In Part 2 of this episode, host Maiclaire Bolton Smith continues the conversation with CoreLogic’s real estate tech solutions expert Mark Weaver to discuss what the market tipping point for the success of iBuyers will be and how much people will be willing to pay for the sake of convenience.

Find full episodes in our podcast archive here: https://clgx.co/3zqhBZt

In this episode:

3:57 – What is the balance between convenience and profit?

6:00 – What is one single "point" so important? Hint: It’s a convenient insurance policy

7:52 – Who pays the convenience fee? The buyer or the seller?

9:13 – Will the iBuyer market bounce back?

11:02 – Optimize your business and meet us at MBA in Orlando

11:19 – How will major PropTech technologies evolve over the next couple of years?

Katia Oloy:

Welcome back to part two of our mini-series on iBuying. If you missed part one, I do recommend going back and catching up on last week's episode. To recap, we introduced our guest, Mark Weaver, and talked about how the iBuying and power buying models are really being tested by current market dynamics. This week, we're going to find out how our current market cycle will influence the future of these business models.

Maiclaire Bolton Smith:

I guess if we look too at trends, have we seen any recent trends that traditional home buyers are looking at when deciding where they want to purchase with iBuyers?

Mark Weaver:

No. I mean, to your point, there is going to be, irrespective of the market, right, booming, appreciating, softening, declining. I believe there's always going to be a consumer demand and need for the services that iBuyers offer, which is basically flexibility and certainty around the transaction and, therefore, when I move.

MBS:

Right.

MW:

I don't think that's going away anytime soon. The question is what is the price the consumer is prepared to pay for that convenience and certainty in differing market conditions? Again, much easier in an upward-appreciating market than in a softening, decelerating or downward market. And at what cost? Now, the interesting thing is some people compare the iBuying model to effectively the CarMax model as it pertains to cars, right?

MBS:

Ah, okay.

MW:

If you think about it, consumers, because of the speed and flexibility when you are buying a new car, you need to trade in your old car, maybe you've rolled some of the proceeds or equity you've got in your existing vehicle into the new vehicle. We, as consumers, we know that when we trade in the vehicle, we're paying a significant premium for the convenience of that as part of the transaction. But we just do it because it's much, much easier than trying to list it ourselves and sell it privately. So, that may be a relevant example insofar as illustrating my point that there's always going to be a demand, for certain consumers, to want that flexibility and certainty around a home transaction to embrace the iBuying model.

KO:

MW:

And if the iBuyers or when the iBuyers can learn how to operate successfully in all market conditions, that equilibrium will establish itself and these models will continue.

MBS:

Yeah, I think that's an important thing because it is that, what is that balance point? The whole demand and desire of an iBuyer is convenience for many people. I know that was what was driving me is I just wanted to be able to sell this house without having to go through listing it, and I wanted a timeline to be on my timeline, not on when it would actually sell. So, I guess what is that balance point between convenience and profit? And where do you think we are in this current marketplace of where people are?

MW:

Yeah, again, I think a lot of it is ultimately down to personal consumer preference, right? In terms of, you pretty much almost it sounds like at all costs, wanting to go with speed, convenience and certainty rather than go through the traditional process of listing it. I myself, a couple of years ago went through similar contemplations, right? Where at the start of the crazy market, coming out of the summer of Covid, I had to sell my house to buy my next house. I did it the old-fashioned, traditional way. I had an up leg, I had a down leg. There were four real estate agents, effectively, in the mix of those transactions, there were two escrow offices. I had to sell my home in a certain timeframe to release the proceeds to buy my up leg, and it was a very stressful, uncertain time.

And looking backwards — because there did almost have to be planetary alignment for that transaction to close on time and everything to fall in place because of all the different constituents involved and the sequence that everything happened to land — if I had to do it again in similar market circumstances, I would probably be quite happy paying an additional point or two out of my proceeds to have that degree of confidence and certainty that those transactions would all complete and close on time.

MBS:

Sure. Yeah. I can absolutely see the desire of all of that being where we are right now to trying to buy a new home and finding a home, but knowing that this is now going to be contingent on us selling our home and are the homeowners going to give up on us if it takes too long? And this market. We have no control over how long it will take to sell our house and just have to have faith in the fact that it will sell and we will get a reasonable value for it given the current market. So , the desire for the simplicity and the removing a lot of the stress like you talked about, I can see that really being desirable. But you were talking about points. Do you want to just define what you mean by that? I think we're talking about interest rate points.

MW:

We're actually talking about percentage of proceeds a consumer would happily surrender some of the net proceeds, percentage points of the proceeds.

MBS:

Gotcha.

MW:

If it meant that they could secure and guarantee the convenience of the transaction closing on time.

MBS:

Gotcha.

MW:

So typically in a real estate transaction, normally it's been six points. A seller pays six points, six percentage points of the gross transaction value, 3% goes to the buying agent, 3% goes to the selling agent there or thereabouts. Recently in the market we just come out, it was more like five points, two and a half, two and a half. But that's the cost of the transaction to the seller, right? Five points. When I spoke about that additional point or couple of points, what I was referring to is, so now as a seller, it's no longer going to cost me 5% on a million-dollar home. Typically, it's going to cost me $50k to sell it. That's my five points. It's going to what it's cost me to inject some of the certainty around iBuying or power buying into it. I'm now going to surrender another one or two points into it.

So instead of costing me 5% of a million, it's going to cost me 7% of a million because, and that's my convenience fee. That's the additional premium I'm paying. So instead of paying $50k out of my net proceeds, I'm going to be paying $70k out of my net proceeds. But that was buying me the certainty of the transaction. In an upward-appreciating market, me as a buyer in the situation that I was in, up leg, down legs, da da da.

MBS:

Yeah.

MW:

I would happily have paid the convenience to make sure that planetary alignment happened and my next deal closed. So that's in an upward-appreciating market. The buyer's going to pay that because they want to move into their dream home on time. The seller knows that if my deal falls out of bed, there's 10 other people standing in line that will take my place. So they don't need to pay for convenience because the market's going to give them convenience. Me as the buyer, I want to be in a whole position. Now in the current market that we're in, where it's a buyer's market now, but me as a seller, I might want to pay an additional percentage point to make sure that this guy that says he is going to buy my house, will buy my house. And if he doesn't

MBS:

Ah

MW:

The iBuyer will, or the power buyer will. So effectively think about it, and in either context, think about it as an insurance policy. In my case as a buyer wanting to move to my dream home up there, I was paying that additional one or two points for that insurance policy that I'm definitely moving on time into this house. I'm locking it in. And at the same time, in this current market where there's lots of risk as a seller that my buyer's going to fall out of bed, their financing's going to fall through, they're going to change their mind. I'm happy to pay an additional one or two percentage points of the gross selling price to make sure that this thing actually closes and I get out of this house.

MBS:

But in this current market, just the value is not there with iBuyers like it was before. Do you think it'll ever bounce back? Do you think it is tied to the housing trends and the housing market and if we get to a place where houses are, I don't know if we'll get to skyrocketing housing values in the next few days or weeks or months, but yeah, what do you think it's going to take for the market to turn around?

MW:

Well, I mean this industry is, and always has been cyclical. So you need to have a business that can survive and thrive across all cycles of the market. And right now we're looking at the direct implications of some of these businesses that were born in the upward appreciating market when there was plenty of venture capital around to figure out how they make it across all different market cycles. The one thing that I will say, generally, is that when Silicon Valley and Wall Street are involved, and both these groups are involved in these business models. If anyone's going to figure out a way how to make these business models sustainable and acceptable to consumers across all market cycles, it's those two groups, right?

MBS:

Ah, gotcha.

MW:

And we're already seeing Opendoor recently announced some market pivots and a CEO change as they look to evolve their iBuying model to work in this market. Opendoor, it sounds like they're going through similar contemplation. So, the thing that I will say — like I say with Silicon Valley and Wall Street having their fingerprints all over this segment of the market, they're going to optimize how they figure this thing out and find a way through it.

MBS:

Sure. Yeah. They always seem to find a way, don't they?

KO:

Speaking of optimization in this market, if you're looking to talk to some experts in what is happening in the property market today, stop by the MBA Servicing Solutions Conference and Expo in sunny Orlando, Florida, and speak with us. We'll be there later this month from February 21-24. See you there.

MBS:

And I guess on that note, just kind of to wrap up today. So if we could look into a crystal ball and think of what the future might look like, how do you think major PropTech technologies will evolve in the next couple of years, and what might things look like?

MW:

Sure. So I think we're going to see probably less focus and obsession with the power buying and the iBuying model as all these market dynamics play out.

MBS:

Okay.

MW:

I think we're going to see an increased focus on other models of PropTech, like shared ownership, down payment assistance, some of these fractional ownership programs that kind of democratize access to SFR investing. And despite the venture slowdown and the public markets softening, there's still plenty of opportunistic capital from the buy side that wants to procure single-family homes at scale. There's still a lot of Wall Street capital out there, even in this market cycle that they want to allocate to single-family homes in the U.S. real estate market. So there's going to be a lot to come in PropTech over the next few years. Definitely a diversity of more business models with more focus on some of the non-iBuying and power buying. But PropTech is here to stay, and it's going to be interesting to see how everything plays out across this coming market cycle.

MBS:

I love that. Thanks so much, Mark. One thing before I let you go, SFR investing, you mentioned. Single-family residential, is that correct?

MW:

That's exactly right.

MBS:

Perfect. Mark, thank you so much for coming back so soon on Core Conversations. I have a feeling you're going to be a favorite guest. We will very likely get you back again. Thrilled to have you here. Thank you so much for joining me on Core Conversations: A CoreLogic podcast.

MW:

Pleasure. Lovely to be here.

MBS:

Okay. And thank you for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life: producer, Jessi Devenyns, editor and sound engineer, Romie Aromin, our new facts guru, Katia Oloy, and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.