a month across its 11 markets, with plans to expand to 50 markets by the end of 2020. Currently, it has nearly 3 percent market share in Las Vegas.
Opendoor eyes markets with ample volume, size, and liquidity, Sexton says, adding, “We’re looking for markets that don’t have many barriers to entry, such as hefty transfer taxes or other local or state regulations that make a transaction difficult.”
An Opendoor competitor, Offerpad, operates in eight markets with plans to expand, while Zillow, one of the newest entrants into the direct buying niche with its Instant Offer program, has been successful in Las Vegas and Phoenix, where it expects to buy and sell up to 1,000 homes by year’s end. The new Redfin Now program is available in two California test markets, and Knock, operating in Atlanta and in Charlotte and Raleigh, N.C., enables “trade-in” clients to buy a new home before their existing home is listed.
These companies all claim to speed up and simplify the real estate transaction while removing uncertainty and inconvenience for sellers and buyers. The appeal of the marketing spiel is easy to understand, but how applicable is this model for most consumers? And how likely is it that these companies will become significant players in many markets?
“The market is really driving this model,” says real estate consultant Victor Lund, founder of WAV Group. “The convenience factor, along with an alignment of circumstances are contributing to the growth of iBuyers. Consumers have built up a lot of equity in their homes since the recession, interest rates are low, days on market are low, prices are up, and there’s lots of competition, which puts cash buyers in a better position to buy.” These circumstances create the optimal environment for iBuyers to thrive. Lund believes that once prices slip and homes generally take longer to sell, consumer interest in iBuyers will fade.
Among agents who have interacted with these models, what are they finding? Despite iBuyers’ claims to revolutionize the real estate transaction, some agents are finding their transactions are neither quick nor seamless.
For example, after Ockey’s clients accepted the Opendoor offer, the next step was the inspection. A team of five Opendoor contractors—one for electrical, one for plumbing, one for foundations, and so on—went through the house with a magnifying glass, says Ockey. “They asked us to fix everything you could think of. They wanted bathtubs and toilets replaced if there was even the slightest blemish. They wanted showers retiled and regrouted. It wasn’t little projects; they wanted to remodel the home, and they wanted the seller to pay for it.”
The requested repairs came to about $16,000 on a $300,000 home. Ockey spent weeks negotiating that figure down, which added time and worry to the transaction. “Having representation saved my clients thousands of dollars, but in the end, they made about $10,000 less than they would have selling to a traditional buyer. It’s not horrible, but it’s a lot of money when you only have $20,000 or $30,000 in equity.”
The automated aspects of working with Offerpad didn’t faze Kellie Parten, an agent with HomeSmart Realty in Phoenix, who helped her clients buy a home from the company in May. “It was robotic, but in a positive way,” says Parten. “You can tell that they’re a little bit of a machine, but I didn’t mind because they were very responsive and organized. I never had to ask for something twice.”
Although Parten wouldn’t hesitate to bring a buyer to an iBuyer home, selling to one is a different story. “Offerpad and Opendoor offers on a couple of properties I’ve listed seemed exciting at first, but after you factor in the concessions they request and the additional credits in lieu of repairs after inspections, the net is usually too low and the deals never came together,” she says. One iBuyer recently offered $750,000 on a home that Parten later sold to a traditional buyer for $900,000.
Opendoor, the ibuyer who purchases your home for cash and closes escrow at your leisure (as long as you don’t mind paying their 6% to 13% fees plus home repairs) has made a deal to acquire a discount brokerage:
Opendoor announced Tuesday morning that it has acquired Open Listings, a real estate site that offers homebuyers a 50% refund on the fees their real estate agent would have received.
With the acquisition, Opendoor will now be able to buy a home directly from a seller, then help that seller find a new home (whether it’s a newly built home or an existing one), offer them a mortgage, and close on the sales through its own title operations.
Basically, buyers who use Open Listings find, tour, and buy homes through the platform. Real estate agents only come into the process when it’s time to make an offer on the home.
They are building a platform similar to the Red team’s, and both are weak in the beginning – they both offer inexperienced agents or no help at all at the initial showing of the home. These guys expect you to go to the listing agent’s open house, and then make an offer with their online agent.
I believe that every buyer should receive professional advice from their agent while at the property – and reflect those details into the offer price. Otherwise, you pay too much!
The online agents haven’t seen the house in person, and can’t offer the same expertise. Besides, if you are an online agent, you just want to hurry up and write the offer and expect any defects to come out during the home inspection. The buyers end up basing their entire investigation on a $500 guy who has no fiduciary duty to them and whose job is limited to the moving parts of the house.
But let’s say you can live with that.
These types of disrupter platforms are entirely dependent upon all agents sharing their listings on the MLS. But as the major brokerages continue to input their listings on their company website first (Redfin’s publicly-stated policy), the MLS will soon become a relic, and the marketplace of last resort.
All of the market conditions are pushing in this direction. We are transitioning from the Wild, Wild West to Full-Tilt Chaos!
The way to sell houses is turning into a jumbo bowl of jambalaya now, and this version toes the fiduciary-duty line by gathering investor offers, instead of making cash offers themselves.
Reprinted with permission from the author Mike:
A Keller Williams team in Phoenix recently launched OfferDepot, an instant offer play, to “help with all the confusion with cash offers vs bringing your home to market.”
Why it matters: This is the first move from a traditional real estate company into the instant offers space.
The idea that traditional real estate incumbents would enter into the iBuyer’s instant offers party isn’t new. Back in February, I wrote:
“…the more successful Opendoor becomes, the more of a threat they become to industry incumbents, which forces them to respond. The most logical response from a major player such as Realogy or Keller Williams would be to launch their own iBuyer program.”
This isn’t a top-down corporate initiative on the part of Keller Williams. Rather, this is a local team reacting to the rising interest in iBuyers and pushing to stay relevant. The Keller Williams team isn’t buying houses directly. It is collecting inbound leads from potential sellers, gathering information on the home, receiving instant offers on their behalf, and presenting everything back to the home owner (including an option to list the home on the open market) in a comparative analysis.
We can speculate as to the reasons this Keller Williams team decoded to jump in to the fray:
It doesn’t want to miss the boat. Whether it’s Opendoor raising another $325 million or Zillow jumping in with both feet, interest in the space has never been stronger. Traditional real estate agents — and Keller Williams — are in the business of selling homes. Why would they let this new model pass them by? Doing nothing is not an option.
A one-stop-shop. It’s relatively easy for traditional agents to bolt on an instant offer service, thereby turning them into a one-stop-shop for home sellers (and negating the need to contact an iBuyer like Opendoor or Offerpad).
Seller leads are super valuable. This is another form of lead generation for traditional agents, with each request representing a likely customer.
Implications for iBuyers
In my previous analysis, I summed up the major implications of incumbents entering the instant offer space. The first deals with the user experience:
“Make no mistake, the offer and the experience from the incumbent is going to be bad. They’re simply not set up to provide the same quality of service as Opendoor.”
The online experience isn’t great. In a design reminiscent of the mid- to late-90’s, users must struggle through a form to submit their home’s information. It’s a far cry from the premium experience Opendoor strives to offer its customers through the entire process.
But it works. It does what it needs to and collects leads. And it is this dilutive effect that is the biggest implication to dedicated iBuyers like Opendoor. As I wrote in that same analysis:
The proposition from the incumbents will be poor, but it will be enough to soak up a portion of the demand in the market and take momentum away from Opendoor and other iBuyers.”
It’s simple economics. If we assume the demand remains constant, the addition of supply will dilute the amount of business any one iBuyer receives.
There will also be more customer confusion as incumbents get into the game. When Opendoor was the only option in town, it was simple. But now there are a variety of choices: multiple dedicated iBuyers (Opendoor, Offerpad), a popular web portal (Zillow), a tech-enabled brokerage (Redfin Now), and a traditional real estate agent (OfferDepot). What’s the difference? Who do I trust? It’s difficult to explain the various propositions to consumers.
At the end of the day, that’s good for traditional brokers and agents (as they can soak up additional demand), and bad for dedicated iBuyers (because of the dilutive effect and customer confusion).
This is just the start! Expect a lot more activity in this space by the incumbents. It’s only a matter of time before a big incumbent launches a well-funded, well-designed initiative. And it may not stop at just presenting offers on an iBuyer’s behalf…
In the video below, a Las Vegas realtor compares an actual offer from Opendoor to what happened when he put the home on the open market.
But it’s the deceit that is note-worthy.
The first number supplied by Opendoor was the average market time, which they said was 75 days for the zip code. But the actual MLS data showed 22 days, and then the agent sold this house the first day on the market.
Opendoor also packed an extra 2% in costs for seller concessions when selling with a realtor, which is untrue. Buyers don’t ask for concessions in our pricer market, let alone in Las Vegas when houses are selling over list price.
No surprise that flippers use the lowest comps they can find – that’s expected. But they also stack enough other false evidence that, in the end, is what sways the seller to go that route.
Opendoor’s final estimate twisted the numbers to show that the seller would make $11,000 more money by selling to Opendoor, rather than listing with an agent. But the client actually cleared $15,416 more with a realtor!
Flippers have no obligation to tell you the truth – they say whatever they want. Get a second opinion! If timing is an issue (quick closings are one of the big benefits they push) – then I will give you a quote today, and get you into escrow as fast as you need.
Glenn Kelman of Redfin has been deceiving the public since the day they started the company, and he gets away with it because we don’t have a watchdog department or any enforcement of truth-in-advertising. We live in a society where anybody can say anything and never be accountable to the truth.
I’ve had enough, and I’m not going to take it any more.
Here are examples:
He says Redfin agents sell houses for $3,000 more than traditional agents. But you can only measure that if we sold the same house on the same day! He is using averages of different sets of homes, which is apples and oranges – yet it was one of their featured statements on their website for a long time.
He says that his sellers save $9,000 over traditional agents. You can say you charge a lower rate, but you can’t calculate the actual savings until you have the sales price. Agents don’t sell houses for the same price – houses sell for different prices depending on the agent’s method and expertise. If I sell the house for $10,000 more than you, then the sellers would MAKE an extra $1,000. It is deceitful for him to make such claims.
He says you will ‘close without a hitch’. A Redfin agent told me yesterday that 100% of his deals have a hitch.
He says they are full service. But then you send out the $50 girl with the least experience of anyone on your team to show buyers around? If you are ‘full service’, then you should have your BEST agents showing homes.
His home-flipping device, Redfin Now, is the biggest conflict-of-interest in the history of real estate. With Zillow’s Instant Offers, at least they send their staff people to give you a quote to purchase your home, and then direct an independent agent to give you a second quote. But Redfin offers the whole package together. But you can’t have it both ways – either you advertise that you are a full service realtor, and thus have a fiduciary duty to get the best deal possible for the seller, OR you are a cash buyer. But they run their flipping platform off their same website.
They know it’s a conflict too, and have a disclaimer at the bottom of the page:
Can you read print that small? Me neither, so I got out my magnifying glass.
This is what it says:
Redfin Now is a separate company owned by Redfin. Agents representing Redfin Now represent Redfin Now only and do not represent sellers in the sale of your home. If you decide to sell to Redfin Now, neither Redfin nor Redfin Now will represent your interests regarding the sale of your home. For this reason, it is recommended that you seek independent representation in the sale of your home. You may be able to sell your home on the open market for more money than Redfin Now’s offer price.
People who are drawn to a ‘full-service realtor’ website should get a fiduciary consultation only – that is what’s in their best interest. If you are running a separate company that buys homes, then it should be on a separate website.
The latest is Glenn saying that portals should include links that direct the consumer back to the listing agent. He says that it will encourage listing agents to stop ‘pocketing’ their listings, and sell them on the open market instead. But Redfin does the ‘Sold Before Processing’ to their sellers too, so you can’t help but think Glenn has an ulterior motive.
Flipping homes for no profit, just to make money the fees? And VC money jumping at the chance to back him, in hopes of making billions before the market turns? Could they provide enough market support to avoid a downturn?
Eric Wu is a house flipper, but unlike other real estate investors, he says he isn’t trying to land a profit by selling for more than he paid.
The windfall, he said, will come from transaction fees.
Opendoor wants to come out even on its deals. “We try to have the average be exactly zero,” Wu said in an interview last week at Planet Hollywood Resort while attending a National Association of Real Estate Editors conference.
He said the goal isn’t to buy and sell quickly, although Opendoor does just that. And, as he indicated, the price spread on its transactions can be thin.
Opendoor bought a two-story house in North Las Vegas in February for $263,000, property records show, and sold it three months later for just $3,000 more.
The key to making money, he said, is lowering transaction costs.
Opendoor’s fee for sellers is reportedly 1 to 1.5 percent above a typical real estate agent’s. According to Wu, its fee currently mirrors its transaction costs — “We don’t make a profit today on customers,” he said — but he eventually wants to slash his expenses while maintaining the fee.
“That becomes our profit,” he said.
The company is under contract to buy more than 100 homes in Las Vegas and has 60 on the market to sell, according to spokeswoman Cristin Culver. Nationwide each month, it buys around 1,300 to 1,400 homes and sells almost 1,000, Wu said.
He said the company has raised $645 million in equity investments and another $1.5 billion in debt.
This might be the greatest sucker play in the history of housing. The I-news featured a story about the first five Zillow buys in Phoenix, and as you can see above, they are planning to lose money on all of them.
The reporter also interviewed one of the homeowners who sold. She said that her offer from Zillow was higher than the other ibuyers (Opendoor and Offerpad). What a great way to enter an already-competitive market. Make headlines about offering the most money, and don’t look like you’re gouging the homeowners – heck, they look like Robin Hood!
The publicity should fuel a surge of interest in homeowners wanting to sell to Zillow, and the story mentions that they are expanding their staff to 50 people in Phoenix to handle the ‘stronger-than-expected’ demand.
It could just be a ploy to load up their Premier Agents with listings, and/or to gain advantage over the other ibuyers.
Will they eventually resort to flat-out lying to people like all the rest of the real estate advertisers these days? Here’s an example, where they say they will pay ‘fair market value’ (how do you know if it never hits the open market), and no mention that their fees are 6% to 13% – but at least they tell you that they will hammer you for repairs once the deal is in play:
They paid $410,000 and are listing for $425,000? Are they expecting a bidding war? By the way, OpenDoor has 300 listings in Phoenix already!
Hat tip to daytrip for sending this in – an excerpt:
Noel Levine, a freelance IT consultant and self-described geek, said he looked into other online services like OfferPad and OpenDoor, which the new Zillow program competes against. He was thinking about listing the house with a broker when he saw an article about the Zillow Instant Offers expansion in the local newspaper. Zillow was able to accommodate the quick turnaround. The deal started with a request for an offer on May 3 and closed 15 days later, at a purchase price of $410,000.
“So in two weeks I went from having a house to put on the market to being out of the house with money in the bank,” Levine wrote in a thank you note to Zillow that he shared with GeekWire. “It spared me from having to go thru the trials and tribulations of wondering how many showings it was getting, then wondering if I should accept an offer, to dealing with the inspection deductions to worrying about what could go wrong with the closing.”
The home is now listed on Zillow with a priced at $425,000 (the Zestimate is $414,233). It boasts “real wood flooring, travertine tile, and stacked stone accents,” according to the listing. The company bets that buyers will love the “cozy gas fireplace” and “master retreat.”
