It’s been an interesting month for instant buyers. From leadership shake-ups to another company bowing out of the game, there has been no shortage of headlines coming out of the sector as its most prominent players have struggled to weather the cooling market conditions.
As companies like Opendoor and Offerpad continue to struggle, questions about iBuying’s sustainability will likely resurface. While the sector won’t disappear, experts agree that some players—particularly the nationally focused ones—are in for more challenging times.
“We are in this transitionary phase right now where demand for housing has weakened considerably, but there are still some ways to go before we see asking price adjustments, which makes it difficult to be an iBuyer,” says Sam Chandan, director of NYU’s Stern Center for Real Estate Finance Research.
That’s been most apparent in recent weeks.
Aside from losing nearly $1 billion in the third quarter, Opendoor was seemingly dealt another blow as Eric Wu, the company’s CEO and co-founder, relinquished his position at the helm to run its Marketplace—which handles Opendoor’s new Exclusives product.
President Andrew Low Ah Kee has also resigned from his role to pursue other opportunities.
Offerpad has also had to shoulder new challenges as it saw its three-quarter profitability streak end. The company also received a notice of non-compliance from the New York Stock Exchange (NYSE), indicating the iBuyer was in violation of a requirement that listed stocks remain above $1 a share.
It could be delisted if it doesn’t bring it above the dollar mark.
If that wasn’t enough to raise questions about iBuying’s sustainability, one need only refer back to Redfin’s third-quarter announcement that it was bowing out of instant buying for good.
Though the company dabbles in various aspects of the real estate industry, CEO Glenn Kelman largely blamed its Q3 shortfall on its iBuying arm, RedfinNow.
“Our decision to close our iBuying business is only partly due to the challenges we’ve had selling RedfinNow homes,” said Kelman on the Q3 earnings call. “Prices may stabilize in 2023, but the cost of capital, especially the capital coming from our balance sheet, is likely to remain higher for the foreseeable future. That has already lowered how much Redfin and other iBuyers can pay for homes, which in turn, has discouraged redfin.com visitors from contacting us about an instant offer.
“iBuying for Redfin has never been an end in itself, but only a means to meet more homeowners when they first consider moving,” Kelman added. “Now that iBuying’s contributions to listing demand have become smaller and less certain, it isn’t worth the risk.”
Opportunities in the chaos
The momentum that helped catapult companies like Opendoor and Offerpad to prominence has seemingly dissipated as market conditions have changed—slower price growth, sellers unwilling to budge on asking prices and demand dips—and arguably challenged everyone in the industry so far.
“You want to be an iBuyer in an environment where there aren’t many buyers,” Chandan says. “But you can imagine—fast forward three to six months—if the labor market weakens in a way where we see a higher level of distress.
“What the great financial crisis showed us is that it can be during those periods when we observe more significant downward adjustments in prices that a large institutional investor or an iBuying platform may be able to capitalize on that, but only if they have staying power to wait out the recovery of the market. That’s what iBuyers don’t have,” he adds.
The demise of RedfinNow may indicate a significant flaw in large-scale algorithmic home flipping on a national level. However, Chandan thinks there are still potential opportunities for the sector on a more localized scope.
“There may be some markets…where market conditions lend themselves to a high level of iBuying activity,” he says. “This experiment of the last few years with national platforms with highly automated purchasing decisions will not prove resilient during periods of market weakness unless the model adjusts to allow for longer holding times.”
Stefan Peterson, co-founder and chief data officer of real estate marketplace startup zavvie, echoed similar sentiments in a recent interview with RISMedia.
While he has noticed a decrease in the frequency and amounts of offers from Opendoor and Offerpad, Peterson notes that other players have helped meet what he described as strong consumer demand for instant offers.
“Consumer demand for instant offers—at least to receive these offers, if not actually accept them—is at least as strong as ever, which makes total sense considering it’s generally harder to sell a house right now on the open market, and instant offers can provide certainty,” he says.
zavvie expects the high demand for instant offers to continue, regardless of market conditions.
“It seems likely that going forward, cash buyers that are less retail and more behind the scenes—working through agents rather than going direct to the consumer and wanting to own the consumer relationship—will increasingly be at the forefront of instant offers,” says Peterson.
That includes a growing number of brokerages meeting a demand for instant offers by offering in-house services to consumers.
Scott MacDonald, broker/owner of RE/MAX Gateway, joined those in the fold last year when he launched ZinCasa. This iBuying solution provides agents with a personally branded instant offer platform.
Serving 18 brokerages in three different markets and counting, MacDonald looks to improve the value proposition of agents in the eyes of their clients by allowing them to remain central to the transaction while giving them the option to present their clients.
“The whole time, they are the key ingredient of making the transaction happen and again having the seller sell their house on the terms that they want to sell it,” he says. “The people who are our biggest cheerleaders right now are the brokers because they like the marketing materials we have so the agents can market themselves as an iBuyer and get additional listing leads.”
Despite recent developments in the larger space of the sector, MacDonald says he is staying the course with ZinCasa, emphasizing that the industry is still a viable source of revenue for his business.
“We don’t go in and buy houses just to buy houses…we make sound business decisions when we buy these houses to make money off them,” MacDonald says.
He continues telling RISMedia, “right now, I am probably Investing 25 to 35 hours a week into ZinCasa, helping it grow and talking to agents about it. It’s a substantial part of my business because I see this as a viable option for consumers well into the future.”
MacDonald isn’t the only one to see an opportunity, even amid the housing market conditions.
Windermere Real Estate recently announced that it was partnering with zavvie to deliver a new program, Windermere Offers, to its agents and clients.
Using the zavvie-powered platform, Windermere said in a statement that its program would allow sellers and their agents to compare and choose between an instant sale, an iBuyer, a buy-before-you-sell modern bridge solution or listing their home on the open market.
“The old days of offering a single way to buy and sell homes are gone,” said Windermere president OB Jacobi in a statement. “Consumers want to see all their options, as there are more of them than ever before. They also want a trusted professional to help select the best path for their situation. Windermere Offers delivers all the choices along with a Windermere professional providing the guidance.”
Pumping the brakes
Although some brokerages are still optimistic about their respective iBuying and instant offer options, recent shifts in the housing market coupled with large-scale players’ financial and operational woes have pushed several firms to reconsider their participation in iBuying.
Lamacchia Realty, which began incorporating instant offers—a foundational component of iBuying—into its business model as an ancillary tool for consumers, has bowed out of the space.
“We’ve been doing it obviously at a much lower level scale than them, but we’ve been out for a while,” says Anthony Lamacchia, CEO and broker/owner of Lamacchia Realty.
While early this year he noted the potential for instant buying in a market shift under certain circumstances, Lamacchia disagreed with much of the posturing that large players implemented as far back as the demise of Zillow Offers.
In the wake of Redfin announcing its departure from iBuying, Lamacchia doubled down on that stance.
” flipping is a business that works on an upswing and doesn’t really work on a downswing; that’s the bottom line,” he said.
As the housing market cools, Lamacchia agrees that larger iBuying companies will continue to struggle. At the same time, smaller players may pull back and reassess their businesses and the challenges associated with instant buying.
“The vast majority are going to pull out,” Lamacchia says. “Opendoor and Offerpad have a problem because that’s all they do. For us, that was like an ancillary thing, but they will have a very difficult time. I would not be surprised if at least one of them bails out for a period of time.”