iBuyers falling flat

David Goldsmith

All Powerful Moderator
Staff member

Amid uncertainty, Zillow is latest iBuyer to press pause
Over past month, portal reduced its home inventory as coronavirus impact worsened

After watching rivals Opendoor and Redfin drop out of the iBuying game, Zillow Group said Monday that it would also suspend home-buying amid the coronavirus pandemic.

In a statement, co-founder and CEO Rich Barton cited emergency orders in New York, California, Illinois, Louisiana, Ohio and Nevada, which have instructed nonessential businesses to shutter. In New York, Gov. Andrew Cuomo specifically told real estate agents to stop in-person showings and open houses.

“Given the concerns for public safety and rapid developments by governments that restrict local real estate activities, we determined it was prudent to pause our home buying to preserve our capital,” Barton said in the statement. “We plan to restore Zillow Offers to full operations once health concerns pass and local health orders are lifted.”

Although it won’t be purchasing homes, Zillow will continue to sell homes through Zillow Offers, using virtual tours and other technology.

Over the past month, the company slowed its home-buying activity. At the end of 2019, Zillow owned 2,707 homes. As of March 19, it had 1,860 homes.

Barton has previously called iBuying a “moonshot” bet, saying that to ignore it would be an “existential threat.” In 2019, Zillow’s revenue more than doubled to $2.7 billion. Revenue from iBuying was $1.4 billion, compared to $52.4 million in 2018. Zillow’s losses were $305.4 million, up from $119.9 million.

Last week, Redfin, Opendoor and Realogy also suspended home-buying.

In a letter to shareholders, Redfin CEO Glen Kelman cited uncertainty in the market and economy overall. “We remain as committed as ever to giving homeowners the option of an instant offer,” he said, “but only when we can know what a fair price for an offer would be.”

David Goldsmith

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Is it over for iBuying? Pandemic causes major players to hit pause
With coronavirus spreading and the U.S. housing market exposed, America’s instant home-buying frenzy seems to be fading fast

It was just a few months ago that Zillow was being asked every five minutes to place an offer on someone’s home.

Demand was such that the listings giant — which historically made money off agent advertising — jumped headfirst into instant homebuying in 2018 and shifted its entire business model a year later. To ignore the burgeoning opportunity that iBuying represented would be an “existential threat” to the business, Zillow’s CEO, Rich Barton, said in a March 2019 interview.

A year later, and in the throes of massive economic turmoil sparked by the coronavirus pandemic, Zillow and other major players including Opendoor, Offerpad and Redfin have hit the brakes on iBuying — an industry that generated nearly $9 billion in sales last year.

“With whole cities shutting down nearly all commerce, no one can say what a fair price is right now,” Redfin CEO Glenn Kelman said in a statement last month, announcing his company’s withdrawal from homebuying for the time being.

But while some in the business say it’s a pause, others believe it could be a nail in the coffin for a risky model that’s saddled companies with thousands of properties on their balance sheets in addition to capital costs.

Generally speaking, iBuyers purchase homes at a discount from sellers who want the certainty of a sale, and after minor renovations, they look to flip the homes for a profit. Many of the larger companies, like industry leader Opendoor, have relied on outside funding to do so.

“It’s not clear these guys are going to survive,” said Gilles Duranton, an economist and dean’s chair in real estate professor at the University of Pennsylvania’s Wharton Business School, who was skeptical about the model in good times. “It’s as simple as that.”

To date, iBuying companies own a tiny fraction of the U.S. housing market — less than 1 percent, according to analysts. But with institutional investors eager to own a slice of the pie, the sector’s total dollar volume has doubled each year since 2017, and last year, the top four players closed $8.7 billion in deals across 60,000 home sales.

Opendoor — the venture capital-backed firm that has raised $3 billion in debt and $1.3 billion in equity from investors including SoftBank — was on track to close 30,000 deals in 2019. A year prior, the online real estate company bought 11,000 homes and sold 7,000.

And for publicly traded Zillow, iBuying injected $1 billion in revenue in 18 months’ time.

In 2019, its Zillow Offers platform accounted for about half of the company’s $2.7 billion in revenue, up from 4 percent a year prior. Zillow purchased 6,511 homes last year and sold 4,313.


David Goldsmith

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Staff member
Opendoor lays off 35% of staff
SoftBank-backed firm suspended iBuying last month

Opendoor, perhaps the most prominent and well-funded startup in the instant-homebuying business, just laid off about 600 employees, a month after the coronavirus pandemic forced it to abort home purchases.

“Though this was difficult news to deliver, our focus here at Opendoor remains the same,” Eric Wu, the company’s co-founder, told The Information, which broke the news. The layoffs equate to about 35 percent of the company’s staff.

The company was valued at $3.8 billion after a $300 million funding round led by SoftBank’s Vision Fund last March, and has also raised funds from the likes of homebuilding giant Lennar and Fifth Wall Ventures.

In October, Wu told Recode that he has discussed the possibility of going public with his board. His company, he said, looks to at least partly replace agents, and lets buyers “get a personal open house without a realtor.”

The coronavirus pandemic, however, has dealt a crippling blow to the iBuying business, which also includes players like Redfin, Realogy, Zillow and Keller Williams. Many of these firms have suspended their iBuying activity during the pandemic. Since Opendoor’s main source of revenue is home-selling fees from iBuying, it has been forced to make cuts. The suspended activity also leaves Opendoor with a number of homes that the firm may have to sell for a loss, or spend money to maintain before sales resume, according to The Information.

Other SoftBank-backed companies that have made major layoffs or furloughs during the pandemic include residential brokerage Compass and hotel startup Oyo

David Goldsmith

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Return of the iBuyers: Opendoor gets back to buying
SoftBank-backed firm laid off one-third of staff in March

Opendoor is back in businesses and ready for remote sales.

The SoftBank-backed iBuyer, which suspended home purchases in March, said it will resume operations in Phoenix this week. To do so, the company will now do virtual tours. And it’s rolled out a new service called Home Reserve, where it will buy homes on behalf of customers who want to sell their old home first.

Opendoor is one of several so-called iBuyers that purchase homes, make light repairs and then re-sell the homes at a markup (usually alongside a suite of services). The group, which also includes Zillow, Redfin and Offerpad, stopped buying homes in March when governors across the country enacted stay-at-home policies to help flatten the curve. Although Zillow stopped buying homes, it continued to sell homes in its portfolio.

With several states slowly re-opening, including New York, iBuyers are poised to start transacting again. But there’s considerable risk particularly if they purchase homes and are unable to sell them.

“The value proposition we provide to customers is to help them move with certainty and convenience,” Opendoor’s CEO, Eric Wu, told Bloomberg. “We should be willing to take on some of that exposure and we should price homes appropriately due to that risk.”

Opendoor purchased around 19,000 homes in 2019 and owned around 3,800 in March. Founded in 2014, the company has raised $1.3 billion to date from investors including SoftBank and Invitation Homes, the single-family rental giant. In April, during the height of the pandemic, Opendoor laid off about 600 workers – 35 percent of its staff.

Wu said renting out some of its inventory is “always an option,” albeit not one he’s actively pursuing “at this moment.”

John Walkup

Talking Manhattan on UrbanDigs.com
I am very curious how they are pricing in the current 'viroconomy' into their offers. I would imagine they have increased their wiggle room, which means sellers are eager to hit lower bids. As a trader, it was always preferable to buy on the bid, but spooky when it happens right away!

David Goldsmith

All Powerful Moderator
Staff member
Given how thinly the market is trading I have no idea how they are trading. I remember talking to an investor I knew who was bragging about how well they were doing on a pool of loans they had bought from the Resolution Trust. He said "we've already worked through half the loans and we're making a decent profit."

I told him "It's not the first half - the easy half - that you have to worry about. It the second half - the "problem" half - which is going to break you." Of course they ended up losing money (not much) on the whole package.

The problem here is if they make a few points on a bunch of the houses but get stuck with a few the big losers could overwhelm the small winners.

David Goldsmith

All Powerful Moderator
Staff member
Personally, I think the market is still headed for a big correction and being a flipper is way too risky. I have too many memories of guys making good money flipping on the way up, doing larger and larger deals, and then losing it all back - and more - when the market turned.

Zillow CEO on coronavirus crisis: “We have passed peak fear”
iBuying generated $770M in revenue before buying stopped in mid-March

Zillow’s losses ballooned to $163.3 million during the first quarter despite record revenue from its now-halted iBuying business.

That’s a 142 percent uptick in losses from $67.5 million a year ago. Overall, the Seattle-based listings giant said revenue during the quarter rose 148 percent year over year to $1.1 billion.

The company’s iBuying division generated a record $770 million in revenue before Zillow suspended home purchases in late March. Until that point, Zillow had purchased 1,479 homes during the first three months of the year. Overall, it sold 2,394 properties, ending the quarter with 1,791 homes.

Zillow ended the quarter with $2.6 billion of cash and investments, the highest balance in company history. Premier Agent ad revenue rose 11 percent.

In a letter to shareholders, CEO Rich Barton said the company is “actively planning” to resume Zillow Offers, “likely within the next few weeks,” depending on health and safety concerns and local housing market demand.

During an earnings call Thursday, he said buyer demand is returning across the country. “We have passed peak fear,” he said. “Lights that were red two months ago are moving through yellow and beginning to flash green.”0

“We are now seeing buyer demand return in markets across the country,” he said. Zillow, along with many of its competitors, suspended its home-purc0hasing program in March because of public health concerns and stay-at-home orders in many states. The company continued to sell homes, though; as of March 19, it owned 1,860 homes.
As the coronavirus pandemic began shutting down many parts of the U.S. economy in March, Zillow canceled its revenue guidance and slashed expenses by 25 percent. It froze hiring, suspended marketing and cut discretionary spending.

Though the listings giant expects to take a hit on revenue from discounts it offered on Premier Agent, Zillow projected second-quarter revenue would be flat at between $577 million to $620 million.
Barton predicted a “great reshuffling” in the way people buy and sell homes. The forced adoption of tools like virtual touring and digital paperwork were long overdue, he said.
The pandemic could also be a catalyst for people to change their homes. “Right now I’m in my bedroom because I have three kids on Zoom school all over the house and I don’t have an office,” he said. “My dad had an office when I was growing up. I never saw the need. Well, I see the need now.”

David Goldsmith

All Powerful Moderator
Staff member
If iBuyers come back, I'm willing to bet you see lawsuits from purchasers because they came in and slapped a coat of paint on which made the property appear to be in good condition, and then then sold without disclosing defects (which they may or may not known of) which "anyone who lived there would have figured out."

John Walkup

Talking Manhattan on UrbanDigs.com
That's a good point, but it seems like a minor hurdle overall. iBuyers are just getting started and having this crazy situation early in the game will only make them stronger as now they have a *much* better idea of tail risk and can structure/price more appropriately. I have no idea what the buyer game will look like in the future, only that there's too much money on the table to not take a shot at it.

David Goldsmith

All Powerful Moderator
Staff member

Zillow relaunches iBuying program
Company has resumed iBuying program in Phoenix, Tucson, Raleigh and Charlotte

Zillow is relaunching its instant homebuying program, making it the latest iBuyer to resume operations.
The listings portal — which in recent years made a big bet on homebuying — announced Monday that it is resuming its Zillow Offers program in Phoenix, Tucson, Charlotte and Raleigh. Zillow had paused home purchases in all 24 of its markets on March 23 due to the coronavirus pandemic, but it expects to restart the program in additional markets soon. The company had continued selling homes through Zillow Offers via virtual tours and other technology throughout the pandemic.

Zillow contracted Dr. Regina Benjamin, who served as the country’s surgeon general under former President Barack Obama, as its health advisor. All homes owned by the company will now follow a “Clean, Protect, Distance” protocol, which requires an extra cleaning regimen and limited in-person tours (follow distancing protocols).

The company’s instant-homebuying division generated a record $770 million in revenue in the first quarter of the year. Until it paused the program in late March, Zillow had purchased 1,479 homes, sold 2,394, and ended the quarter with 1,791 properties.

“These past two months have confirmed our belief that real estate is resilient,” Zillow President Jeremy Wacksman said in a statement. “In fact, we’ve seen that people – despite these uncertain times – still want to move. Zillow Offers gives them a safe, seamless way to do so, whether selling or buying.”

David Goldsmith

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Staff member
Homebuying startup Knock pivots to lending
Knock to offer mortgage and bridge loans, refer consumers to real estate agents

Knock, a home-buying startup, is switching to bridge loans and working with agents, rather than directly with consumers.
The company, which offers a platform for consumers who want to buy and sell homes at the same time, will now offer mortgage, bridge-loan and concierge services, Inman reported. The program, Knock Home Swap, will include a mortgage without contingencies, which Knock’s CEO Sean Black said would have competitive rates.

Knock, which raised $400 million in a funding round last year, will also stop marketing homes directly to consumers. Instead it will refer prospective homebuyers to an agent network, but does not anticipate charging agents a referral fee.

For the down payment, the startup will offer an interest-free bridge loan. The company will charge a 1.25 percent fee on the home. Knock also has an integrated title company and a network of contractors to streamline the process of preparing a home for sale.

Knock was initially modeled as an ibuyer, acquiring homes for cash and selling them to consumers. Now, the company will still buy homes if they do not sell within six months, but Black said nearly all homes listed with Knock sell within 90 days.

David Goldsmith

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Staff member
Realtor.com wades into iBuying at last
Sellers can use Realtor.com to request an offer

Even as rivals rushed into iBuying, Realtor.com resisted the home-buying craze. Until now.
The listings portal said Thursday that it is launching a seller’s marketplace, where sellers can request offers from Opendoor, EasyKnock, HomeGo and WeBuyHouses.com instead of listing directly on the open market.
While Realtor.com, which is owned by Rupert Murdoch’s News Corp., won’t be buying and selling homes itself, it aims to be a “one-stop shop” for sellers, David Master, director of product management, said in a statement.

In a new deal with Opendoor, sellers who visit Realtor.com can accept offers and complete all-digital transactions, Inman reported. The partnership with Realtor.com is Opendoor’s second, following a deal with Redfin last year. Prospective sellers can use Redfin’s site to request offers from Opendoor or list with a Redfin agent.

Until now, Realtor.com has avoided home-buying, even as its chief rival, Zillow, has invested heavily in the sector.
In March, all of the major iBuyers – Zillow, Opendoor, Redfin, Realogy and Offerpad – suspended home-buying due to uncertainty around coronavirus. They have since resumed, and generally predict that sellers will appreciate the certainty around an instant, all-cash offer during the pandemic.