Redfin and Zillow will face "the first serious test" of new home sales in the middle of the sluggish real estate market.
Related: Redfin expects a slowdown in large real estate, with technology hubs such as Seattle and S.F. Feel it more
This warning comes from Redfin himself, as part of a series of forecasts for the housing market in 2019. The rise of the so-called iBuyer movement, which includes Redfin and Zillow – as well as companies such as Opendoor, Offerpad and others – offers instant online offers and then collects and sells homes themselves, This came in the context of a booming market.
With the expected slowdown in the first half of next year, DeVille Fairweather of Redfin wrote that he will soon learn whether iBuyer is ready to stay as a permanent part of the real estate market, regardless of its condition.
Oppenor's competitors are turning to Redven to Zilu to Aspidbad to Knock with billionaires to buy homes from consumers and then selling these properties with profits as US home buyers grow rapidly. . The question investors are asking is whether instant offers will be much lower, to compensate institutional buyers for recent market uncertainty, and whether homeowners will accept offers, just to avoid the same same uncertainties. Institutional buyers who have made money from almost every sale in a low-interest emerging market can start to face losses or may appear more disciplined than other housing investors. In 2019, we will find out. If buying is in a falling market as well as in a bull market, instant offers can become a major sector of the real estate economy. If that does not happen, a lot of money will sink into the sand.
Redfin and Zillow executives expressed optimism that their programs will work regardless of market conditions. However, both companies reacted somewhat aggressively to Zillow and Redfin Now, where the industry is waiting to see where the market is being marketed as a whole and how buyers and sellers adapt to changing circumstances.
Both Redfin and Zillow, in addition to their competitors in space, all deal with the same problem from different angles: simplifying the process of buying and selling homes often.
Stephen Lane, CEO of Fly Homes, a Seattle-based startup, agrees with Redfin himself that the time is uncertain for these programs. IBuyer does not consider itself – it buys houses directly in cash and then keeps them until the buyer's startup customers get the funding – but Lin follows the movement closely.
The impact of the cooling market on institutional buyers is interesting. On the one hand, given their exposure to the balance sheet and institutional risk, iBuyers will be challenged to maintain volume levels, and I predict that forecasting and volatility models will force them to lower bid prices in order to maintain margins. When a home seller makes a decision about who wants to sell his home, the iBuyer offers may be too low, and in this scenario, the traditional listing agent will win the list.
On the other hand, the iBuyer model relies on being more efficient than the traditional model and provides certainty and transportation to consumers. As the market slows, the inconvenience and stress for vendors and the costs associated with selling a home to listing factors will be further aggravated, making the iBuyer model more attractive. If homes sit in the market longer, it costs more existing agents to sell a home. Given the efficiency and scale of the iBuyer model combined with the high cost of selling the home, iBuyers should also have a competitive advantage in the cooling market. "
Redfin began testing the direct selling and buying process for homes, Redfin Now, in 2017. In August, Redfin removed the "pilot" tag, resulting in a doubling of the program and announcement of its intention to employ Redfin Now and expand outside Southern California. As part of Redfin Now's evolution into long-term business, Redfin began disclosing its quarterly results under a new set of reports called "Properties".
As part of its latest financial update, Redfin reported that property revenues nearly tripled from the previous year – $ 11.3 million in the third quarter versus $ 3.3 million at the same time in 2017. The sector as a whole recorded a small loss of about $ 300,000.
In a telephone conversation with investors last month, Redlin's chief executive, Glenn Kelman, said that each of the 24 homes sold by Redfin in the third quarter was more than the amount paid by the company. Redfin had 56 other houses in his books at the end of the third quarter.
"With Redfin Now growing and easing the market, do not expect to sell every single house for profit, where we have to manage more properties as a portfolio, where the target is a lot more winners than losers rather than perfect record," Kilman said.
Zillow premiered in Phoenix in April. Zillow has just announced the expansion of the program to Dallas, the current ninth or future market, joining Phoenix, Las Vegas, Atlanta, Denver, Charlotte, Riley, Houston and Riverside, California.
In the latest earnings report, Zillow recorded US $ 11 million in Zillow, while the home sector under the program recorded a $ 16 million loss. Zillow bought 168 houses and sold 36 homes through Zillow's third quarter offerings.
In October alone, the company bought 130 houses and sold 32 houses, Zillow Spencer Rascoff chief executive said in contact with investors last month. It will not be long, Raskov said, before the company bought and sold several homes within a week as it did in the third quarter.
Zelo expects to generate $ 30 million to $ 40 million in revenue from Homes in 2018, down from $ 125 to $ 255 million in May. It expects to hold between 300 and 550 houses in its books, from 300 to 1,000 homes.
On the investor's call, Raskov said the company is still trying to figure out where the program works best, and wants to be in several different types of markets. He said he was optimistic the program would be more effective when the real estate market slows down.
"Our hypothesis is that Zillow's offerings will work better in a slower market than in the hot market, because the certainty and avoidance of the inconvenience of our sale to the home seller is relatively more attractive when they have fewer alternatives to selling their home traditionally," Ruskov said. We have adjusted the prices of our offers and our fees accordingly, we will still be able to build a very meaningful and profitable business even in those slow areas. So the diversity of markets is something we will benefit from as we launch more cities over the next two months. "