Key Highlights

  • Home prices dropped -33% during last market bottom, according to MarketWatch
  • Homes lost -$2T in value during 2008, according to money/cnn
  • iBuyers have never before faced a down market

IBuyers OpenDoor and Zillow missed the last recession in 2008…they hadn’t been born yet. OpenDoor launched in 2014 and Zillow’s ZillowOffers came into being in 2018.

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How will these and other iBuyers do in their respective first down market?

It’s worth remembering that, according to the National Association of REALTORS® (NAR), 40% of all home sales happen during the months of March through June. It’s also worth remembering that today, mortgage interest rates now stand at nearly 0% after the Fed’s second cut in two weeks and that current homeowners can refinance their mortgages to free up some cash and wait to buy their next houses.

For sellers, there is no down side to getting bids from iBuyers about potentially selling their homes regardless of their being or not being on the clock to sell their houses. If they don’t like the iBuyers’ bids, most all iBuyers will refer those sellers to agents to obtain different and perhaps better selling prices for their houses. Or, they can decide to not sell their houses at this time.

Focusing in on iBuyers Open Door and Zillow’s ZillowOffers only, last year in 2019, Zillow bought 6,511 houses and sold 4,313 to create $1.4B in revenue for its home buying segment. Analyst Mike DelPrete of the University of Colorado indicates that ZillowOffers lost money on every house when all is said and done after subtracting purchase price, sale price, agent commissions, interest expenses and hold and remodeling costs in every quarter in 2019. Take a look:

  • Q1 2019, ZillowOffers lost $3,268/house
  • Q2 2019, ZillowOffers lost $2,916/house
  • Q3 2019, ZillowOffers lost $4,826/house
  • Q4 2019, ZillowOffers lost $6,407/house

Clearly this progression of cost loss per house indicates that it’s taking longer to resell these ZillowOffers houses.

Julian Hebron writing for HousingWire reminds us that “disruptive models skew traditional as they mature.” Why does Hebron say this? Amazon has gotten into retail and Netflix has become a Hollywood studio.

Hebron breaks down how iBuyers go down what he calls the “startup disruption path:”

  1. Evangelize Instant, Technology Process
    1. Since the home buying and selling process is broken, iBuyers say that instant buying essentially “reinvents the consumer experience.”
  2. Master Customer Acquisition
    1. Wizardize marketing in order to get millions of eyes on your website because those “eyes” will become your customers. (Think Think Zillow.)
  3. Go Mainstream
    1. If an iBuyer last 5 or more years and has millions of eyes/customers, that iBuyer is a real estate innovator AND a lead source for traditional real estate brokerages.
  4. Settle on a Hybrid Instant/.Human Model
    1. Learn about regulation AND that customers NEED human advice when buying/selling their house.

Hebron believes that Zillow could skew back to its lead generation model that has grown their revenue piles since its launch some years ago. Just in 2019, Zillow grew its lead revenue to $1.3B.

As far as OpenDoor is concerned, Hebron writes that “the jury is still out.” BUT, Hebron is the person who nicknamed OpenDoior’s capital markets team as Goldman Sachs West. And, as far as Hebron is concerned, “OpenDoor will prove nimble during this market shift.”

 

Thanks to Julian Hebron writing for HousingWire.

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