Last year, nearly half of Zillow’s total revenue came from its Homes segment, which houses iBuying.
Photo: Chris Goodney/Bloomberg NewsInvestors fell in and out of love with online real-estate agents’ iBuying initiatives last year and the business briefly ground to a halt due to the pandemic. The recent rebound in their share prices—Redfin and Zillow are up by 135% and 80% quarter-to-date, respectively—may be more than a relief rally. The automated home-flipping business is beginning to look strategic rather than speculative.
Last year, nearly half of Zillow’s total revenue came from its Homes segment, which houses iBuying, while Redfin did just under a third of its revenue in the business. Direct profits have been hard to come by but may not be the goal. One sign comes from unlisted pure-play iBuyers such as Opendoor and Offerpad that are diversifying into real-estate services.
Redfin and Zillow have continued to foster their legacy businesses, real-estate brokerage services and agent advertising, respectively. Redfin Chief Executive Glenn Kelman said last year in an interview with real-estate news source Inman that strictly offering iBuying would be a losing proposition both because of market risks and because giving homeowners a take-it-or-leave-it option would mean missing out on significant business.
Now it seems like pure play iBuyers are finally waking up to the missed opportunity. Over the last several weeks, both Opendoor and Offerpad launched traditional brokerage listing services alongside their own instant offers. These companies say the move is a natural step toward broadening their market opportunities much like Zillow and Redfin have done. But it also bolsters the case that the age-old agent selling model remains intact for a reason.
Real-estate tech strategist Mike DelPrete called the addition of traditional listings to pure players’ services “the biggest evolution of the iBuyer business model” thus far. The move comes just weeks after the coronavirus rendered the iBuying business temporarily untenable due to market uncertainty, hitting pure players especially hard. Both Offerpad and Opendoor say the addition of traditional listings had been in the works well before the pandemic hit, but the shutdown has no doubt underscored the value of diversification.
Even as Zillow scaled up its own iBuying business last year, its fourth-quarter results show it had been making offers on only about 2.5% of requests. The company says that is both because customers often come to them at the start of their sale process before they are ready to pull the trigger and because their homes don’t always meet Zillow’s own buying criteria. In the end, a large percentage of those turned away end up selling their homes via a traditional listing.
That iBuying pure players are finally embracing traditional listings underscores something Redfin and Zillow have been saying all along: The real value in iBuying isn’t in the business itself but as a tool for identifying homeowners with intent to sell in any capacity.
A computerized buyer is just one way to service them.
Write to Laura Forman at laura.forman@wsj.com
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