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Real estate disruptors got disrupted by COVID-19


In a growing number of cities. If you want to sell your house you can get an instant offer from tech enabled companies known as either buyers. If you accept the company may fix up the house a bitch then turn around and sell it within a few months at a tidy profit amidst the pandemic the four biggest I- buyers open doors Zillow offerpad redfin. All temporarily stopped buying houses and March in some cases backing out of deals and laying off staff but now buyers are starting to come back. Mike del Preti has been following this corner of the market. He's a scholar in residence at the Leeds. School of business at the University of Colorado Boulder. Fundamentally I bein. Transfers the risk of selling ones home from the homeowner to the I. Buyer and and somebody needs to pay for that and that's typically the fee that an eye buyer charges of before the pandemic the average fee buyer would charge around seven percent but now the question is are consumers willing to pay ten to twelve percent for the ability to sell their home in this in this environment. I think that's that's one of the big questions that they're going to look. Some housing analysts are expecting home prices to fall this year. What does that mean for this model? If these companies can't buy a house and turn around and sell it at a profit typically an IBM will hold a home for about ninety days So I think the loss of depreciation relatively small but it just goes to the question of fees. If they're going to lose money on that they have to make money somewhere. It's just going to be there. Have to charge higher fees. Do you see all the buyers surviving. I think the IB model will survive. I'm not quite sure of all of the I. Buyers will there's only a very small number of of serious buyers out there zillow offerpad they're not little scrappy. Startups that You don't have a lot of capital these are all very you know. There's a very small number of dig. Well capitalized companies here. So I think you know. They have the runway to To get through this. It's just what the future holds. And that's that's a bit uncertain at this point. How is the pandemic changed? The way they actually do business in terms of buying and selling which has been made harder by social distancing requirements the social distance requirements is. Actually this unintended advantage of the I. Model they can enable consumers to transact the house without interacting with somebody else if you want to buy a home from an eye buyer because they own those homes empty you can go visit them. You can tour it on your own. You don't even have to go with a real estate agent that's an activity that only I- buyers can facilitate just by the nature of their model. So the new programs the ivars rolling out there all about doubling down on that unique competitive advantage they have compared to anybody else in the market when you and I have talked before I think we've both been surprised how much people are willing to pay or give up in terms of profit on their home for convenience and for the certainty of making a sale. How do you think that equation changes in a down economy? I think that the appeal is still there. And if you need to move and you're in kind of a cool market where you don't know how long it's GonNa take to sell your home. The appeal of going to an eye buyer is quite strong and I think folks would be willing to pay for that if that he gets up there too high. It does feel a little bit anti-consumer so that's the billion dollar question. Is What will consumers be willing to pay for that convenience uncertainty in a post on quarrel? Mike del Preti is a scholar in residence at Cu Boulder last year. I- buyers accounted for just one percent of overall home sales according to Red Fin. But del Pretty points out. It's not really a national market yet. The model works best in cities like Phoenix. Las Vegas Charlotte. We're houses or affordable and pretty similar making it easier to price them with an Algorithm Raleigh North Carolina was the top market with. Ibm's making up about eight percent of sales

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