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Even though some real estate mavens declared the iBuying model dead when major players suspended their home purchases in late March due to the coronavirus pandemic, the segment seems to have only fallen into a slumber, from which it is now awaking.
After a month-long hiatus, Opendoor, Offerpad, Redfin RDFN and Zillow Z have just announced their intentions to resume making cash offers to homeowners looking to sell their residences quickly and hassle-free.
“Through the last 30 to 45 days, we’ve received thousands of requests from sellers,” said Offerpad Senior Director of Communications Cortney Read. “So we know that the need is still there. People are still looking to buy and sell.”
Opendoor, Offerpad and Redfin are re-starting their home purchases this week. Meanwhile, during a quarterly earnings call on Thursday, Zillow CEO Rich Barton said the company is actively planning to “unfreeze” its iBuying branch Zillow Offers “within the next few weeks.”
The timing of Zillow Offers’ resumption, Barton said, depends on the company’s ability to protect the health of employees and customers as well as the housing dynamics of local markets, among other factors.
Yet, iBuying, a concept that resembles large-scale home flipping, would look slightly different in a pandemic-battered real estate industry with an overhauled dependence on technology, novel safety measures, re-launches in limited markets and reworked financials.
“The issue for Redfin hasn’t been customer interest,” said Glenn Kelman, the company CEO on a Thursday call with investors. “We have never put anything on our website that homeowners responded to more eagerly than a cash offer. The issue has been just how we respond to that interest.”
iBuyers’ bottom lines
In their separate earnings calls this Thursday, tech-enabled brokerage Redfin and home-listing behemoth Zillow laid out their transactional as well as financial expectations for their iBuying segments in the second quarter of the year.
When Redfin halted its iBuying business RedfinNow in March, the company owned or was under contract on $119 million worth of abodes, said Kelman. Since then, it has pared that figure down to $56 million (mostly secured through line of credit), two-thirds of which is under contract to sell in the next two weeks.
Redfin is now anticipating a 2% reduction in resale value, which translates to a $3 million gap in projections. Still, after paying for renovations and sale-related activities, Kelman said the brokerage will make $1 million.
“We’ve learned from these results that RedfinNow performs better in a downturn than some had feared,” Kelman said.
Nonetheless, the company is re-moulding its approach to iBuying, which Kelman said has tumbled down on the brokerage’s list of priorities, now topped by Redfin Concierge Service that handles home remodels for a higher listing fee.
To adapt to the likelihood of selling its property portfolio at a discount rate of 3-5% during an economic downturn, Kelman said Redfin is to lower its instant offers, reduce hold times, unify its salesforce and “squint harder at projected economies of scale and other rationales for expanding a business that doesn’t make enough money on each house.”
This month, RedfinNow has a budget of $9 million. It is first restarting in Denver, Colorado; Austin, Texas, and the Inland Empire region east of L.A. Through the end of June, the company expects to own fewer than 100 abodes, Kelman said.
In the meantime, when it paused its purchases in March, Opendoor owned roughly 3,800 homes, approximately half of which were under contract. In comparison, Zillow began the second quarter of 2020 with about 1,800 homes on its books, after selling nearly 2,400 residences in the first three months of the year. Before accounting for interest expenses, Zillow Offers brought in $140 per home.
“While in crisis mode, we were very focused on inventory reduction to reduce enterprise risk,” Barton said. “Inventory reduction is no longer our goal.”
In part due to its currently low stock, Zillow expects a loss of up to $80 million on its home segment in 2020’s second quarter.
A heightened reliance on technology
San Francisco-headquartered Opendoor and Chandler, Arizona-based Offerpad, both of which emerged roughly 5 years ago as pioneers in iBuying, suspended home purchases amid COVID-19 in order to boost their digital capabilities to fully carry transactions remotely, the companies say.
“We believe that we’re actually a great solution because so much of our process already is contact-less,” says Offerpad’s Read. “You can request your offer online, you can sign up virtually.”
Through a certification program with HealthyVerify, a public health organization that helps businesses limit the spread of diseases, Offerpad has implemented new protocols and methods to buy and sell during a deadly virus outbreak.
For instance, the company now conducts virtual inspections and offers 3D tours, which have arisen as viable alternatives to keep the housing market afloat amid the national pandemic emergency.
“We are proud that we took a short pause to be able to get new protocols in place,” says Read. “It’s really only going to be a better experience for our customers.”
On Friday, Offerpad, which has already garnered praise from Arizona Governor Doug Ducey for its actions to enhance public health, is resuming home purchases in all of its 800 markets across the U.S. Committed to extending all-cash proposals within 24 hours, the company will first engage with home sellers who had requested an Offerpad offer but could not receive one due to the pandemic.
“We’re going to be very busy this weekend, making sure that we get those offers out,” says Read.
Starting off by making offers only in the iBuying boom cities of Phoenix, Arizona, and Raleigh-Durham, North Carolina, before re-entering other markets in the upcoming weeks, Opendoor has also developed a fully digital selling process.
“We believe the certainty we provide to sellers is in even greater demand during this time,” says Tom Willerer, chief product officer at Opendoor. “Our primary focus right now is to provide a certain and safe sale for our customers, which means it will be a fully-digital and contact-free experience.”
Both Opendoor and Offerpad say they have not tweaked their criteria for assessing for-sale residences in light of an uncertain housing market, where inventory and prices are projected to drop this year. While the types of homes they purchase vary by city, iBuyers generally focus on mid-priced single-family houses.
However, Opendoor and Offerpad seem guarded in their strategies.
“We want to make sure that we’re cautiously buying homes,” says Offerpad’s Read.
Willerer says, “We’re taking a measured approach as we consider resuming our offerings in additional cities. The ability to operate safely will continue to be a priority.”