Zillow was recently brought up as a company that could see huge growth as a buyer and seller of real estate in the new era with a totally new model disrupting the traditional 6% commission and commission based realtors.
Redfin is another in this space. They are buying houses offering 7% off (either appraisal value or something else not sure). But the discount could be immaterial if the home selling process is immediate and simplified compared to getting only 1% more after paying 6% tonrealtors.
I’m it they compares offer values between open door, Zillow. And Redfin. Zillow offered the highest.
So, is this disruption of the real estate industry with this new way of buying and selling houses just a race to the bottom? Just sell to who offers more?
As warren Buffett says don’t confuse a growing industry with a profitable one. Is that what’s happening here? Razor thin margins and a race to the bottom until one blows up in a real estate market decline?
Interesting space but the advantage can’t just be paying more.
Agree completely. As an owner of a brokerage I’m at ground zero.
Plenty of Wall Street money pouring into this space lately. It will be interesting to see what happens when the real estate market slows and competition compresses margins - meanwhile Realtors are also competing with lower commissions and set fees. Some are offering instant purchase options of their own.
A low margin, asset heavy business is not likely to be rewarded with high multiples. The money used to inventory and turn these homes is going to become more expensive one way or another further shrinking margins.
I think these programs are here to stay, but I’m not sure they will ever dominate the market.
Indecently, one of my agents recently completed a transaction for a client who was originally under contract with Opendoor. The client came to realize the real, total cost of the “convenience” Opendoor offered (they wanted him to replace carpet, paint and install a new roof). When all was said and done he cancelled the purchase contract, listed the home, sold it, and collected net proceeds more than $25,000 more than he would have with Opendoor. This was on a $145,000 house.
The winner will be the consumer as the cost of selling a home will finally be reduced. It may seem odd, but I’m all for that.
The age old home selling/buying process whereby everyone uses agents and MLS services to market properties could be dying if REX has anything to do with it or is a sign of changes coming to the Real Estate Industry. The company was started in 2015 and is now in 12 states including the following:
Arizona
California
Colorado
Florida
Illinois
New York
New Jersey
Oregon
Pennsylvania
Texas
Virginia
Washington DC
REX uses salaried sales teams and charges 2% commission. The company uses AI to sell homes and does not use MLS. For every 50 homes it sells it donates one to a family that doesn’t have one.
REX is not doing anything anyone else couldn’t do and by eliminating use of the local MLS systems
they eliminate a huge operating cost and undercut licensed agents of the typical brokerage companies. All thanks to the use of Social Media and AI. More to the point, the MLS system is the glue that holds the brokerage companies together. Eliminate it by shifting successfully to AI and social media and an entire industry gets turned on its head.
Changes are coming to the Real Estate Industry and if REX is any indicator of whats to come then the winners will be home owners across the country that will save Trillions in 6-7% commission fees. And…as mentioned earlier: anything one company can do others can do.