The next wave of servicing regulation is coming – Are you ready?

Join this webinar to learn what servicers need to know about recent and upcoming servicing compliance regulations and strategies experts are implementing to prepare for servicing regulatory audits.

Inside Look: RealTrends 2021 Brokerage Compensation Study

Steve Murray, senior advisor to RealTrends, gives an exclusive first look at the 2021 RealTrends Brokerage Compensation Report.

Logan Mohtashami on trends in forbearance exits

In this episode of HousingWire Daily, Logan Mohtashami discusses several hot topics in the housing market, including recent trends in forbearance exits and future homebuyer demand in the midst of inventory shortages.

How lenders can prepare for increasing regulatory pressures

As compliance becomes an increased focal point for mortgage lenders and investors, staying ahead of state and federal regulations can be the difference between a flourishing business and one mired in fines.

Real Estate

Is this the end for iBuying? Or is iBuying just part of a bigger endgame?

Do iBuyer critics get the long game Opendoor, Redfin and Zillow are playing?

Market shocks are playgrounds for revisionists and permabears. 

Here are the revisionists circa 2009: “See? I knew the U.S. housing market would crash the entire global economy.”

Julian Hebron,

And here are the permabears yesterday after Redfin and Opendoor paused their instant homebuying: “I’ve said from day one iBuyers will have trouble surviving a down market.” 

Revisionists are just liars. But permabears have a case here on iBuyers, so let’s go deeper on how this coronavirus market shock will test category leaders like Opendoor, Zillow and Redfin. 

Just three days ago, I said home sellers on a clock should try to get an iBuyer offer “like right now” because iBuyers “are deep in the weeds on home price decline scenarios as you’re reading this” and “bids may get less aggressive as they adjust home price outlooks.”

Now there are no bids from Redfin, and here’s a statement from Opendoor taking similar action: 

“Following the latest guidance from federal, state and local governments and out of an abundance of caution for the safety of our employees, partners and customers, we are temporarily pausing new instant home offers. While much of our customer experience is virtual and self-service, there are still some elements that require real-world interaction, including home assessments and repairs.”

So while instant home buying pauses, let’s zoom in on three main ways real estate firms make money (this excludes adjacent services like title, mortgage, etc.): 

  • Brokerage Model: Commissions from helping people buy and sell homes 
  • iBuyer Model: Spread from directly buying homes, then selling 
  • Lead Model: Revenue from selling leads to real estate pros

Respectively, Redfin, Opendoor and Zillow built their core businesses in each of these areas, and each were expanding into the other areas before this 2020 market shock hit.

Redfin grew revenue in its core brokerage business from $432.2 million in 2018 to $523.5 in 2019. In 2018, their iBuyer business was 9.3% of total revenue, and in 2019, it became 30.8% of revenue. If they keep iBuyer on pause, they’ve still got one of the strongest brands in the consumer-direct brokerage business. 

Zillow’s revenue in its core lead business referring real estate pros to consumers was near $1.2 billion for 2018 and 2019, with $304 million in profit for 2019. In 2018, lead revenue was 90% of total revenue, and in 2019 it became 46.5% of revenue. If they pause on iBuying, they’ve still got a billion-dollar brand in the lead business. 

Opendoor’s revenue isn’t disclosed as a private company, but iBuying is their core business and revenue source. If they can weather this – which pausing on home buying might help them do – they’ve built another very strong brand in the consumer-direct real estate brokerage business.  

And what if the endgame was never just about buying homes, but using a home offer as (an albeit capital-intensive) lead gen mechanism for a full-service brokerage business? 

Telling someone you’ll buy their home outright and refer them to an agent to list their home if they don’t like your offer is a powerful way to connect with home sellers and buyers who are serious. 

Zillow knows this. When they doubled down on home buying one year ago, sellers were asking Zillow to make them a purchase offer every five minutes

The endgame for visionary firms with huge backing isn’t one core model, it’s reinventing the customer experience, and finding profitability while doing so. 

Ironically, visionary companies skew traditional as they mature. 

Amazon opens stores. Netflix produces movies. And maybe certain iBuyers will become brokerages as they get deeper down my 4 stages of disruption path:

1. Evangelize Instant, Techy Process. Home buying and selling are totally broken, and this instant buying process will reinvent consumer experience.

2. Master Customer Acquisition. Weaponize evangelism with super sophisticated and/or massive budget marketing enabling iBuyers to gain millions of site visitors and customers.

3. Go Mainstream. If they last five or more years and have millions of site visitors and customers, they’re a real estate innovation player, plus a lead source for traditional players.  

4. Settle On Hybrid Instant/Human Model. They slowly learn regulation and customer need for human advice on emotional home buying/selling requires iBuying plus brokerage plus lead model.

iBuyer bears are right that some players will have trouble surviving coronavirus market shock. 

But when it comes to a category leader like Opendoor, I maintain my stance that they’ll prove nimble during this market shift given their resources. In my definition, being nimble also includes smart dealmaking as merger and acquisition activity adjusts to this market. 

And if I’m wrong, I won’t become a revisionist.

Most Popular Articles

Treasury removes restrictions on investment properties

The Treasury Department and FHFA announced Tuesday that they are suspending certain requirements that were added in January to the Preferred Stock Purchase Agreements (PSPAs) between Treasury and Fannie Mae and Freddie Mac.

Sep 14, 2021 By

Latest Articles

Natural disasters and forbearance: What borrowers and mortgage servicers need to know

The United States is grappling with a sharp rise in natural disasters, including wildfires, an active hurricane season, floods, tornadoes and mudslides. The mortgage industry needs to be proactive in examining programs to help borrowers recover.

Sep 17, 2021 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please