Long Beach, California 2021-12-02 12:00:14 –
In early October, Natalie Hernandez received a text message from a real estate agent with disappointing news.
But this time there was a twist. North Long Beach home sellers didn’t go with another young couple or a typical investor. Instead, Hernandez was defeated by Zillow.
“It was devastating,” Hernandez said in a telephone interview.
She has been on the market for over a year and has made about eight offers. Rejection did not get easier over time.
“It was really hard to get to the point where I even wanted to make an offer to my house,” she said. “I didn’t just go to eight homes and bid on all of them.”
Since then, Hernandez has succeeded in buying another home on North Long Beach. She and her partner received the key earlier this month.
Zillow didn’t work as well, as those who follow real estate news carefully already know. Earlier last month, the company announced that it would close Zillow Offers, a business unit that buys and sells homes like Hernandez wanted.
“We have determined that the unpredictability of home price forecasts far exceeds expectations,” Zillow Group co-founder and CEO Rich Barton said in a statement on November 2. -Seat volatility. “
The news focused on iBuying, a small sector of the residential real estate industry that gained more attention during the COVID-19 pandemic. Over the last decade, companies have been born whose sole business is to buy homes online, buy invisible homes, and resell them for profit. Meanwhile, more established companies in the real estate sector, such as Zillow and Redfin, are expanding their businesses to include iBuying as one of many other services.
The appeal is clear to anyone who wants to sell a home. The iBuying service provides a quote (often offered at a competitive price with what homes can get in the open market), allowing sellers to indicate closure and move-out dates. For many sellers who have used iBuyers, the big attraction is also the fact that anyone can do everything without having to step inside the house. This is a particularly important aspect of the COVID-19 pandemic.
For example, Eva Mannoia sold its five-bedroom, 2.5-bathroom Laguna Hills to iBuying’s Opendoor earlier this year.
Like many other families, Mannoia and her husband have found that they are looking for more space during the public health crisis. But she was wary of the idea that people would travel to her home.
“I have a child with special medical needs,” Mannoia said.
A friend told her about iBuying and she received a quote from Zillow and Opendoor.
“Opendoor [price] It was much higher than Zillow, “she said. “And the process was almost surprisingly easy. We were able to measure it perfectly, and the soul did not step inside.”
When asked if Mannoia was concerned about getting a higher price, she said the Opendoor offer ($ 1.06 million) would allow three different agents to sell their homes in traditional markets. He said it was about 6 orders of magnitude higher than he had estimated.
“It worked very effectively for us. We happened to be in a great market. They wanted inventory. There were few homes available and the size of the home was just right. It was, “she said. “So they were able to give us a very good offer, and in fact, when they sold it, they put it on the market for 45, maybe 60 days, and they were me. I sold it at a cheaper price than I paid for it. “
With Opendoor, Mannoia’s family no longer have to spend that time waiting for their home to sell. They were able to move to a new 4,100-square-foot home in Mission Viejo, with minimal duplication of ownership.
Still, Mannoia said he recognizes that this process may not work for everyone. It’s always possible that a seller who uses iBuyers and doesn’t publish the property is leaving money on the table. This can be a concern for people who want to get the highest possible price.
As part of the obsolescence, iBuying companies identify the everyday hassles people face when selling a home (open house cleaning, staging, tuning). All of this is done before the escrow process and may include major repairs or concessions to the purchaser. system.
“I think consumers want a more secure, hassle-free way to buy, sell and move, regardless of the situation,” said Andy Swanton, Western General Manager of Opendoor. “Opendoor takes complex traditional home transactions, a complex and broken process, making it an easy and convenient way for homeowners to sell their homes.”
“In our view, the final state of the real estate market will be simple, reliable and fast transactions,” Swanton added.
However, iBuying has a long way to go before it has a significant share of home sales.
These transactions accounted for 1% of the total US market in the second quarter of this year, according to an analysis of iBuying purchases from four major companies released by Zillow in September. The Los Angeles-Long Beach-Anaheim market was in line with that number at 1.2%.
Although these shares are small, they have increased significantly from the previous quarter, when iBuyers accounted for 0.6% of home purchases nationwide and 0.8% in the LA region.
At the time, Zillow used this analysis as evidence that iBuying had a strong future.
However, two months later, the company announced a net loss of $ 328 million in the third quarter and decided to abolish the Zillow offer and reduce its workforce by 25%. The financial challenges outlined in the company’s third-quarter report include buying homes at prices higher than they might sell and the capacity to boost the sale of purchased homes in the future. It contained constraints.
In a statement, Zillow co-founder and CEO Burton said, “We have provided sellers with fair market prices from the beginning, but the business will consistently make significant profits. Was also clear. ” “Due to the volatility of price forecasts we have observed and must anticipate now and in the future, this scale requires excessive capital, creates excessive volatility in earnings and balance sheets, and is ultimately much lower. We decided to bring a return. It’s fairer than we imagined. “
So where does this all leave the future for iBuying?
Representatives of other iBuying companies quickly pointed out how their business model differs from that of Zillow.
For example, Chris Edwards is the Southern California Portfolio Manager for Redfin’s iBuying division called Redfin Now. Edwards acknowledged that determining fair market value is much more difficult in some areas than in others — and Redfin Now explains it.
He said Phoenix, where housing is relatively homogeneous, is one of the easy-to-price markets.
“In other markets like Southern California and San Francisco, it’s more difficult to evaluate a home,” Edwards said. “There are various factors such as views, neighborhoods, floor plans, schools, etc. It’s hard because the properties are very different and there are many old houses around here.”
“But I think Redfin’s strength is that it has a real estate expert,” he added. “This entire Redfin Now product is not an automated offer. We have a Redfin Estimate, but we don’t use an algorithm to calculate the offer price. We have an investment specialist and all the offers that come in. We look at and evaluate and come up with a fair market value. By putting our experts at the forefront of the process, we feel we have better control over the offers that come out of the door. “
Edwards, along with the Opendoor and Offerpad people, said they believe their company is ready to succeed with iBuying.
However, Richard K, director of the USC Lusk Center for Real Estate. Green isn’t very sure.
Mr Green said the premise of iBuying is a solid victory for the seller, but then it is unclear how to achieve a sustainable business. Title insurance, property tax, and transfer tax are all additional costs associated with the sale and may reduce your potential rate of return. This assumes that the value of the home will increase.
“But that doesn’t always happen,” Green said. “If you get caught at the wrong time, it can really bite you, and we saw it on Zillow.”
Zillow’s “algorithms are better than other algorithms. There is a lot of information,” Green added. “They’re kind of like. They and Redfin are both very good like Google, constantly improving and constantly upgrading algorithms. If they don’t understand it, others I don’t know how to understand it. “
Still, he said, “To some extent, I’m helping these guys get along because the cost of buying and selling a home with all these fees is ridiculously high.”
But not everyone is rooting for them.
Hernandez of North Long Beach said her experience shows how iBuyers can make the already tough market even more difficult for first-time buyers. Zillow outperforms her and her partner by $ 43,000. That’s a fair amount considering that the couple’s maximum budget is $ 560,000.
Records show that the house sold for $ 585,400 on November 12, and Zestimate (Zillow’s home value algorithm) was $ 552,900.
“I don’t think Zillow and Redfin (iBuyers) are unnecessary players and shouldn’t be on the market,” Hernandez said. “It’s a very competitive housing market. I’ve already been beaten by regular investors and suburban buyers, so Zillow accounts for more than 2% of sales, even if they don’t control it. Even if you don’t manage it, it causes home prices … I think it will rise unnecessarily. “
However, USC’s Green states that it has heard the discussion, and the data does not support it.
“It uses anecdotes to draw conclusions that people are always doing,” he said. It’s like saying, “I have cancer and there is a transmission box next to it, so the transmission box may have caused the cancer.” But when really systematic research is done: No, they don’t cause cancer. “
Still, Green said he understood the urge.
“It’s hard for buyers to get into the market right now, so they’re looking for villains,” he said. “If they want a villain, I wouldn’t call it a villain, but the 2.5% mortgage rate explains a lot about why the market looks like that.”
“The mortgage money is free for now because the expected inflation rate and the mortgage rate are about the same,” Green continued. “Money is free, so it’s no wonder that many people want to buy it.”
iBuyers may make a difference at an anecdotal level, but while it’s a one-time sale like the house Hernandez tried to buy, Green has a very small overall market share and a business model. Said it was very sparse. “Very” in the big picture of real estate.
However, for Hernandez, these anecdotal one-off sales are still worrisome.
“It’s important to admit, because it has a very local effect,” she said. “People see it in the news and they are like” Oh, well, who is really affected by it? ” “
“It’s really happening in North Long Beach,” Hernandez said. “It’s important when it’s in our neighborhood.”