By Nicole Friedman
Ripple effects from the coronavirus pandemic are disrupting the
burgeoning industry of online all-cash home sales known as iBuying,
setting up the business's first major test in its brief
history.
The four biggest iBuyers -- Opendoor Labs Inc., Zillow Group
Inc., Offerpad LLC and Redfin Corp. -- each stopped buying homes in
late March with sales in the housing market expected to slow
sharply this year. In some cases, these companies are backing out
from pending home purchases and forfeiting deposits.
iBuyers buy homes, do minor renovations and quickly resell the
properties, using algorithms to help identify and price homes. The
industry has grown rapidly since Opendoor was launched in 2014,
with iBuyers accounting for about 1% of home sales across 200 U.S.
metro areas in 2019, up from 0.6% the prior year, according to
Redfin.
Skeptics have questioned whether the iBuying model can survive a
housing downturn. These programs make it easier for homeowners to
sell quickly, but the risk is that the companies could end up with
a large inventory of unsold homes if market conditions change.
iBuyers have said in the past that they would be able to see a
downturn coming and change their pricing accordingly. They
suggested that geographic diversification would offer a hedge
against a downturn in certain regions, said Mike DelPrete, a
scholar in residence at the University of Colorado Boulder who
studies iBuyers.
But the pandemic arrived suddenly and could affect every housing
market, he said. "If you want to stress test the businesses, this
is it," he said. "I don't know if all the iBuyers will
survive."
In the latest sign of stress, Redfin said Tuesday it would lay
off or furlough about 40% of its agents and cut salaries for
headquarters staff. Last week, Redfin sold $110 million in common
and preferred stock to Durable Capital Partners LP.
The four biggest iBuyers bought 4,259 homes in the first quarter
of the year, according to preliminary data analyzed by Attom Data
Solutions, down from 7,865 home purchases in the fourth quarter of
2019.
iBuyers had planned to expand to new cities this year.
But "when you have cities that are shutting down where commerce
has come to almost a complete halt, you know that you can't predict
the market for selling a house," Redfin Chief Executive Glenn
Kelman said in an interview.
"In the absence of that predictability, it becomes very easy to
decide that you're not going to buy houses," he added.
Redfin owned homes valued at $68 million as of March 26, with
$23 million of that under contract to be sold. Redfin also had
contracts pending on that date to buy a further $7 million of
homes, the company said.
Opendoor and Offerpad declined to comment on how many houses
they currently own. Opendoor said half of its houses are now under
contract to be sold.
Zillow Chief Executive Rich Barton said on a conference call
last month that the company owned 1,859 homes valued at $589
million as of March 19, down from 2,109 homes valued at $645
million at the end of February.
"We intend to unpause acquisitions...as soon as the health
situation stabilizes and we feel the housing market is
functioning," he said.
Zillow last month offered a discount to agents who pay Zillow to
connect with prospective homebuyers, which the company expects to
lower its annual revenue by $40 million to $50 million.
Courtney Snodgrass, who lives in a suburb of Nashville, Tenn.,
said Zillow backed out of its offer to buy her home on March 24, a
few weeks before the deal was set to close. In addition to
forfeiting its $1,000 deposit, Zillow paid her $4,000, she
said.
Ms. Snodgrass and her husband canceled their own pending home
purchase, and now they plan to renovate their current home instead
of moving. If they do sell in the future, they plan to avoid
iBuyers, she said.
iBuying is "an easier way to sell...but the old saying that
sometimes something is too good to be true definitely played out,"
she said. "I think there's less risk associated with selling
traditionally than iBuying."
A Zillow spokesman said the canceled purchase "was driven by
Covid-19 health concerns and resulting market uncertainty."
Covid-19 is the disease caused by the new coronavirus.
Some homeowners have had a better recent experience. Tony Patti
and Leslie Weiss of San Diego, who are under contract to buy a
house from Zillow later this month, said if the home purchase was
reliant on the seller finding a new house, "in an environment like
this, I feel like it would be next to impossible to close that
deal," Mr. Patti said. He likes that the house is vacant, too,
which he said could make it safer for inspectors or movers to
visit.
Keller Williams' iBuying operation, which operates in 14
markets, hasn't stopped buying homes during the pandemic, said
Gayln Ziegler, chief operating officer of Keller Offers.
"Our goal is to focus on what we can control," she said.
"Instead of just throwing our hands in the air and saying, 'The
market is uncertain and we don't want to risk anything right now.'
"
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
April 09, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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