Zillow marked the importance of iBuyers in the real estate world during the last 5 years when it announced it too was going into the iBuyer business. The listings juggernaut went from “We sell ads, not houses,” in 2015 to, “We purchase the home, do all the work the seller would do and put it back on the market in short order, in partnership with agents and brokers,” in 2018.
In a market with some 55M annual home sales that amounts to approximately $1.8T in annual sales volume, Spencer Rascoff, CEO of Zillow, thought out loud that if just 5% of home sellers (275,000 sellers) select an iBuyer method for selling a typical $250,000 home value, a $3,500 profit per transaction would result in an annual profit of nearly $1B.
Other investors came up with the same sort of reasoning as well. According to the tech research-marketing agency RETech, total funding to real estate tech start-ups in 2017 was $12.6B, an increase of 200% compared to $4.2B in 2016.
Offerpad, begun in 2015, and Opendoor, started in 2013, have in combination already, according to ATTOM Data Solutions, purchased over 10,000 homes. Take a look at the exponential growth of their combined purchases…
- 2014 – $1,395,784
- 2015 – $144,728,867
- 2016 – $325,906,550 +112%
- 2017 – $924,919,962 +133%
- 1/18-4/18 – $739,780,229 – on track to nearly triple in 2018
Courtney Real, director of communications and outreach for Offerpad, said that Offerpad was involved with some $130M in real estate transactions/month…an involvement that would hit more than $1.5B for 2018.
Offerpad’s disruption in the real estate world is based upon data that fuels the real estate business market…data such as neighborhood stats, population characteristics, school information, etc.…data that gives control of the real estate process back to sellers.
Real said, “Before Offerpad, there wasn’t much control they (sellers) had or certainty over the process…there really isn’t peace of mind until the deal closes and the funds are transferred to their (sellers’) accounts.”
The same data OfferPad uses to fuel the buying/selling experience also helps fuel investment in the company. Dan Mayes, Offerpad’s chief real estate technology officer, said, “…Offerpad’s investments in data and technology help us identify potential market expansion while providing our investors and partners with insight and confidence to continue fueling our operations.”
Roofstock, another real estate tech start-up, began disrupting the single-family rental property market segment in mid-2015. The company’s co-founders, Gary Beasley and Gregor Watson, believed that “…it seemed kind of crazy that you had to wait for tenants to move out of a for-sale property before you could sell it…that having to wait was costing 10-12% on average to sell those homes.”
Roofstock uses tenant occupancy to its (and the investors’) advantage. The marketing angle is something like, ‘buy a SFR that is already tenant occupied so you can begin collecting rent and generating income (no interruptions) as soon as you take ownership of the property.’
Roofstock is selling data only…it is not buying and reselling SFR properties. Roofstock’s single-family rental property database, in-house called the “Rental Genome Project”, of 16M SFR properties in the country is sold to potential investors for their use to buy SFR properties themselves. This data (including ownership entries for each property plus ways to contact those owners) is placed on an interactive map that serves up automated property valuations that can predict sale probabilities at certain property price points. And Roofstock’s data platform enables investors to buy SFR properties anywhere in the country so they can take advantage of surging market trends usually miles away from where they live.
Roofstock charges 25% to sellers and buyers pay 50 basis points on transactions to use the company’s various big data analytical tools. Roofstock also can provide investors with solidly researched, local property managers, construction firms and marketing agencies to handle everything involved with SFR properties (rental agreements, collection, property maintenance and improvement, HOA coordination, etc.)
Roofstock’s platform went from $40M in transactions in 2016 to nearly $1B in 20178, a 25 times increase. Beasley offered no forecast of 2018 transactions but did say, “…the one thing real estate has going for it is that the market size is quite large. That (market size) is appealing for investors who see a lot of companies,,,(Real estate) really is the last major sector (in the economy) to not be discovered…I think there are a lot of pockets of opportunity in real estate…”
