12th August 2019

New Redfin-Opendoor ‘iBuying’ partnership: another transformation in how you sell your house

posted in Appraiser News |

Discount real-estate brokerage Redfin will partner with Opendoor, one of the leading home-buying services, allowing homeowners to get an instant offer when they want to sell with Redfin RDFN, -2.17%  , the firms announced Thursday.

The tie-up is the latest sign of the increasingly fuzzy lines between traditional ways of transacting residential real estate and the increasing popularity of new tech-enabled disruptors. Companies like Opendoor, known as “iBuyers,” buy homes from consumers directly, allowing them to skip the hassle of open houses, repairs and renovations, and uncertain closing schedules.

At a moment when consumers increasingly expect more bespoke and favorable experiences for less cost, the two companies say their initiative “gives homeowners more options for selling their home in a simple and convenient way.”

But the iBuying model has flaws. A MarketWatch analysis of how much of a discount the typical iBuyer transaction involves can be found here: Selling your home to an ‘iBuyer’ could cost you thousands.

Redfin already has an instant-offer service of its own, known as RedfinNow, and on Wednesday the company said it “would continue to expand” that initiative.

In interviews, the CEOs of both companies stressed that the partnership was intended to offer choice. As Opendoor’s Eric Wu put it, “People want to maximize certainty and convenience.”

Redfin CEO Glenn Kelman was more candid. “It’s a risky, capital-intensive business to buy all our customer’s homes,” he said. He likened the new partnership to existing Redfin arrangements with real estate brokerages.

“When we run out of agents we refer you to a partner,” Kelman said. “The website generates volatile, high-volume demand that’s hard to fulfill in a good customer experience. There’s going to be days when we run out of money and we can’t buy your house but someone will.”

More to the point, RedfinNow isn’t yet available in all markets, including Phoenix and Atlanta, the two cities targeted for the new partnership.

Strange bedfellows like these are one by-product of immense flux in an industrythat’s spent decades stubbornly resisting change. But they’re also likely a confirmation that iBuying won’t entirely replace the traditional open-market means of selling homes.

Most industry observers believe that the forays into instant offers by larger, more traditional companies like Redfin and Zillow ZG, +0.12%   are an attempt be all things for all consumers, even as they fully expect most homeowners will be put off by a lower-priced instant offer and choose one of the company’s other services instead.

That includes Kelman. “I think more folks are going to want to list their homes to get as much money as possible,” he told MarketWatch, “but people will want more choices.”

Bradley Safalow, who runs research company Please Act Accordingly, said the partnership made a lot of sense.

“Redfin continues to question and debate the long-term economics of iBuying even as Zillow makes it seem like manifest destiny that it will be a good business within an investable time frame,” Safalow told MarketWatch. “Redfin’s views on this have been ignored even though they understand the home-buying process infinitely better than Zillow at this stage.”

Safalow also said that the partnership announced Thursday might be a “precursor” to a bigger deal between Redfin and Opendoor. He called it “definitely a possibility longer term,” noting, “Opendoor needs a consumer-facing presence to make their platform work. It would make sense for them.”

Opendoor declined to comment.

Zillow Z, +0.22%  , which has always generated most of its revenue from shopping customer leads to seller’s agents, has continued to maximize those sales as it ramps up its iBuying, which it calls Zillow Offers. That’s even as the company acknowledges the potential for customers to feel a sense of bait-and-switch.

“Consumers are falling in love with the Zillow Offers experience, so it takes a little bit of invention and magic to take someone that has fallen in love with an Offers experience and get them over to a Premier Agent,” Zillow president Greg Schwartz said on the company’s most recent earnings call.

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