You’re about to read another story about instant homebuying, or iBuying. That’s even though iBuying sales made up less than 0.5% of the total U.S. residential real estate market in the second quarter of 2021, according to a report from Redfin.
If iBuying ran for public office, it would need to more than double its market share to garner 2020 Libertarian Party presidential candidate Jo Jorgenson’s percentage of the popular vote.
So, why should you care?
Because three companies – Zillow, Opendoor, and Offerpad – have, after a major setback at the start of the pandemic, generated enough capital to buy and sell thousands of homes a year. And one of these companies – Offerpad – found a way to make money, grist for Wall Street analysts such as Ygal Arounian of Wedbush Securities that expect iBuying to dramatically scale up in the coming years.
Offerpad is a six-year-old company founded in 2015 by Brian Bair after a career in real estate investing. The company promises to make a cash offer on your home within 24 hours of you expressing interest in selling.
If the offer is accepted, Offerpad goes to work on renovating the home and trying to resell it for significantly more than they bought it for.
The company is based in Chandler, Arizona and until recently only operated its business in the South – markets like Orlando and Birmingham, Alabama – before expanding into Indianapolis and Columbus, Ohio.
Offerpad earned $9.2 million in income in the second quarter of 2021, generating $279 million in revenue through the sale of 1,279 homes. These homes were sold at a difference of $31,500 from what the company purchased the homes for.
IBuying observers like Mike DelPrete single out Offerpad as perhaps creating a more sustainable business model for ibuying. The company went public this month following the completion of a merger with a special purpose acquisition company co-chaired by former Zillow CEO Spencer Rascoff.
After three weeks of trading on the New York Stock Exchange, Offerpad’s market cap has dropped from $2.7 billion to $2.3 billion. Still, the company’s market value is more than Realogy, the giant brokerage conglomerate, which finished Sept. 24 with a market cap of $2.1 billion.
HousingWire spoke this week with Bair, who remains CEO and chairman of Offerpad. Bair said that he is new to interviews and is learning how to answer reporter questions with Offerpad now public.
He billed Offerpad as the result of him being “so close” to the real estate customer “for so many years and understanding what the pain points is they have.”
Here’s an edited version of that conversation, in which Bair also explains Offerpad’s distinctive company personnel model.
HousingWire: How is Offerpad different from Opendoor?
Brian Bair: One is as a solution center. Early on, I never started out to be an iBuyer, I wanted help people out with all the other parts that go into selling a house.
So, it’s not just about selling their house. There’s a bunch of other things that go into that. We can close on the house in 24 hours.
There’s an extended stay program that customers can stay in their house for 60 to 90 days once we acquire the home. And what piggybacks on that a little bit is our renovation, the variety in the type of home that we can buy, and that we can do renovations from $1,000 to up to $100,000. And, so, we can work on houses that are heavier lived in or need more work or updating.
So, I think our operation and ground game is what separates us from others.
HW: Regarding that operation, the commonplace way to sell a home is to reach out to a real estate agent. Whether that’s a good way to sell a home or not, it does give the seller a clear point person that they’re working with. Does Offerpad have a consumer-facing, point person?
BB: Yes, it depends on what route the consumer goes in. So, for example, if you want the flex product, you have a solution expert, and that expert is a licensed real estate agent.
The reason we’re calling them solutions experts is that we want to find them the best solution for the customer whether it’s a cash offer, or if they want to explore the open market.
So, it’s kind of choose your own journey and we’ll have people there to help you.
HW: Are these agents affiliated exclusively with Offerpad or are they from other brokerages and partner with your company?
BB: Those are agents that hang their license with Offerpad. But we’re also trying to make the agents understand that we’re putting the consumer first, and that’s the most important thing that we’re trying to solve here.
We don’t want any decisions to be made from a commission-based perspective. And, so, one of the things that we do differently is that we make the agents employees of Offerpad.
HW: You merged with Supernova Partners Acquisition Company at the start of this month and are now a publicly traded company. How did that process go?
BB: We’re happy to be on the other end of that, because getting there – obviously – it can be distracting to the company. One of the reasons we chose the special purpose acquisition company is because it was quicker and more efficient. I mean we’re back now to being focused on executing our vision.
One of the reasons that we chose to go public is that I think as real estate evolves and continues to change over time, more transparency with not just consumers but also investors is going to be helpful.
HW: Spencer Rascoff co-chairs Supernova Partners Acquisition Company, which I think is interesting given that Rascoff was present for the launch of Zillow’s iBuyer program before he left that company.
Rascoff and co-chair Alexander Klabin agreed as part of the merger to purchase 5 million shares of Offerpad Class A common stock. Besides his investment in the company, does Rascoff have a present role at Offerpad?
BB: No, he’s not involved in the day-to-day. But I consider him an adviser and a friend as well. He has a lot of respect from me for what he’s done in past lives.
HW: Let’s go back to renovations. Because where I see maybe your model differing from Opendoor – granted, both companies are young and evolving – is the focus on renovating the home after you buy it.
BB: So, the minute we close on a home, we bring in one of our renovation teams who determines the value of a home. And they will be able to determine what that is in 24 hours. The normal renovation will take around 15 days right now, which is phenomenal.
And our renovation teams, like our agents, are our employees and they have been in that market and renovated homes as foreman or property managers.
Each renovation is so dependent on the market, and the area. There are some homes that we believe we can monetize by changing cabinets, and we can update a home built it in the 1960s and 70s and give it a great room for a fresh look. And then there’s sometimes where we’ll spend the day just doing the carpet and paint.
HW: IBuying is an exceedingly small part of the present real estate market. How do you make home sellers see it as a viable option?
BB: Right, if you look at the overall market share of iBuying it’s less than 1%, right? The tech in other industries like food delivery has scaled much more quickly. Because when you’re dealing with homes, you have a consumer that trades one every five to seven years. And, so, the transaction is constant education. But I think you’re going to understand it much more quickly because more people are understanding our model and understand what we’re doing.
And as we roll out more products, I think there’s going to be more certainty and control for the consumer and less reasons to go to the old way of real estate.