SOURCE: Live Mint
2021 Online Real Estate
Real estate 2.0 is still on the verge of causing disruption.
The past few years have seen a lot of progress in an industry that has traditionally relied on a paper-intensive, time-consuming process of buying and selling homes. We can now find out how much a house is worth in one click, take a virtual tour of it in a few clicks, and sell it in a few more. The promise is evident in the influx of public companies tackling automated home flipping, such as Opendoor and Offerpad, or attempting to improve the fragmented brokerage model, such as Compass.
Back in 2005, Zillow CEO Rich Barton and his co-founders realised that people weren’t ready to buy and sell homes electronically on demand. However, 14 years later, with most real-estate transactions still involving a human agent, Zillow bet that a growing population of consumers were finally ready to embrace big change with iBuying.
The rise of remote work made Zillow and other real estate technology firms look smart last year. Investors began to believe that the pandemic was exactly what the industry needed to undergo a massive transformation. Zillow stock soared nearly 700 percent from mid-March 2020 to mid-March 2021, more than 2.5 times the rise of Zoom Video Communications.
However, as vaccination rates rise and workers return to work, investors are beginning to lose faith. In less than three months, Zillow shares have lost 43% of their value, while Opendoor shares have lost more than 50% of their value from this year’s highs. Compass, which went public in April, is now worth less than it was following its most recent private round in 2019.
According to Mike DelPrete, a scholar-in-residence on real estate technology at the University of Colorado Boulder, Zillow has made a profit for three quarters in a row, thanks to its legacy Premier Agent business. With or without iBuying technology, the segment would have benefited from the pandemic-driven interest in home buying and selling.
iBuying is growing, but at a slow and expensive pace in the early stages. Mr. Barton of Zillow has emphasised the importance of fair pricing for consumers in order to scale the business. Zillow’s strong unit economics on homes in the first quarter “are not what our goal is,” he said on the company’s quarterly conference call, implying that take rates will drop in the future. In the first quarter, Zillow’s iBuying division lost money. And the company now expects the segment’s adjusted losses before earnings, taxes, depreciation, and amortisation to increase by more than 50% sequentially in the second quarter.
The results from Opendoor on Tuesday revealed a similar pattern. Revenue increased by 200 percent in the first quarter compared to the previous quarter, but the company still lost money on an adjusted Ebitda basis. Opendoor said it may not break even despite expected sequential revenue growth of 41% at the midpoint of its guidance for the second quarter. The company has been focusing on rapid market expansion, with plans to enter nine new markets in the second quarter, bringing the total number of markets to 42 by the end of the year.
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