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Rocket cautiously wades into iBuying

Analysts say the initiative could give the lender a new revenue stream in a purchase-heavy market

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Rocket Companies CEO Jay Farner

When Rocket Companies announced in August that it would be dipping its toes in the iBuying space, the lender didn’t do so with its usual panache. There were no polished marketing promos or commercials featuring celebrities like Tracy Morgan. In fact, news that Rocket would be pushing into iBuying was barely a footnote in the August press release.

Rocket’s low-key entrance might be explained by the company not envisioning itself as becoming a true iBuyer: it will not be buying homes with the help of an algorithm, throwing a new coat of paint on the wall, and then reselling the home for a markup. In fact, Rocket has no interest in buying homes at all. Rocket, instead, would be simply integrating third-party iBuying services on its Rocket Homes platform.

The iBuying initiative is set to be launched sometime in the fourth quarter, though details have been sparse. Rocket declined to answer HousingWire’s questions about which iBuying companies it would be partnering with, the exact nature of its relationship with third-party iBuyers, or how it would generate money from the venture.

What the company has said is that iBuying will be lumped in with several other services on the company’s real estate platform, including “credit reporting, home search, the industry-leading ForSaleByOwner.com process, on-staff real estate agents, a nationwide network of trusted real estate professionals…along with direct connections to Rocket Mortgage.”

Rocket said its iBuying program will “provide a back-up offer” to sellers.

“Consumers who need to sell their house before buying another often lose out on their new dream home due to the need to make a contingency offer- meaning their deal hinges on closing the sale on their existing property,” Rocket said. “With the forthcoming program from Rocket Homes, these consumers will now have a guaranteed offer on their current house and can eliminate the need for contingency altogether.”

Ryan Carr, analyst at investment bank Jefferies, said that the iBuying initiative is a way for Rocket to increase its range of products to consumers across real estate and mortgage.

“They’re trying to make it so that they can be the one-stop-shop for consumers when it comes to a mortgage and real estate,” said Carr. “And on top of that, it’s a new revenue stream for them to help reduce the cyclicality of their earnings and revenues and make it less related to mortgage volume.”

Carr viewed the iBuying initiative as a component of a larger strategy as the mortgage market becomes more purchase-heavy.

“They’re the heaviest refi lender in existence, excluding like smaller mortgage originators, but they are susceptible to that decline, and they need to find additional revenue streams to supplement that, and at the same time, help expand their non- refi volume,” he said. “And when you expand your iBuying capabilities, you are inherently expanding your purchase transaction volume, because that’s the volume you’re going to get.”

In October, Rocket Pro TPO, a division of Rocket Mortgage, also announced the launch of several tech-focused initiatives to support its mortgage broker partners for a purchase-heavy market, including allowing broker partners to access agents through the Rocket Homes platform.

With the recent exit of Zillow from the iBuying space, questions have been raised regarding the future of iBuying and whether it is a good time to even dabble in this market.

Tom White, analyst at D.A. Davidson Companies, noted that Rocket’s third-party iBuying initiative may be “a less risky, less capital-intensive way of kind of getting some exposure to the iBuying trend.”

He added: “I think there are a number of companies who partner with iBuyers, as, as more of like a lead gen, or sort of a referral type model.”

During the Detroit-based lender’s third quarter earnings call, Jay Farner, vice chairman and CEO of the company, remarked that Rocket has a “very capital-light structure” and that they are not in the business of purchasing real estate.

“And so, the model that we have built is to start bringing on multiple iBuyers who seem to have expertise in certain areas across the country, provide that as a service, one of many to our clients if that will help them buy their new home and then allow that third party to actually be there if they do require iBuying,” Farner said. “It’s a nice thing to have as a backstop, but in today’s real estate market it’s not something that’s required much of the time.”

Ygal Arounian, analyst at Wedbush noted that iBuying is not an impossible business model and if Rocket has good partners, they can be successful in their endeavor.

“For a Rocket to get into this business you know, there’s probably a unique set of challenges coming from the mortgage company side,” he said. “The way they can be successful is if they’re leaning in on the right partners, and then a big part of how this business can be successful over time is companies are using their data to accurately forecast housing prices and housing trends and that’s a critical component of being successful here.”

After Zillow’s abrupt exit, Opendoor, Redfin and Offerpad are the only iBuyers of scale these days.

And based on past precedent, it is likely that the iBuyer(s) that Rocket chooses to partner with will be a “big household name,” predicted Carr.

“I don’t think that the situation with Zillow will have a negative impact on Rocket or the iBuying industry itself,” he said.

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