STRATEGY
iBUYER
share some of the same DNA as tra- ditional real estate investors, they are a completely different species. From the outset, iBuyers were poised to be different from traditional real estate players because of their roots in Silicon Valley. Those roots provided them access to the deep pockets of venture capital looking for a disruptive real estate model as well as access to the big data and technology talent that could deliver on that disruption. First-to-market in 2014 was Open- door, the epitome of Silicon Valley roots combined with an affinity for real estate investing. Prior to founding the company, CEO and Co-Founder Eric Wu founded geo-data analytics company Movity, which was acquired by Trulia. Wu also co-founded RentAd- ivsor.com, and his side hustle is a real
estate fund that has invested in more than 100 multifamily units. Others on the Opendoor leadership team come from brands that are virtually synonymous with Silicon Valley: Uber, Square, Groupon, Yelp and PayPal. That pedigree helped the company raise $1 billion in venture capital funding since 2015. Not far behind Opendoor was Offer- pad, which began buying homes directly from homeowners via cash offers in 2015. Offerpad’s lineage is more heavily steeped in the real estate world: one of its co-founders was a realtor prior to founding the company; its other co-founder previously founded Invita- tion Homes, a company that purchased tens of thousands of homes in the wake of the Great Recession, often buying with cash at the foreclosure auction.
Still, Offerpad’s cachet with the venture capital crowd has helped it raise $410 million in funding since 2017. The influx of venture capital has allowed these first-to-market iBuy- ers to ramp up quickly in terms of number of transactions. An ATTOM analysis of public record data shows Opendoor purchased just 14 homes in 2014, then 471 in 2015, 1,529 in 2016, 3,626 in 2017 and 9,578 in 2018. Offerpad started with 13 purchases in 2015, jumped to 559 in 2016, then 2,022 in 2017 and pur- chased 3,110 in 2018. Knock was another early entrant le- veraging the speed/simplicity/certainty value-add of an all-cash purchase. The ATTOM analysis shows entities associated with Knock purchased 357 properties between 2016 and 2018.
iBuyer Growth Grounded in Speed, Simplicity and Certainty of a Cash Purchase
TECH-FUELED CASH BUYERS: HOME PURCHASES
OPENDOOR
OFFERPAD KNOCK
ZILLOW
by Rob Barber
16,000
C
ash is king in a home sale — and cash buyers are often
THE CASH PURCHASE DISCOUNT
able to buy below market value — because cash represents speed, simplicity and certainty for the home seller. More to the point, sell- ers attach some monetary value to speed, simplicity and certainty in a home sales transaction (see sidebar on p. 32 for more details on this). The opportunity to add value to the home sales process with a quick, clean and certain cash sale is the foundation for the nascent iBuyer business model. “The number one thing is you’re putting the control back in the seller’s hand. Before Offerpad there wasn’t much control they had or certainty over the process,” said Cortney Read, Director of Commu- nications and Outreach at Offerpad. “We actually have customers that sell to us and buy Offerpad homes and they are able to do those trans- actions within a month.”
MEDIAN SALE PRICE MEDIAN ESTIMATED VALUE AT TIME OF SALE
PREMIUM/DISCOUNT
14,000
1.3%
12,000
10,000
$259,375
$256,000
8,000
$178,000
$203,000
6,000
-12.3%
4,000
2018 Financed Home Purchases
2018 Cash Home Purchases
2,000
THE EVOLUTION OF IBUYERS In the beginning were tradition- al real estate investors, the early ancestors of iBuyers who have long
leveraged the advantage that speed, simplicity and certainty give them when purchasing a home with cash. But it’s clear that while iBuyers may
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54 | think realty magazine :: march / april 2019
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