iBuyers Making Moves

David Goldsmith

All Powerful Moderator
Staff member

Zillow selling half of iBought homes, will buy back $750M shares​

The company has signed sales agreements for more than 50 percent of Zillow Offers’ remaining inventory​

Zillow’s disastrous foray into iBuying may finally provide a silver lining to investors.
The company’s shares jumped on Friday, a day after the company said it has signed contracts to sell more than half the homes it picked up through Zillow Offers, the iBuying unit that it was forced to shutter last month. Zillow also said it will buy back $750 million of its stock and raised its fourth-quarter revenue estimate for the unit that includes iBuying by more than a third.
Zillow Offers was on the hook to sell close to 18,000 homes at the end of the third quarter, 9,790 of them in its inventory and another 8,172 in contract. It’s unclear how many homes it owns now because Zillow has scrapped at least 400 contracts despite earlier promises to honor those agreements.
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The company said it’s selling homes through bulk deals with institutional investors, such as Pretium Partners, which agreed to buy 2,000 properties, as well as deals with individual homebuyers. Zillow raised its fourth-quarter estimate for the homes unit to a range of $2.3 billion to $2.9 billion, from $1.7 billion to $2.1 billion.
Zillow said it expects the closure of iBuying to be “cash-flow neutral” considering its inventory, operating and restructuring costs and Zillow Offers’ $2.9 billion in secured debt.
Still, with more cash than expected coming in, CEO Rich Barton said it was “an opportune time” to say it will repurchase $750 million of Class A and C shares. The buyback will let the company “reduce the cash balance we built up to support Zillow Offers,” said Barton in a statement.

Zillow shares tumbled 43 percent in the past two months as the company paused and then shut down Zillow Offers. Shareholders have filed at least two lawsuits seeking class-action status, accusing Zillow of misleading investors.
The stock was up 9.1 percent to $58.64 as of 2:33 p.m. EST.
 

David Goldsmith

All Powerful Moderator
Staff member
This is why I have cast aspersions on iBuyers from the start (and why Zillow bowed out):
"While iBuyers were spending a lot, they weren’t necessarily making a lot. The median markup was 1.8 percent, down almost 5 percentage points from the 6.7 percent median markup in the second quarter. In eight of the 36 markets analyzed by Zillow, iBuyers sold a typical purchased home at a loss; Austin saw the biggest median loss at 7.7 percent."

iBuyers reached record housing market share, sales volume​

Zillow Q3 report shows services expanded buying and selling amid steep markups​

iBuyers were all the rage in the third quarter, accounting for a record share of the housing market. But the new heights for selling and buying came at a price.
Homeowners sold 27,244 homes totaling $10.6 billion through iBuying services, according to Zillow’s iBuyer report for the third quarter, which evaluated the four largest: Opendoor, Zillow Offers, Offerpad and RedfinNow.
The period saw iBuyers account for 1.9 percent of home sales, nearly doubling their previous high of 1 percent set in the previous quarter.
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As the housing market heated up, sellers often found that iBuyers were willing to pay far more than they had before. The median price of homes sold to an iBuyer was $376,000 in the third quarter, a record for the sector and a big jump from $333,000 in the second quarter.
Selling to an iBuyer may have also been more lucrative than going the traditional route, as the median price of third-quarter iBuyer purchases was 13.9 percent higher than for the market overall.

While iBuyers were spending a lot, they weren’t necessarily making a lot. The median markup was 1.8 percent, down almost 5 percentage points from the 6.7 percent median markup in the second quarter. In eight of the 36 markets analyzed by Zillow, iBuyers sold a typical purchased home at a loss; Austin saw the biggest median loss at 7.7 percent.

Phoenix emerged as a favorite housing market for iBuyers, passing Atlanta in the third quarter for the most homes sold through iBuyers. Some $1.47 billion worth of home sales there involved iBuyers, the first time a single market crossed the billion-dollar threshold. Phoenix was also one of three metros where at least 10 percent of homes were sold through iBuyers, joining Greensboro and Tucson.

The report is the first since Zillow announced its Offers service will soon cease to exist.
The company earlier this month said it had signed contracts to sell more than half the homes it had bought through Zillow Offers. It’s not clear how much Zillow is selling the homes for, but the company raised the fourth-quarter revenue estimate for its unit that includes iBuying by more than a third.

Whether Zillow’s exit from iBuying leads to a market contraction remains to be seen, as Offerpad and Opendoor look to fill the void with their own services.
 

David Goldsmith

All Powerful Moderator
Staff member

Why Offerpad Solutions Stock Sank Nearly 15% in December​

The real estate iBuyer fell despite some positive coverage.​


Key Points​

  • Zillow's exit has continued to cast a shadow on the iBuying market.
  • Offerpad wasn't as aggressive as its rival, which suggests it can be successful.
  • The iBuyer also improved its financial flexibility, increasing its capacity to buy homes.

What happened​

Shares of Offerpad Solutions (NYSE:OPAD) slumped 14.7% in December, according to data provided by S&P Global Market Intelligence. That decline in the iBuyer's stock price came despite some positive press from several analysts last month. The main issue seems to be the continued uncertainty in the space following Zillow Group's (NASDAQ:Z)(NASDAQ:ZG) decision to exit iBuying in November.

So what​

In November, Zillow upended the emerging iBuying real estate market by exiting after racking up heavy losses. That opened the door to questions about whether this was a Zillow-specific issue or if the iBuying business model didn't work.
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Offerpad's third-quarter results, which it reported in November after Zillow's announcement, seemed to suggest the problem wasn't with the iBuying business model. It posted strong results, with revenue rising 190% year over year, while gross profit surged 169%. It sold a record number of homes, noting that it owned over 99% of its inventory for fewer than 180 days.
These numbers and those posted by rival Opendoor Technologies (NASDAQ:OPEN) had the market growing more confident in the future of iBuying despite Zillow's departure. Barron's featured an article in December calling both Offerpad and Opendoor a buy. The author noted that both did a much better job than Zillow managing inventory, which should enable them to avoid its missteps.
Meanwhile, Cantor Fitzgerald analyst Benjamin Sherlund initiated coverage on Offerpad last month, with an overweight weighting and a $10 price target. That implies more than 70% upside to the current share price. The analyst believes that the sell-off following Zillow's abandonment of iBuying has created an attractive valuation gap between Offerpad and its peers.


In other news last month, Offerpad undertook several transactions to refinance and restructure related-party credit facilities. The iBuyer also obtained $500 million in additional senior secured revolving credit capacity, bringing its total to $1.7 billion. These moves increased its financial flexibility to continue expanding its iBuying business.

Now what​

The iBuying market is in a state of flux following Zillow's exit, and that continued weighing on Offerpad last month. This uncertainty will take some time to clear. The company will need to prove that iBuying can be a consistently profitable business.

There's reason to believe that Offerpad can be successful. It wasn't as aggressive in expanding as Zillow. Because of that, it has been able to quickly flip the homes it buys, which is essential in a volume business like iBuying. If it can continue to scale, Offerpad could have significant upside in the coming years.
 

David Goldsmith

All Powerful Moderator
Staff member

Offerpad poised to pump more money into iBuying​

Company landed $600M in credit from unknown lender​


In the wake of Zillow’s iBuying demise, its former rival Offerpad appears to be headed in the opposite direction with more than half a billion in credit to expand its home buying business.
The company landed $500 million in a revolving credit facility, according to a Dec. 20 SEC filing reported by HousingWire. The lender was not disclosed by the company and reportedly absent from the filing.
Offerpad has committed to borrowing at least $300 million from that credit facility, HousingWire reported. The company has also taken out a $112.5 million mezzanine secured credit facility, of which it has committed to spend $67.5 million. Ultimately, the facilities total more than $600 million.

A spokesperson told Inman the company intends to “borrow only what we use to add inventory, where we continue to apply our disciplined approach to underwriting homes.”
“In fact, these credit facilities expand our borrowing capacity, lower our overall borrowing costs, and further expand and diversify our lender relationships,” the spokesperson said.

Offerpad is one of the last iBuying brands standing after Zillow’s spectacular fall from the field.
The company went public in September by merging with a SPAC and narrowed its loss in the third quarter to $15.3 million as it nearly tripled revenue to $540 million, the company reported.

During the third quarter, the company acquired 2,753 homes, an increase of 258 percent from the previous quarter. It sold 1,673 homes during that period, a 123 percent increase.

Overall, iBuyers continued to play an increasingly noticeable role in the housing market during the third quarter.
A Zillow report on the third quarter for the four largest iBuyers — Opendoor, Zillow Offers, Offerpad and RedfinNow — said homeowners sold more than 27,000 homes totaling $10.6 billion through iBuying services.

In the third quarter, iBuyers accounted for 1.9 percent of home sales in the country, representing a near doubling of the peak reached in the second quarter. The median price of a home sold to an iBuyer in the third quarter was $376,000, 13.9 percent higher than the overall market.
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