MY TAKE: iBUYER GROWTH GROUNDED IN SPEED, SIMPLICITY AND CERTAINTY OF A CASH PURCHASE
TECH-FUELED CASH BUYERS: HOME SALES
Median Purchase Price
Median Sale Price
Gross Margin % Purchased in Foreclosure or Bank-Owned
Median Year Built
Median Square Footage
Avg Days Held
OPENDOOR
OFFERPAD KNOCK
ZILLOW
All Flips
$150,000
$213,000 $63,750 $244,500 $15,500 $224,900 $21,550
30.4%
1975 2002 1999
1,368 1,821 1,678
178
Opendoor $229,000 Offerpad $203,350
6.9% 8.5%
80 88
12,000
10,000
sold close to 1,800 — the iBuyers aren’t banking on the deep discounts that come with the combination of a cash purchase and a distressed property. When done at large enough scale and velocity, the added value that comes with the speed, simplicity and certainty of a cash sale creates sufficient margin on its own — with- out the distressed element added in. At least that is the theory. ATTOM data on homes flipped — sold for the second time in the last 12 months — in the third quarter of 2018 demonstrates how the iBuyer business model is fundamentally different from the traditional home flipping business. ATTOM compared the most prolific seller entities associated with Open- door and Offerpad to the overall home flipping market in the third quarter and found that the iBuyer entities are transacting on newer and larger homes that are much less likely to be distressed than the overall market. Additionally, the two iBuyers operated on substantially thinner gross mar- gins — sale price minus the original purchase price — than traditional flippers but resold homes more than twice as fast as traditional flippers.
THE CONVENTIONAL WISDOM THAT CASH IS KING IS WELL-SUPPORTED IN PROPERTY DATA
8,000
A look at proprietary home sales data from the nationwide ATTOM Data Warehouse demonstrates the power of a cash purchase. The data shows more than 2.2 million single family homes and condos were sold to buyers using financing through the third quarter of this year. The median sales price on these financed purchases was $259,375 — 101 percent of the median estimated market value of those same properties at the time of sale. There were more than 828,000 homes sold to cash buyers through the first three quarters of 2018 with a median sale price of $178,000 — 88 percent of the median estimated market value of those same homes at the time of sale. The estimated market value is based on an automated valuation model (AVM) from ATTOM. A more nuanced analysis of ATTOM public record sales data by BYU economics professor Jaren Pope in 2017 yielded similar results. Controlling for location of home, housing characteristics, time of sale and a host of other characteristics that may impact home price, Pope’s preliminary analysis found that homes sold to cash buyers sold for 5 to 10 percent less than comparable homes. The cash discount is part of the calculus figured into the Knock business model, according to co-founder and CEO Sean Black. “With Knock’s Home Trade-in program, we buy our customers’ new home on their behalf, making their offer more competitive and getting them a 3 to 5 percent discount,” he said. “This is before helping them sell their old house on the open market for the best possible price. This ensures they get the most value out of their equity on both sides of the transaction, and enables Knock to deliver them with a convenient, certain experience throughout the process.”
6,000
4,000
2,000
0
2014
2015
2016
2017
Jan-Oct 2018
ty value-add of an all-cash purchase. The ATTOM analysis shows entities associated with Knock purchased 357 properties between 2016 and 2018. Knock has a different spin on the model, purchasing a new home — with cash — for a prospective home seller before moving that home seller out of his or her current home and then selling that current home. “We don’t consider Knock to be an iBuyer, as their ‘instant offer’ to buy your old house only addresses one side of the transaction, which is simply not enough to transform real estate,” said Sean Black, co-founder and CEO. “We believe certainty, convenience and cost-effectiveness are needed to provide home buyers and sellers with a better experience. iBuyers do not solve for cost because they are flipping
homes for profit; 71 percent of home sellers are buying their next home at the same time, and iBuyers leave them with no solution for buying and take a chunk out of their equity.” Keep in mind, the aforementioned numbers are just purchases. In theory, these entities are subse- quently reselling every property that they purchase, typically within just a few months. The ATTOM analysis shows that Opendoor, Offerpad and Knock combined sold 16,574 homes between 2014 and 2018. The rapid growth of these early entrants caught the attention of more mainstream players like Zillow and Redfin — who at one point not too many years ago were themselves at the bleeding edge of technology and real estate. Both companies have
jumped into the iBuyer space, al- though they still have much ground to gain on the early entrants. ATTOM data shows entities associated with Zillow purchased just two homes in 2017, and 549 in 2018, while entities associat- ed with Redfin have purchased 145 properties in three Southern California markets in the last two years. As the nascent iBuyer industry quickly matures, even more estab- lished real estate players are joining the fray. The legacy real estate broker- ages of Keller Williams and Coldwell Banker both made announcements about their involvement in iBuying programs in September 2018. Keller Williams said it has been testing the iBuyer concept in an undisclosed mar- ket for more than a year, while Cold- well Banker announced the launch of
its own iBuyer program in Atlanta and Dallas, expanding to Tampa.
nance and other distressed markets in an effort to deepen the purchase discount and pad the eventual profits when the home was resold. That traditional home flipper model works when operating with lower volumes — the ATTOM Data Solutions Q3 2018 Home Flipping Report shows home flippers aver- aged 1.21 completed flips during the quarter. But at a much larger scale — Opendoor purchased more than 2,700 homes in the third quarter and
Rob Barber is CEO of ATTOM Data Solutions, curator of
THE IBUYER DIFFERENCE The emerging iBuyer businesses differ from traditional cash buyers not only in the volume of purchases — enabled by the influx of institution- al capital — but also in the types of properties they are buying. The tradi- tional cash buyer targeted distressed properties with deferred mainte-
the nation’s premier property database. A 25-year veteran in the real estate information services industry, Rob directs the ongoing product innovation that leverages the company’s data warehouse and data delivery platforms
which fuel real estate transparency. Learn more at ATTOMdata.com.
18 think realty housing news report
february 2019 19
Made with FlippingBook Online newsletter