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6 iBuying Startups That Are Changing the Way We Sell Homes

6 iBuying Startups That Are Changing the Way We Sell Homes February 18, 2018 4:00 pm

Jeff Mindham has written dozens of articles/blogs about real estate for brokers and agents across the U.S. Previously, Jeff worked as the marketing head at a number of real estate tech startups including ForSaleByOwner.com, USRealty.com and Foxtons.com. He was also the Senior Vice President of National Marketing for Prudential Real Estate. Before working in real estate, Jeff was a Senior Account Director at a number of New York’s largest ad agencies including J. Walther Thompson and Saatchi. He holds an M.A. and B.A. degrees from the University of San Francisco.

6 iBuying Startups That Are Changing the Way We Sell Homes

Photo Credit: Andrei Shumskiy/123RF

You’ve probably seen their signs tacked up on telephone poles at busy intersections; “We Buy Ugly Houses” or “Cash Now for Your Home – Guaranteed”. Often, these are local entrepreneurs and home flippers who pay cash to financially in-need homeowners. They pay well below the market price for these homes and make their money bey fixing them up, putting them back on the market quickly and selling them for a nice profit.

These companies have been around for a long time and often invoke an image of bottom feeders who prey on the misfortunes of others. Not until very recently did they become the new, cutting-edge tech companies that are now profoundly disrupting the residential real estate market. These new players are now referred to as iBuyers, and it seems that they have stepped right into something big.

Listed below are 6 of the major iBuying players in the market today:


Opendoor

This company created the modern iBuying system where home sellers can close quickly, sometimes in days, while selling their homes at a cost that’s slightly higher than if they’d sold with a full-commission real estate broker.  Founded by Silicon Valley legend Keith Robois and Trulia veteran Eric Wu, Opendoor’s objective is to make the residential real estate category “liquid” by streamlining the entire sales process.

Opendoor

Using their own predictive analytic home valuation software which estimates a property’s market value, Opendoor makes an instant offer to the seller. They don’t pay a market rate for the home but do charge a 7% fee on the transaction. Still, 7% isn’t much more than most sellers pay in commission. If the deal is struck, they purchase that home and then “flip” it.

Home sellers clearly like the system because Opendoor is now spending over $100 million a month to purchase homes. Currently, they have a presence in Phoenix, Dallas, Atlanta and Raleigh, NC. By 2018, Opendoor hopes to be in 30 cities across the country.


Knock

Knock has a slightly different spin on Opendoor’s model. Founded by Trulia alumni Sean Black and Jamie Glenn, the pair were looking for a way to radically change the way Americans sell their homes. Much like Opendoor, Knock streamlines the selling process, allowing sellers to be paid almost immediately.

App – Knock.com

However, unlike Opendoor, Knock charges a 6% fee, the same as a seller would pay a full service real estate agent. They send over an expert to conduct a 200-point inspection on the home. Knock will pay for repairs to make it market-ready. They then put the house on the MLS, Zillow, Trulia and all of the major home listing portals. If the home doesn’t sell within 6-weeks, Knock offers the seller a guaranteed price – somewhat below the market value – and, assuming the seller accepts the offer, they will buy the home then and there for cash. If, within a year, Knock sells the home for more than what they gave the seller, they will make up the difference.

Knock only accepts between 10% to 20% of the homes that come their way. The 200-point inspection weeds out the duds, including those homes that require too many repairs or ones that can’t be quickly flipped for a profit. This will limit Knock’s downside exposure and, they hope, assure a steady revenue stream.


OfferPad

This startup was founded by two real estate industry veterans, Brian Bair and Jerry Coleman. To date, they have raised $30 million in equity and $230 million in debt financing for OfferPad’s on-demand, tech-enabled, direct-to-consumer platform. OfferPad allows sellers to select their close date and gives the consumer back control over the real estate
process. In fact, they will provide a seller with a price within 24 hours.

Offer calculator – OfferPad

By choosing their closing dates, sellers may in fact save a lot of money (not having to pay two mortgages, fix up their home, etc.) Most importantly, the benefits allow the consumers to not miss out on their dream house. OfferPad also pays for the sellers move within 50 miles. In addition, OfferPad's Instant Access program allows potential buyers to view a prospective home at their own convenience. By accessing a test code in order to gain entry, the program allows potential buyers and agents to skip the hassle of coordinating their often-conflicting schedules, which in turn allows viewing dates and sale closures.

Given the number of markets that OfferPad is in and their robust funding they will give Opendoor and others a run for their money.


Zillow Instant Offers

Zillow’s entry into the growing iBuying market segment is causing quite the rumble among real estate brokers and agents. The company depends on advertising from agents for the vast percentage of their revenue, yet they have ventured into the home buying/selling process, something they had previously said they would never do. Understandably, thousands of agents have registered their displeasure with this move.

Zillow Instant Offers

Tens of thousands have signed a petition condemning Zillow’s move in between buyers, sellers and real estate agents. Zillow claims that Instant Offers is just a test. However, they have partnered with a number of high net worth investors, not to mention OfferPad. It seems they see such promise in the model that they are willing to jeopardize the goodwill they have built among the real estate community to attain a segment of the market.


Redfin Now

Redfin was the first to copy Opendoor, launching its Redfin Now platform in January of 2017 in two California markets. With their successful IPO, Redfin is in a good position to challenge other iBuyer startups because they are active in 80 markets across the U.S.

Redfin Now

Like other companies in the space, Redfin Now streamlines the selling process. For example, a seller can go online and see what the market value is for their home. This price estimate is generated from Redfin’s home pricing algorithm which, they claim, is very accurate. It has to be, otherwise they would lose tons of money or be shunned by sellers who feel their homes are being underpriced.

The seller can then request a formal bid from Redfin. At this point, a Redfin employee will visit the house and do a 30-minute inspection. 24 hours later, a binding bid will be sent to the seller. But, thus far it appears Redfin Now is off to a slow start. According to public records, between January and July of 2017, the company has bought only 6 homes, and has sold 5 of them in the two test market areas. They are hoping to turn this sluggish clip around in the near future.


We Buy Ugly Houses/HomeVestors

While technically not an iBuying tech platform, We Buy Ugly Houses warrants being on this list because they are the granddaddy of the fast cash and close model, tech enabled or not. They cut the path for a new generation of iBuying companies we see on the market today.

Home page – We Buy Ugly Houses

We Buy Ugly Houses were one of the first national companies to offer home sellers quick cash for their homes. They were founded in 1989, twenty years before the iBuying term was coined. Back in the day, before the advent of  home pricing value algorithms, We Buy Ugly Houses’ franchisees would value a home the old-fashion way. They’d pull up the MLS comps and see what comparable homes sold for, and then they’d make the seller a low-ball offer.

That seemed to have worked, because they are now a 45-state franchise group buying more homes, in more markets, than anyone. We Buy Ugly Houses is a subsidiary of HomeVestors of America, one of the top 100 companies in the Dallas, Texas area. Their “ugly” cartoonist caveman-like figure adorns their website and is featured on all of their countless signs and leaflets which clutter intersections across America.

Other iBuying platforms are sure to hit the market soon. Given its initial success, money should be pouring into the category. What prevents many from entering it, however, is the high cost of funding the model. It requires lots of cash to buy large a number of homes outright. Startups need to either raise tons of money or be backstopped by a large private equity firm, a bank, tech VCs or very wealthy uncle.

That seemed to have worked, because they are now a 45-state franchise group buying more homes, in more markets, than anyone. We Buy Ugly Houses is a subsidiary of HomeVestors of America, one of the top 100 companies in the Dallas, Texas area. Their “ugly” cartoonist caveman-like figure adorns their website and is featured on all of their countless signs and leaflets which clutter intersections across America.

Jeff Mindham has written dozens of articles/blogs about real estate for brokers and agents across the U.S. Previously, Jeff worked as the marketing head at a number of real estate tech startups including ForSaleByOwner.com, USRealty.com and Foxtons.com. He was also the Senior Vice President of National Marketing for Prudential Real Estate. Before working in real estate, Jeff was a Senior Account Director at a number of New York’s largest ad agencies including J. Walther Thompson and Saatchi. He holds an M.A. and B.A. degrees from the University of San Francisco.

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