As our real estate market calms down, another big i-Buyer has closed down it’s program of buying homes directly from home sellers, so called iBuying, for instant and usually internet based home buying. Almost one year ago at this time, Zillow announced they would stop buying homes directly from home sellers as their losses from inaccurate pricing nearly put them out of business. Last week Open Door, the largest i-Buyer company, announced almost a $1 Billion, yes Billion, dollar loss in the 3rd quarter of this year. While they are still in business, it isn’t likely they’ll be buying any more homes in the near future as they work to clear their current inventory and get their final losses under control.
Today Glenn Kelman, CEO of Redfin, announced they will stop their direct buying of homes and they will also be laying off 862 more employees as the market correction continues. They’d been curtailing their purchases but now have ceased the program completely. A few weeks back the CEO commented on the market activity and said they were pricing the homes they’d purchased 5% below any comparable property and if the home didn’t sell in the first few days time on the market, they’d start lowering the price until it sold. Not surprising, this strategy gets costly in a hurry.
It’s interesting to me that these Outsider, FinTech companies, looked at Real Estate as a much simpler business and financial “game” to get into while the market was on the upswing. Pointing at veteran agents and brokerages as out of touch with modern times and technology, they would step in and show us “how to do it” in a modern world. Yet only a few months into a market correction they have almost bankrupted themselves and closed down their programs. Redfin is also having to lay off their salaried agents as they aren’t getting the buyer/seller traffic nor customer loyalty that traditional agents and brokerages strive to build their brands and business on. I’m not picking on Redfin, only pointing out that they’ve continually underestimated the complexities of this business and the effort it takes to survive and thrive in good and challenging market conditions. They aren’t alone; many others made these same mistakes and under-estimations.
Those of us in the trenches, especially with longevity in the business, know this is a people business, a customer-centric business where patience, communication, caring and knowledge are required–in good cycles and in downturns. While we have seen market prices dip 20-25% off their peaks of this spring, no one should have expected that pace or pricing to continue. To stabilize would have been a good hope but with such dramatic rises in price points and sale activity we all should have recognized that some reversion was due. We are back to last year’s price points, a time when most of us were pinching ourselves in disbelief; those were record high levels as well, so this isn’t such horrible news. We likely have a bit more downturn to endure as interest rates continue to be at near 20 year highs, but it’s not likely we see pricing get much below early 2021 levels.
The FinTecch companies came in, along with other Wall Street outsiders, and drove up pricing with their i-Buying programs and are now accelerating the decline as they attempt to dump their inventory, take their losses and get out of this “simple game”. This isn’t a game. It’s our homes, our security, futures, our retirement planning. Yes, we’re facing some challenges but we are still in a quite active market where reasonable returns on your investment can be expected and future plans can be built upon. Let me know if you need some experienced guidance and calm perspective on how to maneuver in our current conditions. I’d be happy to help you.