Home Flipping Becomes Virtual Reality --- Investors must ask whether scalability and sustainability of online real-estate platforms are mutually exclusive

"You can now sell your home online as quickly as you can sell a pair of shoes on eBay or Poshmark. But what is the return policy?

The pandemic bolstered popular concepts like online shopping. But it showed how more fringe applications could have mainstream use. We now know a workforce can function remotely, though the risk to companies is that there are downstream costs to that convenience. A similar risk is increasingly being taken by online real-estate platforms using computerized algorithms to automate a nearly $2 trillion industry with just about 1% online penetration today. The question is whether fortune will favor the bold.

The concept of using technology to flip homes was initially met with skepticism. On top of the financial risk of holding a fortune in inventory on the balance sheet, there was the open question of whether consumers would trust such a process with their most valuable possessions. When Zillow said it was going big on iBuying in 2019, roughly 90% of home buyers and sellers were still using an agent.

The pandemic seems to have dispelled some of those doubts as technology became a necessity rather than an option in many cases. In the end, things like virtual showings proved to be not only viable but often preferable, enabling consumers to avoid the hassle and cost of an open house.

After pausing their operations in the spring of last year, iBuyers have been on a buying spree, enabled by increasingly virtual capabilities. Offerpad, whose merger with a special-purpose acquisition company is expected to close this quarter, bought over 2,000 homes in the second quarter. Zillow said its home purchases more than doubled on a sequential basis in the second quarter, and Redfin said it bought 40% more homes in the second quarter than it did in all of 2020. Trumping them all, market leader Opendoor said it purchased nearly 8,500 homes in the second quarter and ended the period with contracts to acquire 8,158 more, representing $3 billion in value.

IBuyers like to say they aren't competing against each other but rather the traditional real-estate agent model. But like food delivery or other industries with several players offering similar products, the most pervasive brand is often the most likely to be used. For iBuyers, being in the right place at the right time is especially critical: You eat multiple meals a day, but you might sell a home once a decade.

Opendoor is now in 41 markets -- more than double that of Offerpad -- viewing the diversity as both an opportunity and a hedge. If demand for employment suddenly changes in one city, for example, it wants to be in the city that may be gaining traction.

To speed up, it is paring down the need for physical boots on the ground by building up technology. The company said it was able to launch this year in 18 markets in just five months, six of those in just one day. Where it used to hire several people in every city, the company said it can now launch in a market with as little as one person on the ground, using a growing repository of centralized technology to fill in the gaps.

It is so confident in this technology that it no longer has to see a home live -- even virtually -- before it will spend hundreds of thousands of dollars on it. Last Tuesday, the company said it is offering homeowners to whom it has made preliminary offers the option to send over photos and videos of their home, avoiding even a virtual live walk-through. It is a process the company boasts could be done in about 10 minutes of consumers' time.

While capital is likely a limitation, not every iBuyer has the same game plan. By comparison, Offerpad seems to be more focused on nailing the cities it is already in. It is growing its own technological footprint, but touts its real-estate expertise on the ground as a key differentiator as it expands. Its investor presentations include before and after photos of renovations and profile on average how much it spends and how much time the renovation can take. Opendoor's presentations offer little in the way of that kind of detail. But the company said it is seeing the same quality of outcomes using its centralized technology today as it was in its early days with more physical help.

As iBuyers continue to grow and the market inevitably tops out, it is time to start asking whether scalability and sustainability are mutually exclusive and, if so, which is more important.” [1]

1. Home Flipping Becomes Virtual Reality --- Investors must ask whether scalability and sustainability of online real-estate platforms are mutually exclusive

Forman, Laura.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Aug 2021: B.10.