iBuying ramps up after pandemic pause and despite hot real estate market for sellers
After taking a hit during the beginning of the pandemic, iBuying is ramping up with dozens of companies racing to streamline home offers online.
Seattle giants Redfin and Zillow Group to SPAC-backed upstarts Offerpad and Opendoor are all aiming for the opportunity to become a one-stop shop for sellers. Their ambitious plans went on pause last year when the pandemic began as home-buying efforts slowed.
“But what we see from Q4 (2020) results is that iBuying is starting to take off, even in the hottest seller’s market in history,” said Rob Hahn, managing partner at real estate consultancy 7DS Associates.
The potential for online real estate marketplaces to grow inventory, then renovate and sell at the scale of thousands of homes, is huge. Because of the sheer amount of homes firms can buy, “iBuying will be posting gigantic topline numbers,” said Hahn.
Those numbers fell in 2020 but have rebounded after the pandemic pause.
Redfin’s “Properties” segment, which includes its iBuying service RedfinNow, posted revenue of $39.4 million in the fourth quarter, down from $99 million in the year-ago quarter but up from $19 million in the third quarter. Redfin launched RedfinNow in Seattle and San Francisco in December, and expanded it to Phoenix in January.
Zillow’s “Homes” segment, which includes its Zillow Offers home-buying and selling arm, brought in $304 million in revenue in Q4, down 50% year-over-year, but up from $185 million in Q3. Zillow in 2019 projected annual revenue of $20 billion for Zillow Offers within five years.
Offerpad, which just announced a SPAC deal co-led by former Zillow CEO Spencer Rascoff, was also impacted by the pandemic as revenue stalled in 2020. But it plans to operate in 19 markets this year and move into about 50 markets over the next three years.
Even with sizable losses at the outset, large real estate marketplaces see iBuying as part of making real estate a seamless way to buy, sell, get a mortgage, and move — right from a phone. And as millennials hit their peak years to buy a home, the timing is now.
“It’s a big vision,” said Jeremy Wacksman, Zillow COO and head of Zillow Offers. “But I think you’re going to see more of the category in general move this way because it’s what we all as customers demand and want and get from our other services on our phone.”
Real estate tech companies are benefiting from a strong U.S. housing market that gained nearly $2.5 trillion in value last year, the most since 2005, according to a Zillow analysis. For the four-week period ending April 18, the median home sale price increased 18% year-over-year and 45% of homes sold for more than their list price (a new record), Redfin reported Friday.
However, iBuying is still at risk because of the blazing hot sellers market spurred by low mortgage rates and record low inventory.
With home sales reaching all-time highs, sellers can make more profit using traditional agents and home offers rather than taking an instant offer online. An iBuyer offers a market rate, but it is often below what home sellers can get in a bidding war from traditional home buyers.
Zillow said in December that a survey of 6,300 homes where a seller declined a Zillow Offer ended up selling for an average of about 0.09% more than Zillow’s offer.
Quinn Hawkins, vice president of investments and renovations at Redfin, said that even in a hot sellers market, iBuying offers advantages.
“Many consumers see the value in our strong offers which allow them to buy their next home and sell us their old home without having to get the home ready for sale, deal with open houses and showing, and not being able to control exactly when they sell their old home,” Hawkins said.
The pandemic has spurred the use of digital real estate tools such as virtual tours, which may also bode well for the future of iBuying. A Zillow survey found that nearly 40% of millenials would be comfortable buying a home online.
“The world is going to one click — why not real estate?” Zillow CEO Rich Barton said on the company’s earnings call in February. “That’s where we’re headed.”