Valuations, such as that ascribed to Opendoor by SoftBank, are based on the assumption that iBuying operations advance the technology and antiquated nature of the real estate sales process. What if the same flawed thinking that saw WeWork valued at multiples far higher is at play here?

As the $47 billion IPO of WeWork, continued to falter Tuesday with the news that its founder Adam Neumann was stepping down as CEO, attention shifted to the other real estate companies funded by its lead investor SoftBank.

Of particular interest to many real estate agents is the future of another SoftBank unicorn, Opendoor.

Opendoor, along with its publicly traded rival Zillow, is a leading iBuyer — a much hyped new breed of real estate company looking to marry tech and real estate together to create a streamlined sales experience for the public.

Its recent funding round saw Opendoor valued at $3.8 billion with a significant tranche of those funds coming from SoftBank.

As iBuyers have gained in popularity, with the media, venture capital investors and some consumers, much ink has been spilt discussing how they would increasingly marginalize the agent.

The theory went that a combination of massive funding (Zillow, Opendoor and others are pouring money into iBuying operations), advancing technology and the antiquated nature of the real estate sales process would lead to iBuyers claiming significant sales market share in the months and years ahead.

Valuations, such as that ascribed to Opendoor, are seemingly based, in part, on these assumptions.

But what if they are wrong? What if the same flawed thinking that saw WeWork valued at multiples far higher than its already publicly traded rival IWG is in play here? I believe that could be the case.

I think that there is a real possibility that SoftBank has made some significantly flawed assumptions in a real estate investment once again.

Part of my concern is based around this terrific piece from Mike DelPrete on the valuation challenges at Opendoor (and Compass).

However, my concerns for SoftBank (and thus Opendoor) go beyond valuations.

SoftBank, Opendoor and, for that matter, Zillow and a raft of other iBuyers, seem to have based their strategy, in part, on agents and the real estate sales industry remaining static.

Any rigorous analysis of agents should have noted that for 10-plus years they have collectively shown a willingness to adopt technology and adapt to a changing environment to stave off disruption. The same response can be witnessed, in real time, as agents and their brokerages respond to iBuyers.

They have moved relatively quickly to respond to iBuyers in ways that suggest that the impact of this new approach will be more marginal than once assumed, which has clear implications for entities like SoftBank that are spending big to disrupt an entire industry.

The response to iBuyers, from agents and brokerages has been diverse but includes the following tactics:

  • Replication: Almost every good agent has access to individuals who will pay a below market price for a fast purchase on a house, so perhaps it is not a surprise that some agents are setting up their own iBuyer companies; it gives them another tool to better serve their clients.
  • Collaboration: Keller Williams Realty (the brokerage I am affiliated with) announced a partnership with Offerpad in August that would see the iBuyer fund certain Keller Williams iBuyer deals. The partnership is evolving and expanding, which is a win-win for both entities. Realogy is another brokerage that is looking to collaborate with specific iBuyers to keep its agents at the center of the transaction.
  • Enhanced fiduciary role: Agents are looking to rapidly advance their own expertise in the iBuying space to act as an effective fiduciary for their sellers by requesting and analyzing a range of iBuyer offers. The knowledgeable agent can show the seller all their options across the iBuyer, private sale and open market.

These tactics, and others, suggest that the real estate agent is looking to adapt to the possible threat of the iBuyer by evolving in a manner that would ensure they remain at the center of the transaction, as the sellers’ trusted fiduciary.

If agents are able to do this successfully, we will likely see a fragmented iBuyer field, as part of a broader and complex sales environment. Such an outcome would be good for the consumer, but perhaps not as desirable to entities such as SoftBank that, it seems, need a more significant market share to justify recent iBuyer bets it has made.

Raj Purohit is the associate broker with Keller Williams Capital Properties in Washington, D.C. Follow him on Twitter or Facebook.

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