The Hot Property That’s Next on Tech’s Agenda: Real Estate
nytimes.comIt will be interesting to see if any of this goes anywhere. Real Estate is one of the tougher markets to really disrupt because of the amount of licensing, regulation and the fact that the local MLS is usually controlled by the local real estate group.
You have to pay a fee to join each one. I've heard a lot of tech people clamoring for a central MLS service but the local groups are well aware that controlling the listings protects the entire field.
There's so many hands in the pot from banks to inspectors to attorneys to insurance before you even get into the liability insurance that each one of them (and the realtors) have to carry for these transactions...since there are so many opportunities to get sued.
It's not going to be an easy nut to crack, but it should be fun to watch all this money try.
I just sold a house by myself and the line of people with their hand out is infuriating. Even more frustrating, for providing their automated gesture or nod of a service, they want a PERCENTAGE.
For example, to just do all the paperwork, a realtor might offer a "transaction only" service for "only" 1%. Regardless of property value, it's the same paperwork and usually done by a clerk. I instead went to an honest (!) attorney, flat rate for his time, it was around $1500 to do the same task. He reviewed contracts, attended closing, gave advice. Easy, done.
I think there's so much monetary friction from these parasites that any automation and fair pricing will erase whole professions.
You don't need an "honest" attorney to get that number. It's normal for RE attorneys to get a flat-ish fee, and RE agents to pull a percentage.
And RE attorneys usually make <2k/deal, with a lot of that being add-ons from things like owning their own title company. You paid market rate, as best as I can tell.
And all paperwork and contracts are ultimately done by the lawyer. I have honest to goodness no idea why you involved a realtor at all if you were selling it by yourself. Their only job is to attract prospective buyers (read as: list your house on the MLS).
I didn't involve a realtor, I used the attorney. I just mentioned the realtor's price as comparison.
As a side note, they buyer _did_ have a realtor, who was notably annoyed that they were not dealing with a professional, but grudgingly agreed to take _their_ percentage. So I saved on mine at least.
Several providers would not talk to me at all, for example the home warranty provider needed some BS realtor ID to sell their product to you. I whined loud enough and they finally agreed to take my money. I think their system is kickback based and they didn't know how to make a sale without sending someone the gratuity.
> And all paperwork and contracts are ultimately done by the lawyer. I have honest to goodness no idea why you involved a realtor at all if you were selling it by yourself. Their only job is to attract prospective buyers (read as: list your house on the MLS).
Also handle things like showings, no?
True. And showings.
There will be a lot of pushback but it's also really valuable. Just based on my experience in NYC, brokers are taking 6% fees on million dollar homes while most are just pushy and dishonest. The buying process is complicated and heavily regulated, but if I can do my taxes online then buying a house should be easy.
> if I can do my taxes online then buying a house should be easy.
Uh, should it? I doubt many people sell homes nearly as often as they file taxes.
Yeah, I can imagine the pitches... "we're going to be the UBER of real estate..."> It's not going to be an easy nut to crack, but it should be fun to watch all this money try.Or maybe they'll use "UBER" as a verb: "Let's 'UBER' the real estate market!"
Caveat: I can’t read the article. I’m just riffing based on my knowledge of RE and personal experiences with tech.
As someone who’s researched real estate, I have a hard time seeing how tech can help the RE industry. For starters, RE bubbles have led to the worst economic downturns. If people can buy homes so easily that they can profit on making superficial changes, then prices will go up far above efficient. That pushes actual “householders” out of the market. Also, look at the dumpster fire that is Silicon Valley RE.
If I’m thinking of ways tech may help RE:
-Actually providing previously unavailable or unobservable information to buyers. Knowing a home will require expensive repairs soon would, in aggregate, help correct valuations. Alerting people of a home being in a flood plain, hurricane path, etc would help.
-Helping potential buyers with otherwise good credit but lacking some of the traditional requirements could help. But again that would probably also make flipping so easy and profitable to really screw up the market.
-Disrupting the contractor/developer industry could flush some seriously awful bad actors out.
-Making rent and RE cheaper would boost the long term wealth of the country - by diminishing the portion of household income devoted to RE. Particularly, rent. Rent shouldn’t be anywhere near comparable to mortgages. You never get to see rent money again. (Here’s an idea: make a “shitty apartment” insurance. People pay an upfront insurance cost on moving into a new apartment. In return, if at any time during the residence they want to break the lease for a “qualified reason” the insurance helps them negotiate the process and ponies exit costs. Eventually a complex’s insurance premium would be enough to signal to potential renters about a place.)
> Alerting people of a home being in a flood plain, hurricane path, etc would help.
I would pay for a service that gives me a reasonable 10-50 year estimate of climate change impacts on a given real estate area. I haven't been able to find this so far. Presumably very large RE investors have access to such information, but for the average consumer...?
It seems unreasonable to expect any human to be able to reasonably predict anything 10+ years into the future with the kind of accuracy needed to provide climate change impacts of a given area. Only easy one is probably water levels rising causing places next to the ocean to go underwater.
Buy at a decent altitude, higher up than surrounding areas where water can drain into, and that has access to a water and food source which seem resilient. But who knows when a fire or flood or earthquake or whatever will come ruin your plan.
> Rent shouldn’t be anywhere near comparable to mortgages?
why not? rent probably should not be egregiously larger than the mortgage payment, but rent needs to at least price in the risks related to owning a property long term.
The markets for owners vs renters is different. People with the means will buy if they have reasons for staying in one place for a long time. They will rent if they don't. That can depend on the local economy, schools, livability of the area, industry trends, etc.
Here on Long Island, NY, renting with one roommate is infinitely more profitable than owning a house:
Renting = $1,900 a month for brand new construction, centrally located 1br apartment including utilities
Owning = $3,300 a month for 2br dilapidated house, inclusive of property tax, home owners insurance, massive utility bill, and I haven't even factored in repairs of equipment from before 1960
Sure, you could rent out your basement and your bedroom for an extra $1500, but now you are running a hotel and have to report that income :)
Just as a slight clarification, if you set yourself up to rent part of the house, you could convert ownership of the house to an llc, or soon legal entity, and then that organization collects rent from you and tenant, which pays the mortgage, property taxes, utilities, etc. Do this only if you intend to rent portions out, as it can reduce liability. Ymmv and ianaa
Nice house hacking! Just be sure that you can quickly and easily prove that you as a personal entity still have ownership over the deed to the property, which is owned by your sole-partner LLC or etc
I don't understand the warning here. The LLC is registered with the state, the owner of the LLC is registered with the state, the LLC is the property owner of record with the local/regional government.
Can you explain what you're warning about?
Why do you need an LLC for that? Apart from liability.
Yeah owning there only makes sense if you want to live there a long time.
>Rent shouldn’t be anywhere near comparable to mortgages.
How am I supposed to rent you a house if the rent you pay is less than the mortgage I have on the house? How do I build a pool of money to use for repairing the things that inevitably break?
You're building equity with the difference between rent (plus repairs etc) and the mortgage. The renter isn't.
Yes, and you are exposed to myriads of risks that tenant isn't either - property market crash, tons of possible environmental disasters, issues with plumbings, fires, damage done to property, gradual degradation of, well everything.
Another thing is the amount of time and energy invested into acquiring, renovation, maintenance and improvement of the property.
Financially any of those, especially market crash can ruin you for life - how do you want to price this massive risk in rental price?
Ever tried to buy a property? For mortals getting mortgage, its such a stressful experience even for simplest type - obtaining already existing and equipped flat, that it easily breaks relationships and marriages.
I understand the tenant point of view to try to pay as little as possible and have as big choice as possible, I am also in that camp, but there is other side (and I don't mean some super rich or people inheriting big properties by being lucky with birth).
All this, plus you forgot taxes & insurance. Not even homeowners insurance, but liability insurance in case someone hurts themselves on your property. You need to cover times it's not occupied, pay for a property manager, any legal costs when a renter abandons the property and you need to instantly evict them, clean up costs between each tenant.
Building equity on a property backed by a mortgage is such a slow process that the only way to make profit (in my real estate market) is to eek out a thin margin every month and cross your fingers nothing breaks.
Yes, and you are exposed to myriads of risks that tenant isn't either - property market crash, tons of possible environmental disasters, issues with plumbings, fires, damage done to property, gradual degradation of, well everything.
A property investment, like any investment asset, is a bundle of risks as well as rewards. Yes, you as the owner take on the risk of things like market crashes, insurance and repairs but you also own an expensive asset which you can sell at any time (a renter cannot). You need to deal with the risks and rewards of a property like you would any other asset.
Right, and you price the rent based on that risk profile. A price that is absolutely going to be higher than the mortgage, unless as another commenter pointed out, there are incentives & tax breaks that cover the cost you would otherwise bear.
The risk profile is carried by the asset owner, not the person making use of the asset. I buy equities, fixed income assets and bonds based on my risk profile, not someone else's.
Riiiigggghhhhtttt....and at a selling price determined how?
Yup, but the difference is that some of your appreciating asset is being paid for by someone else. In some cases that's worthless, in others quite valuable.
As for pricing, the market does that for you.
When it works, it works really well.
When it goes wrong, it fails catastrophically.
That is to say, the variance of slumlording and poker arr probably equal :)
Yes, investments involve risk. If you believe that another cataclysmic crash is coming to the real estate market, then stay out. If you think it's unlikely, it can be a relatively low risk investment for the returns.
I definitely agree, but I wouldn't say the market crash is the biggest risk.
Tenants who damage the property and withhold rent are way worse.
The renter also isn't assuming responsibility for keeping the property in repair. The owner assumes all the risk.
> The renter also isn't assuming responsibility for keeping the property in repair.
That depends on the terms of the lease.
It’s pretty standard for residential leases in the US, though.
It's pretty standard for residential leases for at least some maintenance responsibilities to be assigned to the tenant (I think that it tends to be more of them assigned this way for leases of detached single-family homes than for apartment leases.)
Depending on the local regulations, you can turn a (long term) profit while a rent inferior to the mortgage repayments.
Can't get on the specifics as it varies country to country and even local regulations but as anecdotal evidence, I'm currently looking at a property in my hometown, with a mortgage of 80k€ (cost of mortgage 7k€, 10 years). This property would rent at 4000€/y, resulting in a yearly loss of roughly 4000€ (you read that right).
With local incentives and tax shelters, I would still net 18k€ in gain over 10 years. On a 80k€ property, that's a 21% ROI....
Assuming the laws don't change. Also, you're just externalizing the cost to everyone who pays taxes. Not my favorite business model, but carry on.
Absolutely, assuming the laws don't change.
Wrt "externalizing to eveyrone who pays taxes", you'd be absolutely right if I hadn't omitted, for brievity, the reason why you get such large tax breaks and subsidies: you undertake to rent at preferential rates (roughly 20% under market price). In effect, you run a small scale public housing operation.
The subsidies are related to rennovation works you specifically agree to pay for, obviously at the start of the project. The largest tax breaks are in effect at the start of the project as well so the risks, while they do exist, are very limited.
The biggest risk is that you buy a run down property (which rennovation you agree to finance) in a run down part of a town. At the end of the ten years, you might have a reasonable property that's unsellable because the area has tanked even further.
The rent you charge is for providing a domicile, I as a renter couldn't (and shouldn't) care whether this is enough to deal with repairs, especially since you as owner are certainly not repairing things every single month.
If the rent is more than the mortgage why would I rent? Beyond potential credit problems (which can generally be solved within a matter of months barring egregious exceptions) and maybe conveyancing and transfer fees (which can be negotiated into a mortgage loan), you'd have to be a fool to rent.
>If the rent is more than the mortgage why would I rent?
Because owning a property involves putting money down, maintaining, being exposed to market value fluctuations, etc. on a very expensive and relatively non-liquid asset.
Sure, buying would mostly have been the right financial decision in the Bay area at least over the past decade for most people. But, especially if I don't want to deal with home ownership, can find an attractive rental property, and want to maintain flexibility, paying a premium to rent can absolutely make sense.
Of course in certain conditions it is preferable to rent (haven't laid down roots, still building the beginning of a career etc), but as a purely financial decision for a regular, long term domicile it doesn't make sense to pay a premium to not "deal with home ownership". It's not like running a business.
>It's not like running a business.
It sometimes feels that way :-)
I don't really disagree with you although the risk-adjusted finances of rent vs. buy are less clear than a lot of people make them out to be in the absence of 20-20 hindsight. Especially if you reach a point where you're fairly locked into an area for whatever reason, it mostly makes sense to buy if you can. If the work associated with owning a house is a big deterrent, there are lower-effort alternatives like many condos.
> If the rent is more than the mortgage why would I rent?
Because the you don't have the savings for the downpayment to qualify for the mortgage with the payment at issue.
Because property ownership cones with more expenses than just he mortgage, many of which remaining with the owner in most leases.
Because no one is selling single units of the type you want at the time, but someone is renting them out.
Because you're bearish on the housing market and prefer the risk of paying too high a rent at the end of a relatively short lease term to longer-term exposure to risk of loss of property value.
Because you intend to have a federally controlled, even if state legal, substance on the property, and want to control your exposure to risk from civil forfeiture.
Etc.
Etc.
Etc.
As with conveyancing or transfer fees, a downpayment can be negotiated into a mortgage loan. Extra expenses should remain with the owner, since it is their asset. Everything else you've mentioned would be a corner case at best and not applicable to the average person looking for somewhere to keep the rain off their heads.
> As with conveyancing or transfer fees, a downpayment can be negotiated into a mortgage loan
Sure, but it drives up the mortgage cost (both because the principal is higher and because interest rates are higher with lower downpayment), so the rent being higher than the actual landlord's mortgage doesn't mean that it is higher than your mortgage for an equivalent property purchased at the same time.
> Extra expenses should remain with the owner, since it is their asset.
Whethe it should or not, those costs can be a reason to prefer renting over ownership even with a slight premium of rent over mortgage cost.
I’m more talking about renting an apartment vs owning a house. They’re fundamentally different goods/services but their dollar value tends to be closer than they should be. Renting a house shouldn’t be profitable or should be only slightly due to selling one very heterogeneous good.
Apartments generally suck compared to owning a house. You’re literally paying to have a manager over you. You’ve probably got stairs to lug everything up/down. You’ve got neighbors above you making you listen to their crap - and if their apartment floods because they did something dumb or just a freak occurrence, you’re flooding too. Etc etc. but it makes sense for that to be profitable when a complex can operate with economies of scale.
Lots of small landlords with a multi-family house they also live in also find having a tenant make sense--though there are of course problem tenants.
In general, rentals (other than vacation places) just aren't a very good fit for houses. People tend to buy houses in part because they want to adapt the house and property to what they want. A rental house would typically have to be furnished; otherwise no one's really going to really have the right furnishings for it. And houses generally have more complex maintenance needs than apartments.
People buy apartment-like or town house-like housing in the form of condos/co-ops because they're willing to trade off the space and freedom for reduced home ownership headaches. But most people renting don't want either the incremental cost of a house or the implications of filling up a house and dealing to at least some degree with a property.
>Renting a house shouldn’t be profitable
If I can't make money by renting you my house, why would I incur the risk of letting you live in it and potentially damage the property rather than have it just sit empty? Why would I want to deal with the hassle of making sure things are up to code? If all I can do is break even until I eventually sell it, then why not just invest my money elsewhere?
I think that is precisely for the reason. To prevent people from purchasing housing they don't need so that houses would be more affordable for people to purchase and live in. Rather than paying a premium to live in a house someone else owns but doesn't plan on living in.
Houses would be incredibly cheap if there were no incentive for wealthy individuals to own multiple properties when they could invest their money elsewhere. The price of houses would have to be affordable enough for people to actually purchase them over choosing to live in an apartment complex.
Apartment complexes can house more individuals in a small space - so if it incentives to build houses change to building more apartments that isn't necessarily a bad thing when trying to house people...
Traditionally those letting houses owned the houses outright - the mortgage was paid off.
"Buy-to-let" has changed this but perhaps that is not a good model.
>Traditionally those letting houses owned the houses outright - the mortgage was paid off.
So, in other words, they have a bunch of money invested in an asset that, if they sold it, could otherwise be earning some rate of return in some other investment.
I bought my home through Redfin and I was pretty happy with it. I can also definitely see the appeal of OpenDeal's model of buying your house and then reselling it; it's like the house version of a dealership trade-in. You may not be getting the best deal but you're skipping the hassle.
>I have a hard time seeing how tech can help the RE industry. For starters, RE bubbles have led to the worst economic downturns
If that can amount to help, maybe burning it to the ground will do it?
Google Ziroom and what it did to rental market in China.
Were something similar to appear and get hold USA, expect American RE companies in big cities to burn down within a year.
But I doubt this prospect, I bet rich RE boys will spare no money lobbying to nuke it like they did with Airbnb.
I googled Ziroom and see they long lease apartments and then sublet, and their doing so has raised the cost of long leases in places. How is this burning anything to the ground? I'm confused.
Just take a look on a very impressive list of RE companies they took over.
Besides of them doing all kinds of leasing models, they put a very thick slab of butter on top with add on services, something nobody else can match.
With a single click you can: get a handyman to fix anything, order renovations, moving, breakfast delivery, daycare, cleaning, maids, buy furniture, order a restyling, get new appliances, remote lock it, pay for every service, or even Airbnb it on your behalf if you leave for extended amount of time, or do that in reverse while you are on a trip to another city.
Effectively they sell life in high end serviced apartments for just a bit more than price of regular rental.
They mainly aim at a rich millennial demographics, bit with few tweaks, you can imagine them making up something for US market
I suspect a lot has to do with labor costs. I could theoretically hire a full-time assistant who could take care of lots of tasks for me either directly or by contracting it out. But, for most individuals in the US or Western Europe, doing so would be cost prohibitive.
Aggregating and streamlining these services do help. In dense enough areas, some people who couldn't have afforded a personal driver use Uber. But relatively few people have the luxury of contracting out all their day-to-day routines.
Pretty much this. Ziroom is pretty much the future of real estate.
Real estate will be virtualized like every other illiquid asset. This means:
* Ownership of real-estate gets rolled up into REITs. REITs are experts at building, buying and selling real-estate and they can do it at scale. "Home ownership" where small-time retail investors buy and sell real-estate will get selected away as its a grossly inefficient model.
* Real-estate property managers like Ziroom and WeWork and AirBNB will take out leases and resell highly customized and liquid packages. They provide not just access to the property but to a wide range of services and auxiliary services.
* The PMs now manage their inventory and pricing in real-time.
At this point you can start to think of real estate as any other "cloud service": acquired on demand, at fluctuating prices, and accessible through a whole clearly defined service/API layer.
We're starting to see this in China and SEA already in a big way [1]. Here again Asia is way ahead of the curve. Real-estate "on demand" means companies and even families are basically moving between different properties every month based on prices and needs. Office desks can be rented for as little as 15 minutes.
The key obstacle here has always been renter quality and the various housing legal regimes. In Asia at least the government seems primed to step in and vouch for renter quality which which will likely evolve into something like a credit rating for renters. The legal questions are still totally up in the air but that's not stopping people for now. Companies like Ziroom have been known to get up to some shady antics like evicting people in the middle of the night or hiring policemen to intimidate people.
[1] https://chinaeconomicreview.com/why-chinese-millennials-are-...
It takes a certain mindset on the part of the renter as well. You sort of have to have minimal physical stuff and be OK with moving into a largely standardized serviced apartment. In other words, the apartment is somewhere you drop your stuff and sleep in. It's not "your" place.
There are corporate apartments in the US but these are usually oriented toward people who have their own place but have to spend a lot of time at some different location for a period of time. I don't know the level of service such places typically have.
It strikes me as a little disturbing that there's yet another company trying to move it's customers as far away from "owning" things as possible.
> get a handyman to fix anything, order renovations, moving, breakfast delivery, daycare, cleaning, maids, buy furniture, order a restyling, get new appliances, remote lock it, pay for every service, or even Airbnb it on your behalf if you leave for extended amount of time, or do that in reverse while you are on a trip to another city.
So... apartment concierge. Americans already have most of those services, provided by another app. The value added here is the patented one-click single point of failure.
Some of these - renovations, daycare, furniture, appliances - I would want more involvement than just tapping "buy" in an app.
There are a fair number of things that many people are probably OK with giving some general parameters and approving a purchase and have someone else take care of all the logistical details.
The bigger issue is that I'm not really willing to pay someone what it costs to e.g. take my car in for state inspection, run my errands, etc. I do have some services for things like getting my lawn cut but it's harder/more expensive to get someone to handle unscheduled one-off things.
Then you're perhaps not the target market.
People with that kind of money, if they're dissatisfied, they just roll the dice again.
Is that market large enough in America to hit a critical mass?
Like most personal services, it's probably a niche. In a luxury, NYC apartment? Sure. As you note they exist. But most people see grocery delivery as a luxury. In fact, I suspect even lawn mowing and maid services are used by a relatively small proportion of the population. Much less having someone take your car to the shop or the various other myriad errands that are always piling up on my todo board.
I don’t think they’d have to worry. That business model clashes with the individualism I’ve experienced in the west. Their whole apartment option sounds viable though. They’d have some success here but they’d have to pick their markets well.
Certainly, let us not forget a rich RE boy lives in the White House right now.
FYI Ziroom had whole apartment rentals for many years now
They were a "bachelor dorm" company for just 1 year of their existence, and whole apartments along with "co-livings" are now their main business
I agree with your last point, but what is tech supposed to help about it? That's a systemic problem of jobs continually concentrating in dense urban cores where land is simply more scarce.
Tech could absolutely help jobs and services decentralize. But we wouldn't call it "real estate tech".
If Google really wanted to make a dent here, getting serious about remote first employment at Google would be a game changer even if the enabling tech never made it into the Google suite.
Unfortunately I think that is unlikely. Real estate gains and career prospects from centralization is essentially part of the compensation package for large tech companies today.
Hard to tell whether this is a news article or an ad for the featured company.
Also, tech has been in real estate for a very long time. Zillow, Trulia, Redfin, etc were supposedly "disrupting and revolutionizing" real estate before smartphones got popular. I remember reading about this more than a decade ago. My god time flies.
From 2007.
Redfin On 60 Minutes Tonight – Real Estate Market Disruption.
https://techcrunch.com/2007/05/13/redfin-on-60-minutes-tonig...
Zillow has created a real estate revolution.
http://archive.fortune.com/magazines/fortune/fortune_archive...
Don't sell short what those companies did for buyers: they freed them from the gatekeeper of a broker. No disrespect to brokers - they're great for sellers and I happily used one - but the analytics and search and sheer awareness of what was on the market they offered to the home buyer was revolutionary IMHO.
Agreed. While Redfin, Realtor.com, etc didn't cut a realtor out of my RE transactions (1 purchase a decade ago, then 1 sale + 1 purchase last year), they did do a good job showing me what was on the market. And not just at a single point in time (when I was actively shopping), but over years, so I could see neighborhoods that were smaller or had less turnover. While actively searching, the often gave me a heads up as to what was coming on the market in the upcoming week - I wasn't at the mercy of the RE agent calling me with new listings.
Unfortunately, agents in my area still take a pretty standard % of any transaction, so those tech sites haven't made a dent in the cost of the transaction.
Everything from Zillow to online property listings to Google StreetView to just the Web generally probably makes it hugely easier to get a feel for the market, find properties, and scout locations than when I bought my house. But, based on friends who have bought and sold relatively recently, I'm not sure the process of actually making a purchase is much easier or cheaper and that's where the stress really lies. (Well, that and just inflated property values in locations many consider prime.)
How did you go about assessing the evolution of a neighborhood over time? Do any of them have visualization tools specifically for that?
No specific tools, but many home listings stay online for years. And any single home’s sale history is online too. Between the two, you can see how much a lake view is worth relative to the house one row away, or how quickly a neighborhood recovered from 2008, or the high and low sales over the last few years, etc.
> they freed them from the gatekeeper of a broker
The thing is, there were many brokers - it was a distributed system. In the scenario where Zillow is wildly successful it will become a monolithic gatekeeper to real estate transactions - a highly centralized system.
It's pretty ironic that the internet has become such a centralizing force, when its promise was to radically decentralize everything.
Buyers have a lot more information. When I bought my house 25 years or so ago, I can't tell you how many hours I wasted driving to some listing and discovering it wasn't for me for some reason before stepping foot out my car. On the other hand, I'm not sure to what degree real estate sales have truly been disrupted at the end of the day.
So, they are using housing data without taking the bubble into account. They will make money for a while until the market turns then they will lose money when their holdings are 20-40% underwater then it will take 5-10 years before their investment is above water. And the rental market will tank at the same time so, good luck with cashflow. Now let's add maintenance, upkeep etc.
Who's "they"? This article seems to mostly be about OpenDoor offering to buy homes not in need of major repair and turn around and sell them in 90 days, all while collecting smaller-percentage fees that traditional sellers would. I'm not sure this model is as crazy as you're making it sound.
> “The vast majority of investors who hear about it initially think it’s a bad idea,” said Stephen Kim, an analyst at Evercore ISI, a market research company. But the skepticism often fades as they realize Opendoor makes money by providing a service to home sellers, rather than on price appreciation, Mr. Kim said. Even if the company breaks even on a sale, the transaction fees are a meaningful business.
Gotta deal with the lemon issue though. You make one mistake buying, and you have a quarter-million-dollar problem. Takes a lot of transaction fees to recover from that?
Sure, but how is this different from the problem faced by, like, CarMax? If your volume is large enough it doesn't matter.
All about the rate of mistakes - even a negligible error rate means millions lost a year.
It's likely that they'll make money just on flipping the houses in many cases and even in the lemon case it will not be a total loss. Even in the very worst case, where the house absolutely cannot be salvaged, the lot is worth something (I think the lot is around half the value of my property, for instance). If the house just needs more extensive repair than expected that's a smaller loss.
From the perspective you're talking about, the risk to an individual buyer of missing some serious issue in an inspection is far greater than it would be to a company buying up homes left and right, and they've minimized this risk by focusing on a relatively specific slice of the market (newish houses with no serious known issues and with a value of $250-500k).
The fees to the buyer on the sale of a $1.1m house are about $60,000 including broker fees of 5%, transfer, title, and many other fees. Fix that, attract buyers, and charge the seller $20k and you've got a heck of a good business.
My recent experience in selling a property is that no buyers could find the property and contact me until I hired an agent. Listing it FSBO resulted in calls from agents, not buyers. Every agent had a horse in their stable that they wouldn't share with me unless I paid them a commission.
Figure out how to make it emotionally and legally safe for buyers to acquire property without an agent and I think that would help. All to often we think we need representation, which is expensive, when we actually don't.
Real estate has always been a stable asset. The problem with it is that people are used to buying or selling a house a certain way, and they often do it only once or twice in their lifetime. The offer stage is very untransparent and manipulative. The closing process looks so hard that everyone thinks that we should pay 6% to agents and thousands of dollars to title companies. Tech can make the process to be transparent. Propy is doing it with smart contracts.
The question is raised whether there are more efficient or straightforward methods of doing transactions of real estate. Why shouldn’t buying properties globally be as simple, as buying a laptop from an online store in a different country? Some of the benefits of being able to purchase real estate globally easily: -You’d able to invest low amounts for a stable return -The real estate market would gain liquidity -You’d have access to multiple markets
Blockchain technology is one way this can be done, and we’ve already had successful global real estate transactions on our platform using it.
One start up I'm rather excited about is Homie. (I do not work there, but I do live in their home state of Utah.)
It's software-enabled realty for home sellers. Costs like $1.5k instead of 3%.
Most of the huge datacenter builders (digital realty trust, etc) are REITs.