Regardless of how you feel about iBuyers, they’ve shown that the business model has legs in residential real estate.
That said, as the real estate market shifts, some experts and industry observers have pondered what the future holds for the companies that have cornered the iBuying market, particularly how they plan to evolve their business models to weather the ebbs and flows of the housing market storm.
“It’s time to think differently about the iBuyers,” says Stefan Peterson, zavvie chief data officer and co-founder.
He is also the author of the zavvie Seller Preferences Report, which highlights iBuyers’ performance in 2021.
“The fact is, based on our research, consumers just plain love what iBuyers do,” Peterson says.
Collectively, zavvie reported that iBuyers purchased over 71,000 homes in 2021, approximately 1.3% national market share, compared with about 14,000 in 2020, when the pandemic temporarily paused iBuying—this marks a 5x increase.
That’s not far from a recent Zillow study, which reported that iBuyers purchased 70,402 homes in 2021. The report also revealed that iBuyers—particularly Opendoor, Offerpad, Redfin and even Zillow—completed 44,933 home sales last year, exceeding the previous high of 28,265 homes sold in 2019.
“These are probably the toughest market conditions iBuyers are going to face in terms of finding people who want to sell them a house,” Peterson says.
That coupled with an increased market share—a bit over 1%—has convinced Peterson that iBuyers have a long runway ahead of them. However, onlookers and experts think companies like Opendoor, Offerpad and Redfin are destined to adapt and expand their business model to increase their consumer appeal in the future.
Despite one of the most prominent players exiting the sector and casting doubt in some folks’ minds, the remaining participants—particularly Opendoor, Offerpad and Redfin—have their sights on continued growth after posting positive gains in their respective fourth-quarter earnings calls.
During Opendoor’s recent earnings call, company executives were asked about possible ancillary products that may be attached to the company’s business model to help reel in additional revenue.
Opendoor President Andrew Low Ah Kee, touted the company’s title and mortgage sector growth in his response.
“Our approach to delivering on our long-term goals for services is to focus first on the consumer experience, then to scale it to all markets and then to maximize margins,” Low Ah Kee said. “We’re on the first step, which is building the best experience in the market and seamlessly integrating it with the rest of Opendoor.”
The iBuying giant will focus on growing its audience, revenue and contribution profit while also taking steps towards providing a “fully digital experience” for consumers, according to Opendoor CEO and Co-Founder Eric Wu.
“First, given the positive customer feedback we are seeing, we will expand and grow ‘Opendoor Complete’ and ‘Buy with Opendoor’ as part of our suite of product offerings,” Wu said during the investor call.
Opendoor Complete is meant to streamline selling and buying for consumers, according to Opendoor.
Offerpad also dove into some of its strategies for drawing in more traffic to its platform during the company’s Feb. 24 earnings call.
“We’re exploring everything right now,” said CEO Brian Bair. “There are some solutions that we’re definitely emphasizing over others. One is definitely mortgage with the launch of Offerpad Home Loans and then the buy-side.”
During the call, Bair said expanding Offerpad’s “ancillary service offerings” was a critical component of the company’s “three-pronged growth strategy.”
“By enhancing our ability to meet customers at the beginning of their journey, we can offer better support with multiple products, including Offerpad home loans and truly provide a one-stop-shop experience,” Bair said.
Redfin CEO Glen Kellman echoed a similar sentiment as he unpacked the tech company’s 2021 Q4 earnings report.
“We don’t need to buy other companies or launch new products,” Kellman said. “Our focus is on executing the strategy we’ve laid out over the past year: building a complete real estate destination for finding a home to buy or rent, improving customer success rates and customer loyalty to accelerate brokerage share, and scaling our mortgage, title and iBuying businesses into an integrated, nationwide offering.”
Considering that large-scale algorithmic house flipping is still relatively new in real estate, experts think that an evolution among major iBuying players is inevitable, particularly in their products and services.
While the remaining iBuyers have performed well recently, Sam Chandan, a professor of finance and director of the Stern Center for Real Estate Finance at New York University, says longevity in shifting market conditions will hinge on how major companies “introduce some diversity to their acquisition strategy.”
“Part of that is the potential for some of the participants in the market to diversify their market engagement and strategy in part because there may be points in the cycle that lend themselves to profitable iBuying execution, but there may be parts of the cycle that will make it more challenging and where you need complementary and adjacent businesses,” he tells RISMedia.
Kurt Carlton, co-founder and CEO of real estate investment company, New Western Acquisitions, expresses similar thoughts, adding that instant buying could become a component of a more extensive mix of solutions designed to streamline the transaction process.
“I think you will have ‘iSolutions’,” he says. “It’s less about iBuying as a solution and more about removing the friction from a real estate transaction so consumers can buy more so it’s easier to transact in the market.”
Carlton thinks significant players in the sector will need to incorporate additional services to maintain their sustainability as the housing market shifts.
“Historically, iBuyers have been solving the real estate transaction problem with an overreliance on big data propped up by the favorable dynamics of a seller’s market—a risky proposition as we all saw with Zillow’s untimely exit,” he says. “It’s debatable whether they could have achieved the same rapid scale in a value-driven market like the one we are now entering.”
There have been mixed reviews on how iBuyers will fare as the market frenzy of the past two years cools down. Some have opined that the feverish pace of 2021’s seller’s market wasn’t conducive for instant buyers, and that the impending moderation and shift in the market may provide a tailwind for the companies.
However, Sean Black, co-founder and CEO of Knock, thinks that the problem—and perhaps opportunity—for iBuyers to maintain their position in the market will push them to extend beyond instant offers.
“IBuying was always about basically solving one part of the problem, which is being contingent on your home sale, not knowing how much it was going to sell for, when it was going to sell and when you were going to have that capital,” Black says.
In a previous interview with RISMedia, Black intimated that he wasn’t convinced that iBuying offered the best solution for what he called a “mass-market problem.”
However, he admits that large scale iBuyers like Opendoor have already started looking at additional ways to expand their services.
As iBuyers look to increase their market share, Peterson thinks power buying could be on the table for the tech companies looking to diversify their services in the future.
“IBuying is a great solution for a small number of consumers,” Peterson says, pointing out the conversion rate of consumers who get offers from an iBuyer sits around 5%.
Peterson adds that power buying solutions convert consumers at about 30% to 50%.
“That’s like shooting fish in a barrel, and we see this every day,” he says. “I think there is a huge opportunity for everybody—Opendoor, Offerpad, and even Zillow.”
While the latter shocked the real estate industry by dropping out of iBuying in late 2021, Peterson thinks power buying could offer another chance at getting into facilitating home sales with consumers.
“It’s a big opportunity if you match up iBuying with power buying. Now you have an option for an awful lot of consumers, sellers as well as buyers,” Peterson says.
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to email@example.com.