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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David Goldsmith

All Powerful Moderator
Staff member

Roofstock ramps up iBuying, even with tenants in place​

Startup lets renters remain after investing platform buys it​

Despite Zillow’s iBuying fiasco, other companies are still pursuing the strategy, each with its own approach. For investing platform Roofstock, that means focusing on buying single-family homes with tenants in place — an unconventional approach.
The Oakland-based startup, which has been quietly buying and fixing up properties for the past year and a half, is ramping up its purchasing with that model.
Founded in 2015, Roofstock uses artificial intelligence to help investors buy and sell properties. The company has raised $153 million over five funding rounds and was valued at $600 million in its Series D in June 2021, led by SVB Capital. JLL, Expanding Capital and Owl Capital participated.
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JLL acquired a minority stake in a deal with the company early last year. A company spokesperson did not reply to an inquiry about whether Roofstock is profitable, which means it probably isn’t.
Rather than purchasing vacant homes, as is common among iBuyers, Roofstock buys discounted homes being rented to tenants, who can remain at least until their lease is up. Most iBuyers don’t want to bother with tenants, whose presence prevents renovations.

But Roofstock’s strategy, said CEO and co-founder Gary Beasley, generates cash flow and allows the firm to wait out market downturns before selling.
“Every day we hold these homes, we make money. Every day a traditional iBuyer holds those homes, it costs them money,” Beasley said. “We don’t have to turn out capital as quickly, and since we have such good insights into what investors are looking for, this really is in service of creating marketplace liquidity and putting products on the shelf that they want.”

Zillow also thought it had good insights into flip homes’ potential profitability, but eventually realized that its algorithm was inaccurate and it was losing money by the truckload. The company decided two months ago to sell its homes and to stop buying.

The occupied homes that Roofstock purchases don’t usually require up-front investment for repairs, Beasley added. If a tenant decides not to renew a lease that expires during Roofstock’s holding period, Roofstock will remarket the home as rent-ready or have a new tenant move in.
Roofstock got into buying occupied homes after an institutional investor approached, looking to sell a 150-property portfolio quickly. Roofstock purchased the units in cash and sold the homes over the next year through its marketplace.

“Some of the clients who were coming to us wanted faster liquidity or more certainty than a full marketing process would bring,” Beasley said.
It plans to expand to new markets with help from its asset management software partner, Stessa. The goal is to more than double the sale of homes through its iBuyer program this year. Beasley declined to disclose numerical targets or the markets involved in the program.

Though Roofstock hasn’t been iBuying as long as major players Opendoor and Offerpad, Beasley said the company is confident in its data, which include detail on sellers and projected resale prices. It also has buy boxes — a list of conditions that makes a home investment-worthy — for buyers on its platform.
Roofstock does automated underwriting of each property and has an analyst review and refine the estimates before an offer is made. Afterwards, Roofstock makes an offer but doesn’t fork over any nonrefundable money until the property is physically inspected and it receives a hard bid from a contractor so it knows what repairs would cost.

Zillow’s algorithm was said to work better in markets with cookie-cutter homes, whose values could be more accurately estimated from basic details such as square footage and the number of bedrooms. But in markets with a diversity of homes in varying states of repair, Zillow’s figures could deviate widely from reality.

“If you’re trying to go too fast and you rely simply on an algorithm, you could end up making a lot of mistakes and missing some physical characteristics of homes that need to be approved,” Beasley said.
Ahead of the expansion, the company is keeping an eye on rising interest rates, which it expects will slow price appreciation. The company has decreased its margin expectations as a result.
 

David Goldsmith

All Powerful Moderator
Staff member

From Mike DelPrete​

iBuyer Market Share Soars in 2021​


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2021 was a transformative and record-breaking year for iBuyers. More houses were bought and sold by iBuyers than ever before.


Why it matters: iBuyers are one of the leading disruptive models in real estate. Their ability to grow, in all types of markets, is an important signal as to what degree the traditional real estate transaction can be disrupted.
  • But while 2021 saw record-high iBuyer transactions, it also saw the implosion of Zillow Offers after the business grew too quickly.
Big picture: iBuyer national market share of home purchases hit an all-time high of 1.3 percent -- around 70,000 houses -- in 2021.

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iBuyer purchasesremained robust as 2021 came to a close.
  • Even though Zillow stopped new purchases, it was on the hook to complete purchases that were already under contract.
  • Seasonality kicked in for Opendoor as it smartly slowed purchases after a massive acquisition spree in Q3.


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Note: Q4 numbers are preliminary and subject to change.

iBuyer salesset new records in Q4, with more houses sold than ever before.
  • Opendoor consistently sold more houses each month, demonstrating an expanding operational capacity to repair and sell houses at scale.
  • This is a critical metric to watch. Buying houses is the (comparatively) easy part; selling at scale is difficult.


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Note: Q4 numbers are preliminary and subject to change.

What's next:2022 is all about profitability. Opendoor and Offerpad need to demonstrate that they can achieve consistently positive unit economics at scale.
  • With Zillow out of the picture, there will be less competitive pressure on fees and acquisition prices.
  • But Opendoor faces increasing competition from big incumbents, Power Buyers, and smaller brokerages, which have all launched similar products.
The bottom line: 2021 was a massive year for iBuyers. In particular, Opendoor is approaching the scale it promised during its IPO. If its economics fall into line, the company is poised to be a significant force in real estate.

 

David Goldsmith

All Powerful Moderator
Staff member

Zillow’s Shuttered Home-Flipping Business Lost $881 Million in 2021​

Real-estate company says in a letter to shareholders that it is targeting revenue of $5 billion by 2025​

During the fourth quarter, Zillow lost an average of about $25,000 on every home it sold, before interest expense, the company said.

Zillow Group said on Thursday that it lost $881 million on its algorithmic-driven home-flipping business last year in its first earnings report since the real-estate company shut down that operation in the fall.
The full company, which includes Zillow’s profitable home-listing and advertising business, posted a consolidated net loss of $528 million in 2021, mostly because of its home-flipping business, Zillow Offers.
The flipping outfit had been responsible for the majority of Zillow’s revenue in recent years but none of its profits.
The company shocked the market in November by announcing it was closing Zillow Offers because the tech-powered platform failed to accurately predict movements in home prices.
Zillow also cut about 2,000 jobs, or one-quarter of its staff, and wrote down losses of more than a half-billion dollars on the value of the remaining homes connected with Zillow Offers.

For the fourth quarter, Zillow reported a net loss of $261 million, or $1.03 a share. Analysts expected Zillow to report a loss of 90 cents a share, according to FactSet.
Class A Shares of Zillow had fallen about 1.3% on Thursday as of market close but began rising during after-hours trading.
There were some positive results for the real-estate company, which was able to capitalize on the red hot housing market. Revenue for the core segment of Zillow, based around home listings on its website, rose 30% in 2021, compared with the previous year. Margins on that business were 45%, measured on an adjusted earnings before interest, taxes, depreciation, and amortization basis, up from 38% in 2020.

U.S. home prices hit an all-time high in 2021, but those increases are expected to slow in 2022 thanks to a number of economic factors. Here’s what’s driving the housing market and what that could mean for prospective buyers and sellers.

Zillow said in a Thursday letter to shareholders that it is targeting revenue of $5 billion by 2025, with 45% EBITDA margins. The company said it generated about $8.1 billion in revenue last year, though Zillow Offers was responsible for about $6 billion of it.
In an interview, Chief Executive Rich Barton said the company would grow revenue by expanding the reach of its financing services and working to get more people to use Zillow to tour homes.
“Customers who take a tour with us are three times as likely to buy a home with us,” Mr. Barton said.
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Zillow said that it had sold or had agreements to sell more than 85% of its remaining inventory of homes from its defunct flipping business. During the fourth quarter, Zillow lost an average of about $25,000 on every home it sold, before interest expense, though it sold those homes faster and at much smaller losses than it had expected, the company said.
According to YipitData, Zillow still has about 8,600 homes on its books.
It previously sold some of its homes to large investors, like rental landlord Pretium Partners, which agreed to buy 2,000 of them in November.
Zillo executives also spoke on a Thursday earnings call about building a “housing super app,” investing in new products for home-sellers and doubling the share of American home sales that happen on Zillow. “Our company was built on big swings and we’re going to keep taking them,” Mr. Barton said.

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David Goldsmith

All Powerful Moderator
Staff member
This could be very interesting. Times like these are historically when deal jockeys take their biggest risks and end up getting wiped out.

Homecoming: Opendoor tries iBuying in Bay Area​

Company will purchase homes in 200 zip codes ranging from $400K to $2.5M​

Opendoor, the San Francisco-based iBuyer, will attempt to flip homes in the nation’s priciest housing market — its own.
The leading iBuyer among the three still operating after Zillow’s stunning withdrawal is entering the Bay Area market, covering 200 zip codes from Sonoma to Santa Clara in Silicon Valley, the company said Tuesday. It will target homes ranging from $400,000 to $2.5 million, or about 60 percent of the market.

Zillow’s admission that it was losing a fortune on iBuying raised doubts about the business model’s viability, especially for unique and expensive homes not easily valued by metrics alone.
But Opendoor believes its eight-year track record, “robust” risk management and “significant investments” in engineering, data science and pricing systems allow it to expand the range of homes it can buy, Jessie Smith, general manager of Opendoor’s Northern California operations, told The Real Deal.

“We’re really confident at this point in our ability to provide [Bay area] sellers with competitive offers while also building a durable business,” she said. “We feel confident valuing all kinds of homes at different price points.”
Opendoor and its competitors, Offerpad and Redfin, use proprietary algorithms to estimate the value of homes and make cash offers, thereby allowing owners to sell “at the tap of a button.” If iBuyers’ calculations are accurate and market conditions remain favorable, the companies profit by renovating and flipping the properties at scale, with less friction than individuals’ home purchases entail.

The iBuyer model, which emerged early last decade, has not been tested in a bear market.

For sellers, iBuyers promise a quicker sale without agents and showings. But detractors say instant offers have exacerbated the frothy housing market and elbowed aside traditional home shoppers — particularly first-time buyers — who can’t compete with cash-rich institutional players.

Flipping homes is a risky enterprise. Zillow laid off a quarter of its staff upon bowing out, citing the unreliability of its price estimate model and pandemic-related operational challenges, notably the supply chain crisis and tight labor market. As of early December, Zillow Offers still had half of its backlog of homes to offload. Zillow’s stock price is down more than 75 percent from its peak.

Opendoor, which pioneered iBuying and went public in late 2020, appears to be doing better. The company expanded its footprint to 44 markets from 21 last year, and bought a record 15,000 homes in the third quarter alone, doubling its revenue and narrowing its losses.
Still unconvinced are investors, who have bailed on proptech SPAC mergers in recent months. Opendoor’s stock now trades below the $10 SPAC buy-in price of early February and is down by more than 50 percent since Zillow quit iBuying in early November.

Operating in the San Francisco Bay area, where the average home price is more than three times the national average of $375,000, presents its own challenges for iBuyers. With higher-end homes, the correlation between size and price is more unpredictable, and value can be significantly perception-based and hard to quantify. A famous previous owner or other such attribute can affect a property’s appeal dramatically.

Pricier homes also are often less “cookie cutter,” with idiosyncratic features and bespoke design elements. Two homes on the same block, but with significantly different views, decor or layouts, might fetch much different prices.
While homes are more expensive and variable in San Francisco than in Opendoor’s other markets, Smith said the city’s dynamic is similar to others where Opendoor has recently launched, such as San Diego, Miami and Washington, D.C. The company charges a 5 percent service fee to cover any prospective holding costs, including utilities, maintenance and taxes, she added.

“We really believe that the work we’ve put into building our technology and systems over the past eight years — from pricing and data, operations and customer experience — set us up to be able to launch in a market as dynamic as the Bay Area at this point with conviction,” she said. “It’s less a zip-code-to-zip code thing and more a home-to-home question.”

Opendoor says it has facilitated more than 100,000 home transactions. The company will report its fourth quarter results on Feb. 24.
 

David Goldsmith

All Powerful Moderator
Staff member

MIKE DELPRETE - REAL ESTATE TECH STRATEGIST

VIEW ORIGINAL
d07f7e09-1365-2ff9-9d95-b91518bb5717.png

iBuyer Sales to Investors Soar​

February 23, 2022 Mike DelPrete
d07f7e09-1365-2ff9-9d95-b91518bb5717.png

The major iBuyers sold approximately 20 percent of their inventory directly to investors in 2021, more than double the previous high in 2019.

Why it matters: These sales -- a growing part of the iBuyer business model -- mainly occur off market, meaning traditional home buyers never see them. And most of them are subsequently turned into rental properties.

By the numbers: This amounts to nearly 8,000 sales in 2021, a relatively small number, but one that has quadrupled since 2019.
  • Even though the number is small, it still matters -- especially to the thousands of families that missed out on the opportunity of homeownership.
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All three of the major iBuyers sold significant portions of their inventory to institutional investors in 2021, with Opendoor leading the pack.
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The big picture: Investors bought a record number of homes in 2021, and not just from iBuyers.
  • "Last year, investors bought nearly one in seven homes sold in America’s top metropolitan areas, the most in at least two decades," according to a Washington Post analysis.
  • "Those purchases come at a time when would-be buyers across the country are seeing wildly escalating prices, raising the question of what impact investors are having on prices for everyone else."
Fast forward: Opendoor's IPO documents set a goal of buying and selling upwards of 140,000 houses a year. Selling 20 percent to investors amounts to nearly 30,000 houses each year.
  • Taking inventory off the market, turning them into rentals, and reducing home ownership opportunities aren't part of the iBuyer narrative, but that's what's happening.
  • Selling to investors may be a sound business decision, but there are real world implications that directly affect thousands of American families.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Roofstock ramps up iBuying, even with tenants in place​

Startup lets renters remain after investing platform buys it​

Despite Zillow’s iBuying fiasco, other companies are still pursuing the strategy, each with its own approach. For investing platform Roofstock, that means focusing on buying single-family homes with tenants in place — an unconventional approach.
The Oakland-based startup, which has been quietly buying and fixing up properties for the past year and a half, is ramping up its purchasing with that model.
Founded in 2015, Roofstock uses artificial intelligence to help investors buy and sell properties. The company has raised $153 million over five funding rounds and was valued at $600 million in its Series D in June 2021, led by SVB Capital. JLL, Expanding Capital and Owl Capital participated.
view

JLL acquired a minority stake in a deal with the company early last year. A company spokesperson did not reply to an inquiry about whether Roofstock is profitable, which means it probably isn’t.
Rather than purchasing vacant homes, as is common among iBuyers, Roofstock buys discounted homes being rented to tenants, who can remain at least until their lease is up. Most iBuyers don’t want to bother with tenants, whose presence prevents renovations.

But Roofstock’s strategy, said CEO and co-founder Gary Beasley, generates cash flow and allows the firm to wait out market downturns before selling.
“Every day we hold these homes, we make money. Every day a traditional iBuyer holds those homes, it costs them money,” Beasley said. “We don’t have to turn out capital as quickly, and since we have such good insights into what investors are looking for, this really is in service of creating marketplace liquidity and putting products on the shelf that they want.”

Zillow also thought it had good insights into flip homes’ potential profitability, but eventually realized that its algorithm was inaccurate and it was losing money by the truckload. The company decided two months ago to sell its homes and to stop buying.

The occupied homes that Roofstock purchases don’t usually require up-front investment for repairs, Beasley added. If a tenant decides not to renew a lease that expires during Roofstock’s holding period, Roofstock will remarket the home as rent-ready or have a new tenant move in.
Roofstock got into buying occupied homes after an institutional investor approached, looking to sell a 150-property portfolio quickly. Roofstock purchased the units in cash and sold the homes over the next year through its marketplace.

“Some of the clients who were coming to us wanted faster liquidity or more certainty than a full marketing process would bring,” Beasley said.
It plans to expand to new markets with help from its asset management software partner, Stessa. The goal is to more than double the sale of homes through its iBuyer program this year. Beasley declined to disclose numerical targets or the markets involved in the program.

Though Roofstock hasn’t been iBuying as long as major players Opendoor and Offerpad, Beasley said the company is confident in its data, which include detail on sellers and projected resale prices. It also has buy boxes — a list of conditions that makes a home investment-worthy — for buyers on its platform.
Roofstock does automated underwriting of each property and has an analyst review and refine the estimates before an offer is made. Afterwards, Roofstock makes an offer but doesn’t fork over any nonrefundable money until the property is physically inspected and it receives a hard bid from a contractor so it knows what repairs would cost.

Zillow’s algorithm was said to work better in markets with cookie-cutter homes, whose values could be more accurately estimated from basic details such as square footage and the number of bedrooms. But in markets with a diversity of homes in varying states of repair, Zillow’s figures could deviate widely from reality.

“If you’re trying to go too fast and you rely simply on an algorithm, you could end up making a lot of mistakes and missing some physical characteristics of homes that need to be approved,” Beasley said.
Ahead of the expansion, the company is keeping an eye on rising interest rates, which it expects will slow price appreciation. The company has decreased its margin expectations as a result.
Hmm interesting thx. Hate the ibuy model but this sounds at least in some parts, more sound
 

David Goldsmith

All Powerful Moderator
Staff member

Collapse of the Real-Estate “Tech” IPO & SPAC Stocks: House Flippers Opendoor & Redfin Come Unglued, after Zillow​

“Tech” real-estate broker Compass and “tech” renters-insurance-seller Lemonade collapsed too. All eyes on “tech” mortgage-broker Better.com’s delayed SPAC deal. I can’t wait.​

Even on Glorious Friday, the second day of a big rally after five days of sharp declines, the shares of a real-estate “tech” stock, house-flipper Opendoor, collapsed 23%, after having already collapsed in the months before.
Opendoor Technologies [OPEN], on Thursday evening, had reported a loss of $191 million for Q4, which brought its net loss for the year 2021 to $662 million, which brought its total losses for the four years that have been publicly disclosed to $1.5 billion. How can a house flipper lose $1.5 billion in four years? I don’t know either. But it isn’t over yet. And the company ended the year with an inventory of 17,009 unsold houses.
Opendoor went public in December 2020, at the IPO price of $31.47 amid enormous hoopla. By February 2021, shares had reached $39. If “February 2021” sounds familiar, it’s because that’s the month the stock market started coming unglued beneath the surface as highfliers started collapsing one at a time, each on its own schedule. The damage was such that I started reporting on it in May 2021. And this is just another chapter as it just keeps getting worse. On Friday, she shares closed at $8.44, down 78% from the February 2021 peak and 73% below its IPO price (data via YCharts):
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Opendoor reported that it purchased 36,908 houses in 2021 but sold only 21,725 houses (for $8 billion) during the year, leaving it with 17,009 unsold homes ($6.1 billion) in inventory.
Opendoor financed this inventory with $6.1 billion in “non-recourse” debt backed by its houses. Non-recourse means if Opendoor defaults, its lenders get the house and cannot go after Opendoor’s other assets. If Opendoor cannot sell those homes and pay off the debt with the proceeds, it can hand the properties to the lenders and let them worry about selling the homes.
In addition, Opendoor was under contract to purchase 5,411 more homes for $1.9 billion.
About two-thirds of these 17,009 homes are finished and ready for resale. About one-third (about 5,500 homes) are “work-in-process” and are not for sale. Any of these 17,000 homes that haven’t been listed for sale, including all of the 5,500 homes that are work-in-process, are in the unknown pile of vacant homes that don’t show up in the official “supply” of homes and that don’t show up as vacant homes either.
Zillow did the same thing with a big portion of its 7,000 homes that were stuck in the pipeline before it quit the business last November and sold those homes mostly to institutional investors, who’re now trying to figure out what to do with them. These homes that are stuck in the house-flipper pipeline and that are shuffled around are vacant, but don’t show up as vacant, and they are not for sale, and don’t show up as “supply.”
House-flipping is easy – the first part, buying the house, when money is no objective, and your algo can spend as much as it wants. The rest is hard, and making money at it is even harder, especially if you overpaid in the first place. The activity is not suited for people who write algos, it turns out.
Redfin, originally an online real estate broker, also rode up the algo-based house-flipper craze starting in 2020. And its shares [RDFN] rocketed higher amid endless hoopla by the crazed crowd of stock jockeys and hit a high of $98.44 in February 2021 – yup, that February again.
Then shares began their long collapse. On Friday, they closed at $21.83, having collapsed by 78% in one year. They’re now below where they’d been after the first day of trading following its IPO in July 2017:
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Zillow [ZG] had a brief respite in its collapse when it announced on February 10 that it lost $881 million in 2021 on its home-flipping escapade, which came unglued in November 2021, when it disclosed that it would lay off 25% of its staff and get out of the house-flipping business, and dump the 7,000 homes it had bought.
Later it disclosed that it had sold most of these houses to institutional investors – rather than to people who might have wanted to live in them. Until those vacant houses are listed for sale they don’t show up in the official “supply,” and many of them may eventually show up on the rental market. And while all this is going on as they’re being shuffled around, they don’t show up as vacant either.
The $881 million loss was less than feared, and shares bounced magically over the following three trading days, but have since then given up a portion of it. On Friday, shares closed at $57.95, down 73% from their high a year ago, and about level with where they’d been in February 2020 before the crash:
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Compass, a real-estate broker that calls itself “a tech company reinventing the space,” is one of those examples – one of very many – when you realize something is seriously wrong with Wall Street. But OK, people have fun with their trading apps, and if they get cleaned out, so be it.
Compass grew by using Softbank’s money, and the money of other investors, to buy up real estate brokerages around the country. Over the five years of publicly disclosed financial statements, Compass has lost $1.44 billion. How can a real estate broker in the red-hottest no-questions-asked housing market lose $1.44 billion? That was a rhetorical question.
Compass shares [COMP] peaked on their first day of trading, following the IPO in April last year, at $22.11 and have declined ever since. On Friday, they closed at $7.65, having plunged 65% in 10 months since the high on the first day of trading, and are now 58% below the IPO price of $18 a share:
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Lemonade [LMND], which is hyped as an “insurance tech company” and sells insurance for renters, homeowners, pet owners, etc., went public in July 2020 at $29 a share and in the first day of trading, amid immense hoopla, spiked 139%. It then continued spiking until it reached $182 in January 2021. And then came said February 2021, when this whole show started unraveling.
On Friday, shares closed at $23.48, down 83% from the high, and 19% below the IPO price at which the shares never even traded because the first trade was at $50 a share, causing the tech stock pundits to lament how the company “mispriced” the IPO and how much money it “left on the table.” Yup, that’s how crazy this show was at the time.
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Waiting for a share-price collapse is Better.com, a “tech” mortgage lender, backed by Softbank. It’s not yet a publicly traded stock because its merger with a SPAC was postponed in December 2021 after the CEO fired 900 employees, most of them in India, via a Zoom meeting that went viral, that idiot.
With the SPAC merger, and therefore the inflow of cash, having been delayed, the company raised $750 million from Softbank and its SPAC backers because, you know, these kinds of companies constantly burn large amounts of cash and constantly need new cash to burn.
So I’m looking forward to the moment the stock finally starts trading so I can add it to this list of collapsing real-estate “tech” stocks. This should be a goodie. So let’s hope that the merger with the SPAC goes through.
 

David Goldsmith

All Powerful Moderator
Staff member

Opendoor Got Flipped by Zillow’s Wake​

Investors got spooked when the residential-property home flipper said its fourth-quarter contribution margin was down​


As of the fourth quarter of last year, Opendoor was operating at a $15 billion annual run-rate for its core iBuying business alone.​


This supposed ten-bagger now has twice the upside. But it may have twice the risk, too.
Shares of Opendoor Technologies OPEN -1.44% are down 24% since the residential-property home flipper reported fourth-quarter results Thursday and by more than half since Chamath Palihapitiya’s shell company, Social Capital Hedosophia II, announced a merger in September 2020. Back then, Mr. Palihapitiya called Opendoor, which subsequently went public, his next “10x idea” in an interview with CNBC.
Many businesses that listed through special-purpose acquisition companies have failed to meet targets. Opendoor is a rare outlier. Back in September 2020, Opendoor was forecasting $9.8 billion in total revenue for 2023. As of the fourth quarter of last year, the company was already operating at a $15 billion annual run-rate for its core iBuying business alone.

Call it the Zillow Z 0.16% fear factor. Before its decision to wind down its massive bet on iBuying, Zillow Group had been targeting a return on homes sold before interest expense of between plus or minus 200 basis points of break-even. The swings were much greater than that. In November, the company cited unpredictability in forecasting home prices as the reason why it was exiting the business.

Perhaps for that reason, investors were spooked when Opendoor said last week its fourth-quarter contribution margin was 4%, down from 6.5% a quarter earlier and 12.6% a year earlier. While there were certainly changing macroeconomic conditions involved, it is worth noting that its contribution margin declines came despite the fact that Opendoor generated $3.8 billion in revenue in the fourth quarter. That is more than 14 times what the company put up in the same period a year earlier.

Some analysts think Opendoor’s story is misunderstood. Wedbush’s Ygal Arounian expects margins to improve sequentially in the first quarter, noting Opendoor’s “very healthy” inventory quality. Indeed, Opendoor said as of year-end that just 8% of its homes had been in the market for more than 120 days—significantly below the equivalent percentage of comparable homes in the broader market.
But that might have something to do with the percentage of homes Opendoor, a company that continues to tout its goal to build a world-class consumer experience, has recently been selling to investors. Citing database-management company Attom Data Solutions and public property records, scholar-in-residence at the University of Colorado Boulder Mike DelPrete estimates Opendoor sold a whopping 22% of its inventory to investors last year. YipitData estimates that more than 10.5% of Opendoor’s inventory was sold directly to investors in the fourth quarter without ever being listed on Opendoor.com—up from 2.2% in the first quarter of 2019.

While quickly selling to investors likely lowers holding hosts for iBuyers, there are likely only so many homes Opendoor can sell this way, if it wants to be a consumer-first company. Furthermore, there could one day be legal limits: As of November, Los Angeles city lawmakers, for example, were looking for ways to thwart iBuyers’ ability to buy some single-family homes.
As far as consumer sales go, rising mortgage rates could deter future buyers from entering the market this year, potentially increasing holding times for iBuyers. Opendoor finances its own homes through debt, making it somewhat subject to the risk of rising interest rates. The company said last week it is expecting just a 20 to 30 basis point increase in unit costs because of rate increases over the course of 2022. But it had approximately $6.1 billion of non-recourse asset-backed loans as of Dec. 31, 2021, with a total borrowing capacity of non-recourse asset-backed debt of $10.8 billion, according to its fourth-quarter filing. It also notes that the company’s leverage could have meaningful consequences, including vulnerability in an economic turndown.

Opendoor more than doubled its market footprint last year and ended 2021 with an inventory balance of 17,009 homes across 44 markets representing $6.1 billion in value. A September 2020 investor presentation shows a goal of one day operating in 100 U.S. markets, generating a run-rate of $50 billion.
Give the company credit for aiming high: Back in 2019, Zillow said it expected to generate $20 billion in iBuying by 2024. We all know how that turned out.
 

David Goldsmith

All Powerful Moderator
Staff member

Opendoor hits NY, NJ. Can the iBuyer price East Coast homes?​

To target residences from $300K to $950K in 450-plus zip codes​

Opendoor is bringing its iBuying operation to Long Island, the lower Hudson Valley and New Jersey after expanding to the opposite coast earlier this year.
San Francisco-based Opendoor, the dominant iBuyer among the three that remain after Zillow’s dramatic withdrawal last fall, will look to purchase single-family homes and condo units priced from $300,000 to $950,000 in nearly 500 zip codes across the two states, the company said Tuesday.

“This was a natural progression for us as we enter more complex, deeper markets,” Will Holmes, the firm’s head of agent growth, said in an email. “Now that we have launched in major markets like Los Angeles and the Bay Area, we have the technology and systems in place to serve more customers.”

In New York, Opendoor will focus on 230-plus zip codes spanning five counties just outside New York City: Suffolk, Nassau, Westchester, Orange and Rockland.
The company is not saying when it will get to the five boroughs. “We hope to expand to additional zip codes and serve as many customers as we can,” Holmes said.

In New Jersey, Opendoor will buy homes across 260-plus zip codes in 12 counties in the northern half of the state, from Sussex County at the north end to Monmouth County in the middle of the state’s eastern border.

With the expansion, Opendoor operates in 46 markets, up from 21 at the end of 2020.
Opendoor and its iBuying competitors, Offerpad and Redfin, “robobuy” homes using proprietary algorithms to estimate their market value. They attract sellers with the allure of a cash offer and a quick close, then renovate the homes, aiming to resell at a profit.

The iBuying business model is only about a decade old — Opendoor, founded in 2014, pioneered the model — and is theoretically more difficult in expensive, coastal markets where the housing stock is older, more variable and unique. Homes often have traits that can be hard for an algorithm to value, like bespoke design elements, a one-of-a-kind view or famous neighbors.

The Hamptons, in Suffolk County, are home to seven of the nation’s 100 priciest zip codes, including two in the top 30, Sagaponack and Water Mill, according to PropertyShark.
Zillow’s experience proved just how risky the business can be. The company’s algorithm, by its own admission, proved to be poor at estimating homes’ present and future value, and the firm had trouble marshaling the resources and labor to renovate and profitably sell them.

Opendoor, which went public in late 2020 via a SPAC merger, says its investments in engineering and data science, along with the experience it has gained in pricey coastal markets including San Francisco and Los Angeles, have helped it better manage risk.
Scale has helped, too. The company sold some 22,000 homes last year, more than its two main competitors combined. But while its revenue tripled, the company struggled to turn a profit given the high costs of carrying and selling its inventory.

CEO Eric Wu has said 2022 will be a “defining year” for the company, but rising mortgage rates and the specter of a recession could complicate the business, which has not been tested in a bear market.
Investors remain wary. As mortgage rates shot up again April 5, the company’s stock fell nearly 8 percent to around $8.35 per share — down nearly 17 percent from the $10 SPAC buy-in price.
 

David Goldsmith

All Powerful Moderator
Staff member
House-flipping algorithms are coming to your neighborhood

Despite millions of dollars in losses, iBuying’s failure doesn’t signal the end of tech-led disruption, just a fumbled beginning.


For years, Michael Maxson spent more nights in hotels than his own bed, working on speaker systems for the titans of heavy rock on global tours. When Maxson decided to settle down with his wife and their two dogs, they chose the city where stadium rock spectacles took him more often than any other: Las Vegas.

After renting for several years, in 2021 he found a home he wanted to buy in Clark County—a place within easy reach of Vegas’s headline venues yet also quiet, an airy single-story stucco house on Dancing Avenue, which backs onto a 2,000-acre park. He dreamed of waking up each morning to look out across lakes and parkland. “It was a beautiful home,” says Maxson. “I mean, the fact you could see the mountains and the sun set and rise. Man.”

But Maxson’s house hunt was unexpectedly chaotic. House prices in Las Vegas leaped up 25% that year, and the market was awash with cheap mortgages and wolfish investors.

His dream home was not owned by a person but by a tech company. Zillow, the US’s largest real estate listings site, had begun buying up homes in 2018, predicting it could create a “one-click nirvana” for purchasing real estate. It estimated returns of $20 billion a year. Zillow Offers, its “instant buying” business, followed startups like Opendoor and Offerpad, which had pioneered “iBuying,” the so-called “high-tech flipping” model, which uses data systems to price houses and investor cash to buy them before fixing them up and selling them.

In 2021, iBuyers’ purchases jumped to double prepandemic levels, accounting for tens of billions of dollars in home sales. Las Vegas was among the top 10 markets where startups concentrated their investments. In a feverish summer, Maxson had already been outmuscled on two bids by cash offers from Zillow and Opendoor. On Dancing Ave., Zillow now acted as seller, having listed the home on June 24 for $470,000, nearly $60,000 more than it had paid less than two weeks before. But Maxson wanted it and agreed to close at just under asking price.

When he went to take a look at the property, however, he discovered a 37,000-gallon water leak that had eroded garden walls and flooded the neighbors’ yard. Seattle-based Zillow, which owned the home, was oblivious, but the city authorities weren’t—Maxson found a notice stuck to the garage door, threatening a fine for allowing green water to pool, attracting mosquitos carrying West Nile virus. This is one downside of having homes owned by “faceless” corporations, says Maxson: “The [owners] were disconnected from it, because it’s just a number on a spreadsheet.” Though he offered to handle the estimated $30,000 of repairs himself, and take it off Zillow’s books for $30,000 less than the list price, they said no. Maxson discovered soon after that the house had sold to another family, at the same price he had offered. He estimates that he lost about $2,000 on inspections and other costs—the closest he came to securing a home in 22 attempts that summer.

But at the very same time, the startup that had profited from his dream home was discovering cracks in its own foundation. As it turned out, Zillow Offers had lost more than $420 million in three months of erratic house buying and unprofitable sales. As Zillow Offers shut down, analysts questioned whether other iBuyers were at risk or whether the entire tech-driven model is even viable. For the rest of us—neighbors, renters, or prospective buyers—the bigger question remains: Does the arrival of Silicon Valley tech point to a better future for housing or an industry disruption to fear?

By summer 2021, the US housing market had almost run out of records to break. The Washington Post reported house prices at all-time highs (with a median of $386,000 in June) as the number of homes listed hit record lows (1.38 million nationwide). The average home sold in 15 days that summer—half the time taken a year earlier—as cash-rich investors and second-home buyers bought more than ever before. By November, a New York Times headline asked: “Will Real Estate Ever Be Normal Again?”

Despite making just under 2% of home purchases nationwide during this period, iBuyers began to play a larger, and more unpredictable, role than most, leading to calls from city leaders in Los Angeles to ban the platforms. iBuyers grow city by city; investment is tightly concentrated in a handful of locations across the Sun Belt, where the top five—Phoenix, Atlanta, Dallas, Charlotte, and Houston—accounted for more than half the total activity. Through 2021, iBuyers bought 70,400 houses nationwide. Nascent iBuyers are raising fundraising rounds in the United Kingdom, Europe, and Canada—but all are looking to the successes and failures of the stateside front-runners.

These cities form a neat growth pattern, following a “strikingly similar” trend to one seen in the trailblazer, Phoenix, according to a National Bureau of Economic Research (NBER) working paper from researchers at Stanford, Columbia and Kellogg, who analyzed iBuying by Zillow, Opendoor, Knock, Redfin, and Offerpad between 2013 and 2018. iBuyers had roughly 1% market share in Phoenix in 2015, growing to 6% in 2018. In the frantic summer of 2021, iBuyers accounted for 10% of home buys in Phoenix. “In certain neighborhoods, 25 to 30% of current listings right now are owned by iBuyers,” says real estate tech strategist Mike DelPrete.

Today Opendoor, the market leader, is operating in 44 markets. iBuyers are intervening in super-hot housing markets by harnessing big data and artificial intelligence to create a one-sided advantage over regular folks. Where house buying was once a “dogfight” between individuals, “now we’re in the age of guided missiles,” says DelPrete, with data-driven buyers claiming a big edge.

There is, obviously, a lot of money tied up in real estate. Residential real estate remains the main asset that American families possess, accounting for about 70% of median household wealth. Over 2021, the value of US housing stock jumped by $7 trillion, hitting $43.4 trillion total.

Real estate transactions have long been considered ripe for disruption because buying or selling a house is time consuming, confusing, and laden with hidden expenses. Yet residential real estate has been slow to innovate—it’s the “largest, undisrupted market in the US,” according to Opendoor.

When it comes to buying and selling, real-estate tech—or “proptech”—is changing three things, says Zach Aarons, cofounder of venture capital firm MetaProp. “One, it can showcase listings,” says Aarons, calling back to Zillow’s initial success as a one-stop shop for seeing what’s on the market. Second, startups started digitizing time-consuming processes that have “fundamentally been pen-and-paper for centuries.”

“How do we deliver a title policy with more transparency, more accountability, quicker timing?” he asks. “How do we have e-closing, e-notarization? I think the pandemic accelerated a lot of that.”

The third matter, valuations, remains by far the thorniest. Automated valuation models (AVMs) are proprietary data systems that take in sales prices from the US’s 600 multiple listings services—the real estate agent’s bread-and-butter data—and combine them with information from mortgage lenders, public data sets, and map data like Yelp reviews of local bars, plus private data sold by real estate analysts. First-party data is increasingly accumulated, too: Opendoor created an app for in-person inspectors, pre-covid, with a 100-point checklist, while today, sellers perform self-service virtual assessments.

Opendoor’s tech chief, Ian Wong, says the foundation of their work is data cleansing—taking partial, duplicated, and contradictory data and parsing it to produce reliable insights. But “human-in-the-loop” systems remain vital, he says. The company has real people annotate visual data, adding labels in a manner he likens to the processing done on crowdsourced platforms similar to Mechanical Turk.

One goal of this data work is to eliminate the so-called “lemons problem.” So far, AVMs have been able to access only a portion of the information that a family selling its home knows, explains Amit Seru, a professor of finance at the Stanford Graduate School of Business—failing to appreciate architectural style, unruly neighbors, how light hits the porch on late summer evenings, and myriad qualities contributing to a house’s human appeal. Consequently, these AVMs can lead iBuyers to disaster when some sellers offer up “lemons” (dud homes, say, with stinking carpets) and others offer “peaches” (a charming home in a neighborhood full of amenities). By bidding an average price for both homes, the iBuyer ends up paying too much for lemons, while families with peaches—who feel harshly undervalued—refuse to sell.

Wong says that both deep learning and humans can help minimize such issues by, say, analyzing photos for defects like ugly power lines cutting across the yard. AVM advances have expanded Opendoor’s “buy box,” the subset of homes it can purchase, since its launch in Phoenix in 2014. iBuyers typically start buying cookie-cutter houses, priced between $100,000 and $250,000, that are relatively new and on modest-sized lots, according to research out of Stanford, Northwestern, and Columbia. In February, Opendoor explained that it had grown its buy box by 50%. “Today we are doing higher-price-point homes. We’re going to gated communities, age-restricted communities, things that are harder to price,” says Wong. “And we’ve been able to expand all the way to Atlanta … to the most recent market we announced, which is the San Francisco Bay Area, which has very heterogeneous housing types.”

But how effective has this valuation technology actually been? Zillow has revealed that it lost $881 million on Zillow Offers. In a letter to shareholders, CEO Rich Barton explained that the venture was “too risky, too volatile to our earnings and operations”; it provided “too low of a return on equity opportunity, and too narrow in its ability to serve our customers.” The pivot forced the company to lay off 25% of its staff and left it facing two class action lawsuits from shareholders. Other iBuyers have a better record of profiting from sales yet are losing money overall, with Opendoor reporting a net loss of $662 million for 2021, its shares falling as measures of profitability were cut. The company, though, is bullish on growth, predicting a 460% increase in revenue in the first quarter of 2022 compared to one year ago. “In short, Zillow is out of the game, but Opendoor is getting bigger and stronger,” says DelPrete.

Zillow’s pricing failures wiped out more than $35 billion in market value by February 2022. For buyers like him, Maxson says, “It’s insane! They’re falsifying the market.” Despite concert tours torpedoed by covid, Maxson says, he’s lucky to have kept earning a living, but he fears his neighbors will struggle: “A blackjack dealer and the husband does maintenance at the MGM [casino] … How do they try to navigate this if they want to buy a house?”

Making sense of iBuyers’ erratic transactions means understanding not just how their technology works, but where they come from, explains DelPrete. Tech-led disruption of real estate is not the result of a couple of buddies in a garage, he explains: “There are no pure tech plays that are revolutionizing real estate.” The fuel is billions of dollars that investment firms are pouring into housing, with Opendoor backed by $400 million from SoftBank, among other giants. The upheaval Maxson witnessed is one “downside of having a for-profit Wall Street–funded corporate middleman involved in the real estate transaction,” says DelPrete. “The company’s winning. Somebody has to lose.” But the impact is also felt by consumers, neighborhoods, and cities.

iBuyers’ primary benefit is supplying liquidity to a market where transactions are onerous. For a busy family, selling to an iBuyer can cut the need for presale repairs and viewings. For someone offered a new job in a faraway city, it can mean saying yes to relocating right away. Thousands of sellers have been willing to take an average $9,000 discount for this speed and simplicity, according to the NBER working paper. iBuyers’ arrival in new cities gives consumers extra options, offering fair bids and often lower agency fees than conventional agents, says DelPrete.

Drew Meyers, founder of Geek Estate, a private and paid community of more than 500 proptech executives and a Zillow alum, says it’s crucial to see iBuyers in the context of other proptech innovation, which also includes “power buyer” startups that allow homeowners to “buy before they sell.” VC investment and cheap debt are key here, too: “Most of the innovation is finance-driven, frankly,” says Meyers. “A lot of these companies are disguised as real estate companies, but they’re really fintech plays.”

One clear example, investment marketplace Roofstock, provides a platform that has helped investors put $5 billion into buying single-family homes to flip into rentals, often without a buyer ever entering the home. Roofstock compares prices, rental yields, and risk, giving a one- to five-star “neighborhood rating” based on factors like school districts and rates of employment. “We built a database of all roughly 90 million homes in the US, where we started with tax and deed information and then augmented it with ownership information, rents (if it’s a rental), evaluation information, all that,” says Gary Beasley, Roofstock’s CEO. “So we have this living, breathing database of every single-family house in America. And we overlay our neighborhood scores and transactional data, and really have a view on what every home is worth as an investment, right?”

Today investors buy 27% of single-family homes in the US. Four in 10 are bought by small-scale investors owning fewer than 10 homes—who may buy in their home neighborhood or use tools like Roofstock. These buy-to-rent purchases are today a lightning rod for criticism, with investors outmuscling first-time buyers for scarce starter homes and reducing the number of affordable homes later sold. By “equity-mining” neighborhoods where families could once build wealth, investors instead capture the uplift themselves.

Dashboards like Roofstock’s are the mostly unseen war rooms in America’s housing chaos, helping faraway speculators make big returns while playing havoc withthe lives of people on the ground. In interviews with startups as well as real estate agents and analysts, it emerges that when a family finds its dream home, it has often already been crawled by AVMs that have analyzed its value as an asset, its potential yield as a rental, its forecast price growth, and countless other metrics.

Some of the world’s biggest real estate investors are guided by in-house systems that remain black boxes—and whose insights are fiercely guarded in Wall Street towers.

Private equity giants like Blackstone and Starwood Capital bought foreclosed homes in the aftermath of the subprime crash in 2008, bundling them into single-family rental empires, including Invitation Homes and Starwood Waypoint. These merged in 2017 to create the US’s largest single-family landlord, with a portfolio of 82,000 homes. Again, as in the subprime crisis, homes were transformed into tradeable asset classes worth billions. Cloud-based property management technologies underpinned these landlords, explains Steve Weikal, real estate tech lead at the MIT Real Estate Innovation Lab. These allowed firms to manage everything—from rent collection to home maintenance—in geographically dispersed homes, as easily as corporations had managed apartment buildings. Bigger tools followed, like Blackstone’s Real Estate Data Direct, which since 2021 has pooled data from hundreds of companies it owns while amassing the world’s largest portfolio of commercial real estate, now valued at $514 billion.

Many Wall Street pioneers sold their rental businesses in the decade after the crash, making billions for investors and executives but leaving a trail of anger from tenants who endured poor maintenance and rent hikes. Yet coming into the pandemic, Wall Street had again assembled an unimaginable arsenal with which to strike deals—around $2.3 trillion. It was preparing, suggested the Wall Street Journal, “for what could be a once-in-a-generation opportunity to buy distressed real-estate assets at bargain prices.”

These firms are reinvesting in a big way. Blackstone bought Home Partners of America, with 17,000 homes, for $6 billion in June 2021. Toronto-based Tricon launched a $5 billion joint venture in July to buy up 18,000 homes across the Sun Belt. Indeed, many proptech innovations were developed by these Wall Street giants, with Blackstone alumni leading disruption from VC firm Fifth Wall and European pioneer IMMO. Roofstock founder Beasley was co-CEO of Starwood Waypoint Residential Trust, one of the US’s largest single-family rental companies, and sees his startup as disseminating the same tech tools. “The idea with Roofstock really was to take a lot of that knowledge of how we could package up and sell and manage single-family rentals, and offer that as a service both to institutional investors as well as individual investors,” says Beasley.

But links between Wall Street and proptech go further. A Bloomberg investigation found a “secret pipeline” of sales from iBuyers to big investors accounting for one in five homes they sold. The rate is double that, around 40%, in some Sun Belt metro areas, with many sold off-market. “That’s a big issue,” says DelPrete. “If that was 7,000 transactions, that’s 7,000 families that didn’t have a chance to buy a home just because a company decided not to list houses for sale.”
Fighting back

Last October, Los Angeles city council members Nithya Raman and Nury Martinez sounded the alarm that startups and Wall Street threatened to put an end to the American Dream. “It shouldn’t be impossible for Angelenos to remain in the neighborhood they grew up in or for hardworking families to purchase their first home,” says Martinez. “Angelenos just can’t compete with the money and power of iBuyers.”

In a motion, they instructed the city’s legal departments to seek ways to limit such speculative practices in order to rebalance the playing field. California had already restricted its SB9 law (which allows homeowners to develop another property on their lot) to those who commit to living on-site for three years, explained Meyers, to exclude corporate landlords. Maxson, who eventually found a home with the help of a regular, human agent, agrees with the move: “I think they need to be regulated. They’re taking a problem in the United States and making it worse.”

But some caution against clamping down on disruption. In a market ingrained with a history of racist practices—and where the appraisal industry remains 84% white—AVMs can mean fairer deals for minorities, explains Lauren Rhue, an assistant professor at the University of Maryland.

A landmark study in September confirmed anecdotal evidence of an “appraisal gap,” showing that homes in Black and Latino neighborhoods are consistently undervalued. Freddie Mac analyzed more than 12 million mortgage records between 2015 and 2020 and found that in Latino neighborhoods appraisers were twice as likely to value homes below the eventual sale price, with similar outcomes in Black neighborhoods.

Rhue is concerned that “what you could see is just a perpetuation of the issues that we’ve had historically in this country with housing.” Indeed, machine learning can entrench problems when fed data influenced by decades of discrimination. Home values—which are 55% lower in majority Black census tracts, on average, than in white areas—are a prime example.

A viral TikTok video by Nevada-based real estate agent Sean Gotcher made headlines in September by demonstrating how iBuyers might attempt to manipulate prices. “Let’s say that that company buys 30 homes within a two-mile radius, and let’s say the price is $300,000,” Gotcher explained. “Then on the 31st home, they buy it for $340.” Although overpaying, this new “comp” means they have a benchmark to sell the rest at $340,000.
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Most analysts agreed that iBuyers are not big enough to pull this off. That would mean owning a big share of the local market, and restricting supply to drive sale prices up. But there are already signs big investors are restricting supply, further exacerbating housing crises and setting a template that any big iBuyer could follow. New York corporate landlords “warehoused” up to 50% of homes during the first covid-19 lockdown—keeping them empty to restrict free-falling rents. On a smaller scale, Opendoor continued buying homes in the winter of 2020, but curiously stopped listing them for sale.

For ordinary people, so long as Wall Street cash is flowing into housing, Zillow’s failure is not the end of tech-led disruption but a fumbled beginning. “iBuying, power buying, co-investments, down payment assistance, cash offers,” says Meyers. “They’re all going to end up doing it all.” Each company is now trying to capture and automate more of the value of the transaction chain that has traditionally been split between mortgage brokers, flippers, title agents, real estate agents, and more. The core mechanics—tech to value homes and manage deals, married with free-flowing finance—give entrepreneurs room to reinvent the offer. Some innovations may be boons for prospective home buyers. But just as surely, others will empower the most cut-throat investors in the world.
 

David Goldsmith

All Powerful Moderator
Staff member
NB Opendoor Technologies Inc stock
June 19, 2020 10.94
February 12, 2021 34.59
May 10, 2022 5.86

Opendoor stock soars on first profitable quarter

San Francisco-based iBuyer reports record revenue, profit​

After eight years, Opendoor has logged its first profitable quarter.
The San Francisco-based iBuyer’s shares soared more than 15 percent in early trading Friday after it reported record revenue of $5.2 billion for the first quarter, a nearly seven-fold increase from a year ago.

First-quarter profit came to $28 million, or $0.04 per share, up from a net loss of $270 million, or $0.48 per share, last year, far outstripping Wall Street’s — and its own — earnings expectations.

Opendoor, along with its competitors Offerpad and Redfin, has struggled recently to convince investors of the profitability and durability of iBuying, which came under scrutiny last fall after Zillow’s attempt at it failed. Their share prices are all down substantially this year — Opendoor’s by nearly 50 percent — and analysts have downgraded them in anticipation of turmoil in the housing market.

Algorithm-powered iBuying, which involves buying, renovating and flipping homes, is tricky enough in good times, when home prices are stable or climbing. To succeed, iBuyers must reliably estimate home values across disparate markets, marshall the resources to renovate, and shoulder the cost of carrying inventory.

Zillow’s case laid bare how steep that challenge is, and now rising interest rates and a volatile macroeconomic climate have further clouded the housing market. Home flipping en masse doesn’t work when prices are declining, or conversely, if few can afford to buy.

Opendoor claims to have refined its estimate tools and risk management with its expansion into 48 markets, including most recently the San Francisco Bay Area, Long Island and the lower Hudson Valley — which have among the nation’s most expensive and idiosyncratic housing.

“These past eight years of investments and hard work on our cost structure, automation, technology platform and pricing engine are enabling us to deliver durable margin improvements as we scale,” CEO Eric Wu said on an earnings call Thursday.

Paying less for homes has helped. CFO Carrie Wheeler said the company has taken a “conservative” approach to valuing homes in light of recent economic uncertainty, which she said may precipitate a slowdown of the housing market in the second half of the year.

The company’s tools and systems are “able to dynamically adjust to changing conditions,” Wheeler said on the earnings call. “Our systems and margin structure are designed to be durable across different housing environments.”

Opendoor bought more than 9,000 homes during the first quarter and sold 12,600, more than five times the sales volume in the 2021 quarter, “demonstrating rapid consumer adoption,” the company said.

Its contribution margin, a profitability metric that factors in the costs of carrying and selling home inventory, was 6.4 percent, compared with 10.2 percent a year ago.

Opendoor owned some 13,300 homes at the end of March — a more than five-fold increase year-over-year — worth a combined $4.7 billion.

The company expects revenue of $4.1 billion to $4.3 billion in the second quarter.

Arizona-based Offerpad, which after Zillow’s exit is Opendoor’s nearest iBuyer competitor, reached profitability in the fourth quarter of 2021.
 

David Goldsmith

All Powerful Moderator
Staff member
From Mike DelPrete

Opendoor 2022: Can't Stop, Won't Stop​

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2021 was a record year for Opendoor, and 2022 may be even bigger. To date, Opendoor has exponentially increased its advertising spend and homes purchased.

Why it matters: The latest data reveals a company doubling down on growth, despite rising market uncertainty and the risks illustrated by Zillow's 2021 implosion.

Opendoor's growth, as measured by the number of homes purchased, has materially accelerated.
  • Opendoor's monthly purchase volume is running significantly ahead of last year; March was big and April looks even bigger.
  • The company purchased 2.5x as many homes in Q1 2022 compared to the same time last year.
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Opendoor's advertising spendis driving the growth in transaction volumes.
  • The company doubled its advertising spend in Q1 2022 compared to last year.
  • If that spend were annualized, Opendoor would be on track to invest a record $200 million on advertising in 2022.
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The increasing advertising spendis causing Opendoor's customer acquisition costs to rise compared to 2021 (as calculated by total advertising spend divided by houses acquired).
  • But customer acquisition costs are lower than Q1 2021, showing improving economies of scale.
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The bottom line: 2021 was a record year for Opendoor -- and the evidence suggests 2022 may be even bigger.
  • As a public company, Opendoor needs to demonstrate growth regardless of market conditions.
  • Despite recent profitability driven by record home price appreciation, Opendoor's model only works at scale -- a scale larger than 2021.
  • Opendoor remains committed to making its model work, and in a sense, is just getting started -- by operating at a scale where things get interesting.
 

David Goldsmith

All Powerful Moderator
Staff member

iBuyers backed off in first quarter: report​

Market share of iBuyer purchases dropped to 1.3%​

The iBuyer invasion is now looking more like an incursion. Perhaps even an expeditionary force.
Purchases made by an instant buyer, or iBuyer, dropped to 1.3 percent of the total market share of sales in the first quarter, according to a report from Zillow. That’s down from 1.7 percent in the fourth quarter and a record 1.9 percent in 2021’s third quarter.

Zillow’s report claimed that homeowners’ sales to iBuyers slowed at “roughly to the same degree” as home sales overall, but the decline in market share shows iBuying sales fell faster.

Overall, homeowners sold more than 12,000 homes to one of three major iBuying services in the quarter: Opendoor, Offerpad and Zillow Offers. The analysis, which looked at 43 of the largest iBuyer markets, excluded RedfinNow, which has been included in reports previously.
While iBuyer purchases have faded, their sales continue to break records as iBuyers try to unload inventory. The companies sold more 26,000 homes during the first quarter, the third straight quarter of record sales. iBuyers sold slightly more than 21,000 homes in the fourth quarter.

Besides the paucity of homes for sale, another factor tamping down iBuying purchases is the withdrawal of Zillow Offers.

iBuyers are still buying more expensive houses than traditional homebuyers are, although the disparity has shrunk. The median price for a purchase by an iBuyer was $347,000 in the first quarter, down 5 percent from the previous quarter. Meanwhile, the median home purchase price for the overall housing market rose 2 percent to $340,000.

The notion that iBuyers are driving up home prices seems to be fading. Not only is iBuyers’ market share falling to near 1 percent, but the economics of the industry — and Zillow Offers’ demise — do not allow for extravagance.
As buyers compete for a finite number of homes in a low-inventory environment, human buyers are typically more willing to overbid for a home, while iBuyers need to make a profit and are powered by algorithms.

Rising prices are still helping iBuyers, though. The median markup of homes resold by an iBuyer in the first quarter was 14 percent, a record-high dating back to Zillow’s first data, from 2018. The median markup in the fourth quarter was revised to 4.6 percent.
iBuyers last quarter took longer than they did previously to resell homes, despite high demand for housing. iBuyers typically held homes for 120 days, more than three weeks longer than the typical 98 days in the fourth quarter. Labor shortages and supply chain issues might have slowed fix-up times.

Homeowners in Atlanta sold more than 1,600 Atlanta properties using an iBuyer in the first quarter, more than in any other market. The other two markets to exceed 1,000 were Phoenix and Dallas. The highest market share was in Tucson, Arizona, where iBuyers bought 6.1 percent of homes that sold.
As Zillow continues its exit from the iBuying business, the market share of iBuyer purchases should continue to drop, unless another company fills the void. In April, San Francisco-based Opendoor expanded to Long Island, the lower Hudson Valley and New Jersey, looking to remain the dominant iBuyer following Zillow’s retreat.
 

David Goldsmith

All Powerful Moderator
Staff member
Mike DelPrete
to me

Opendoor's Buy-to-List Premium Falls Back to Earth​

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After reaching record levels earlier this year, Opendoor's buy-to-list premium (the difference between the purchase price and current listing price of a home) has fallen dramatically -- a reflection of a rapidly changing market.

Why it matters: The buy-to-list premium is the bestleading indicator of iBuyer profitability -- and while it has dropped, Opendoor appears to be deftly riding a dynamic market.
  • As of June 16th, Opendoor's median buy-to-list premium across 2,700 listings was 7.3 percent -- down from a record 17 percent in March.
Opendoor's home sale prices, as measured by the buy-to-sale premium, lags the market by a few months, and, for the time being, remains in very healthy territory.
  • In fact, Q2 is going to be another record quarter for Opendoor, with average buy-to-sale premiums over 10 percent according to YipitData.
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A dropping buy-to-list premium is not the end of the world for Opendoor; it's not overpaying for houses or losing money on their resale.
  • Opendoor's buy-to-list distribution curve is significantly better than Zillow's was last year, when Zillow was, on average, losing money on each house resold.
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The bottom line: The heady days of record home price appreciation -- the most significant driver of iBuyer profitability -- appear to be coming to a close (for now).
  • A buy-to-list premium of 7 percent is still healthy (and on par with the entirety of 2018 and 2019) -- but anything much lower, for longer, could present challenges.
 
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