Tucked inside of Redfin’s initial public offering filing with the Securities and Exchange Commission, the online real estate company revealed it’s testing out the home buying and selling business.
According to the SEC filing, Redfin stated, “In the first quarter of 2017, we began testing an experimental new service called Redfin Now, where we buy homes directly from home sellers and resell them to homebuyers.”
“Customers who sell through Redfin Now will typically get less money for their home than they would listing their home with a real estate agent, but get that money faster with less risk and fuss,” it stated.
The news doesn't come too long after Redfin launched Redfin Mortgage, adding a mortgage-lending operation into Redfin’s existing digital-focused real estate brokerage and title businesses.
The company said back in January of this year that its “ultimate goal” is to have is an “entirely digital process, with better service, a faster closing and lower fees.”
Redfin, however, wasn’t able to provide any additional information on this new Redfin Now program other than was provided in the filing, which isn’t a lot.
Here’s what is known so far. The new venture launched at the start of this year under the title, RDFN Ventures, Inc. (“Redfin Now”), a wholly owned subsidiary of the company.
For calculating the price of the house, Redfin said, “We believe our industry-leading algorithms for calculating what a home is worth will limit the risk that the price we pay a Redfin Now customer for her home is below the price we charge a new buyer for that home.”
“And we believe our ability to reach more than 20 million monthly average visitors through our website and mobile application, coupled with our network of Redfin buyers, will let us effectively resell the homes we purchase through Redfin Now.”
Redfin Now is currently only offered to a limited number of customers in two non-disclosed markets.
From here, Redfin said, “We intend to evaluate the results of the Redfin Now test to determine if we should expand the service to more markets.
Redfin noted that there was no revenue from Redfin Now home sales for all periods presented.
Given the nature of the IPO is to raise money, it also included an in-depth explanation of the potential risk factors that could impact the company.
It’s important to note that the following information was provided with the intention of information investors of potential risks if they choose to invest in Redfin.
Under the risk factors section, Redfin explained, “Our introduction of new services, such as originating and underwriting mortgage loans for customers and buying and selling homes directly, could fail to produce the desired or predicted results or harm our reputation. Our estimates of what a home is worth and the algorithm we use to inform those estimates may not be accurate and we may pay more for homes than their resale value.”
In order to determine whether a particular property meets its purchase criteria, Redfin stated that it makes a number of additional assumptions, including the estimated time of possession, market conditions and proceeds on resale, renovation costs, and holding costs.
However, it said that these assumptions may not be accurate, particularly because properties vary widely in terms of quality, location, need for renovation, and property hazards.
And in addition, Redfin said, “Unknown defects in any acquired properties may also affect their resale value. As a result, we may pay more to buy these properties than their resale value, and we may not be able to resell them as anticipated or at all. Homes that we own might suffer losses in value due to rapidly changing market conditions, natural disasters, or other forces outside our control.”
A lot of these concerns, though, would be tied to most companies in this type of business.
And, this type of business model is starting to crop up more often, with Redfin’s competitor Zillow recently launching a pilot program called “Zillow Instant Offers.”
Through the program, which is now testing in Las Vegas and Orlando, homeowners looking to sell their home will be able to get cash offers on their home from selected investors interested in buying it, all within Zillow’s platform.
If the seller decides to use the “Instant Offer” program, they will also receive a comparative market analysis from a local real estate agent, which would allow them to compare the investor offers to what their home might be worth on the open market.
And Zillow isn’t the only other one in this business. This is also very similar to the business model of Opendoor, an online marketplace that buys homes direct from homeowners.
Here’s how Opendoor, which currently operates in Phoenix and Dallas-Fort Worth, works: A homeowner seeking to sell their home can go to Opendoor, enter details about their home, and get a near-instant price quote for the home.
Then, if the seller accepts, Opendoor then allows the seller to close on the sale when they’re ready, rather than on the timeline of another buyer.
Currently, all the businesses listed above only operate in select markets, while the companies gauge for market demand.
As noted in Redfin’s SEC filing, the company is watching to see if the services attract customers, noting that if not, it would be a potential risk for investors.