Technology is transforming real estate and iBuying is taking center stage, according to Daniel Laboe, an analyst at Zacks, an investment research firm. Laboe believes that could have an adverse impact on traditional real estate companies like Coldwell Banker and Sotheby’s International Realty but it could make or break real estate tech giant Zillow.
“Decreasing interest rates and unemployment’s levels at a half-century low makes for an attractive mix for US residential real estate,” Laboe writes. “Investors are buying up U.S. real estate like hot cakes, making up 11 percent of total home sales in 2018, the highest on record, according to [Wall Street Journal].”
As the tech world encroaches into the real estate space – and more and more venture capital money flows with it – the industry is beginning to undergo a transformation, according to Laboe.
“The tech world has been nudging its way into the residential real estate market for some time with virtual open houses, mortgages closings with just the press of your finger, and now real estate agents are being outsourced by apps,” Laboe writes. “Zillow, the most popular real estate website for those individuals looking to lease or buy homes, is now digitally flipping houses.”
Zillow Offers, which was launched in April 2018, has scaled up quickly. The company is gaining ground on rival Opendoor in sheer volume of listings and has already reached its 11th market, with eyes on 20 by the end of the first quarter of 2020.
CEO Rich Barton has laid out ambitious goals for the platform. In the next three to five years, Zillow plans to purchase an average of 5,000 homes per month for all cash from people around the country, and the company’s Homes division that oversees Zillow Offers will bring in expected annualized revenue of about $20 billion.
Laboe believes the company’s shift from its top revenue driver being Premier Agent, to one that is driven by capital intensive investments, is risky and speculative move.
“Zillow’s iBuying strategy is precarious for a firm that’s prior revenue driver was low capital advertising,” Laboe said. “The exposure that Zillow already has in the real estate sector gives them an enormous leg up on competitors like Opendoor.”
“The mere website traffic should be enough to keep Zillow Offers afloat as long as the real estate market does,” Laboe added. “The razor-thin margins in iBuying are going to make or break Zillow Group.”
Redfin, Laboe believes, is a brokerage that has been able to pivot to the shifting consumer by working with potential buyers and sellers online.
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