The SPAC trend continues in the US and Chamath Palihapitiya is one of the leading investors with his IPOA, IPOB,… series. The latest Fintech deal was focused on a real estate disruptor in the US, OpenDoor.
With Zillow, being the blue-chip name and already public, I wanted to dig into how OpenDoor`s positioning differs. Technology with all the B2B Software as a Service offerings (Saas) makes it so challenging to create and sustain a moat.
The secret sauce of a fintech business in real estate is not evident because the US real estate market is on the one hand mature but also very fragmented. On top of that, there are several uncertainties and moving pieces of the puzzle due to the current macro-economic environment and the emerging new normal life-style trends.
I listened to Chamath`s pitch and read several Seeking Alpha articles with facts & figures and investment centered opinions on Zillow, Redfin, OpenPad, and OpenDoor.
Real Estate Fintech is focused on (a) digitizing the real estate brokerage processes, (b) creating online platforms to list and facilitate matchmaking of properties, (c) create online platforms that use their balance sheet to buy properties acting as middlemen.
Ibuying is core to Real Estate Fintech. I for Instant.
So sellers can sell their house to an iBuying Fintech without any open houses, brokers, closing. Technology makes the valuation assessment (i.e. the offer) and the platform uses its own capital to buy the property if the seller accepts the offer. I won’t go into discussing the pros and cons for the seller. The only point that I will add to the iBuying process is that the so-called `Knock` which is the when you sell your house to buy a new one elsewhere. The `Knock` feature in the iBuying process, addresses the liquidity problem that is typical when selling to move and buy elsewhere.
OpenDoor is a leading iBuying business, whereas Zillow has been predominantly a match making platform for buyers and sellers. Zillow has only recently increased its iBuying activities (buying properties on its own books).
Redfin is predominantly a digital real estate broker. Its employees are in house real estate agents and therefore have completely different incentives compared to the traditional real estate agents. The latter are typically part time commission-based agents.
Redfin joined forces last year with OpenDoor. Their partnership allows house owners to choose between a real estate agent from Redfin or a no-hassle purely online instant sale from OpenDoor. At the same time, Redfin has a deal with Zillow that allows syndication in certain regions.
The Real Estate Fintech market in the US is extremely fragmented and there are specific regions that have potential growth for iBuying businesses. Ownerly data reports the growth areas (based on 2019 data) and the potential growth areas.
The US real estate market has currently a supply shortage. Demand of course is uncertain. OpenDoor has been a major leader in iBuying (based on 2019 data). Will they be able to maintain that position and capture regional growth areas, while building a sustainable business? It is not clear whether this business model will be the one. Or Zillow`s hybrid approach will be the winner.
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