Redfin experimenting with buying homes as-is in SoCal

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paperboyNC

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https://www.ocregister.com/2018/03/05/redfin-keeps-its-startup-vibe/

Interesting tidbit in the linked article. Says it's in the inland empire only.

Thoughts:
-  I assume redfin gets the home show-ready and expects to make enough on the spread to cover carrying costs.
- with such a shortage of sellers, it can give them a leg-up on other brokers
- rising home prices mean that appreciation during the holding period may more than offset carrying costs
- Redfin could take a huge hit if they own hundreds of homes and the market suddenly turns. I'm guessing they would end the program if a market started to swing to a buyer's market (inventory approaching 90 days at a price point)
 
Sounds like they want to bring Opendoor to California.  https://www.opendoor.com/how-it-works

It is basically carmax for houses and makes sense in markets that are pretty consistent.  Not sure how it will do in California where the prices go up way to fast and come down hard during a recession. 
 
It's not new, just louder marketing. There is a time honored sales pitch high income realtors have used for years and it goes like this:

"If I don't sell your home in 30 days, I'll buy it at the price we agree on beforehand".

Which, frankly, is a great hook. Redfin is right in saying there are buyers who prefer less hassle versus highest and best price. Capture that market and you've got a pretty good thing going.

....in a sellers market. Get caught in a slowdown and this sales pitch becomes geometrically expensive with every passing week the home sits on the market. This will be successful, but with Redfin now a public company, they'll need to deliver the goods quickly or Wall Street will punish.

My .02c

SGIP
 
This is also a risk. In a way they are hedging the market.
I?m guessing on the model:
I?ll buy your house for $500k and put in $10k work. Then sell it for $600k or $650k.

 
The point SGIP made about Redfin being a (recent) public company is the crux of it

Redfin stock hasn't done much since IPO last year .  It is also in a sort of no-mans land  stuck somewhere between "tech " and "housing"  and hasn't found a dedicated investor base or or index fund that will consistently use it .  Doesn't leave them much choice -- they have to be a "growth " stock  in absence of any capacity to deliver consistent / large dividends.

Critical will be how they account for these so called home-sale price guarantees on their balance sheet .  This will be one massive deferred liability .

Or could it be a case of -- make some initial mistakes, but fine tune and improve and then eventually create a new large enough market opportunity all for themselves with the hopes that someone (like Berkshire) will take a favorable look upon them ?  Warren Buffet is looking to put his massive tax cut bounty to work via acquisitions but is unable to find targets given expensive  valuations everywhere.
 
fortune11 said:
Critical will be how they account for these so called home-sale price guarantees on their balance sheet .  This will be one massive deferred liability .
Click to expand...

Seems like Redfin will actually have to buy the homes. I wonder how much they'll pay in closing costs?
 
I thought about another angle. Normally a realtor has a hard time earning dual commission because:

- the seller chooses a buyer
- commission is reduced when the same agent reps both sides of a deal

With Redfin now:

- seller no longer chooses a buyer
- Redfin has no obligation to reduce buyer commissions below their pre-agreed buyer rebate

I'm guessing Redfin will either:
- sell most of these homes as pocket listings (create a portion of their website that are exclusives to buyers repped by redfin)
- favor selling to buyers repped by redfin even if a listing does hit the MLS (I don't think there is anything illegal about this?)

Let's say redfin buys a home for $1,000,000 with 7% commission. They pay $930,000 for the home.

If the sell to a buyer with an agent and offer 2.5% commission, redfin gets $975,000.

If the buyer is repped by redfin, redfin gets $995,000
 
paperboyNC said:
fortune11 said:
Critical will be how they account for these so called home-sale price guarantees on their balance sheet .  This will be one massive deferred liability .
Click to expand...

Seems like Redfin will actually have to buy the homes. I wonder how much they'll pay in closing costs?
Click to expand...

this is precisely why it is a deferred liability (accounting terms) -- lets say they sign up 10,000 sellers at 400k each home guaranteed value.   

now all the homes haven't been sold yet and they may sell at a pace of say, 50 or 100 or pick a number , but initially ,

because they have them all signed up ,  the 400k times 10,000 = 4bn liability

offset against the asset value of the homes (redfin estimate?) . now the value of the home can be 4bn , higher than 4bn or less than 4bn -- either way, big balance sheet expansion. 
 
This is such a bad idea...it's basically like MBS but with houses. 

Bad for agents, honest sellers, and buyers...good for dishonest sellers, flippers, and Redfin.
 
I assume flipping/re-selling houses might more profitable than re agent commission.

Also, I?m guessing they don?t make money when home buyers doesn? actually buy a house.

But if Redfin purchase the house and then re-sell they will ?potentially? make more than the typical re commission. Actually they might make money on the commission and selling the house.

That being said, I think Zillow?s model is better. (Advertisement, real estate agent referred, leads, etc..)
 
eyephone said:
I assume flipping/re-selling houses might more profitable than re agent commission.

Also, I?m guessing they don?t make money when home buyers doesn? actually buy a house.

But if Redfin purchase the house and then re-sell they will ?potentially? make more than the typical re commission. Actually they might make money on the commission and selling the house.

That being said, I think Zillow?s model is better. (Advertisement, real estate agent referred, leads, etc..)
Click to expand...

A big ?tell? will be if they decide to keep this on balance sheet or offload the principle risk to someone else

If they offload , then only interested in commission revenue and market share

If retain interest , then also in business of flipping , or what market ppl refer to as ? prop trading ?

Way to go Redfin :)
 
Did anyone click on the Opendoor link?  Don't understand why a bunch of wrong messages about how it is a promise to buy, same as MBS, etc.  Redfin is buying the house outright.  Not a promise, not a way to get listings, a simple and straight up purchase.  Look at Opendoor and that is what they are bringing to SoCal.
 
rkp said:
Did anyone click on the Opendoor link?  Don't understand why a bunch of wrong messages about how it is a promise to buy, same as MBS, etc.  Redfin is buying the house outright.  Not a promise, not a way to get listings, a simple and straight up purchase.  Look at Opendoor and that is what they are bringing to SoCal.
Click to expand...

Seriously some major assumption being made here without actually bothering to read.

Redfin as you said is moving into Opendoor, Zillow Instant Offers, Offerpad territory. There's no reason why they shouldn't if they have the data and capital.

I've had a friend that actually purchased a home acquired and resold by Offerpad before and it went as smooth as it can get. It'll be interesting to see if any of these companies can make headway into Southern California given it's a competitive market with plenty of traditional realtor/brokers at the local level.
 
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