Mike Kalis was selling homes for PulteGroup when the Detroit housing market fell apart in 2006, a precursor to the national crisis to come. Hungry for sales, he began paying close attention to what worked and what didn’t in Pulte’s process. It quickly became obvious that helping buyers unload their current homes would go a long way toward selling more new ones.
Kalis put together a group of local investors willing to pay cash for existing homes, allowing buyers to use the margin to purchase the Pulte home of their dreams. Realizing he was on to something, Kalis started Marketplace Homes—which partners with home builders to buy and sell new-home buyers’ existing homes, sight unseen, within 24 hours—in his basement.
“At that time, that was so crazy,” says Kalis, who helped sell more than 10,000 new homes during his tenure at Marketplace, which he left at the start of the new year to oversee a build-to-rent division of Allen Edwin Homes. “It took 13 years to become the next big thing.”
Despite Marketplace’s success, instant buying or iBuying was a pretty foreign concept to most home buyers and builders until recent years, as a handful of venture-backed, algorithm-driven companies offering similar services have burst onto the scene and built awareness with huge marketing money. Redfin entered the iBuying space with Redfin Now in 2017. The following year, Zillow grabbed headlines when it brought its $658 million in cash to the table with home-buying service Zillow Offers—another step in its quest to control all aspects of real estate transactions, from initial search to closing.
A full-on disruption in how new homes are sold has—finally—begun. By decentralizing the process of buying and building a new home and putting more control into consumers’ hands, technology is streamlining home buying and selling and creating unprecedented transparency. Investors are pouring money ($14 billion in the first half of 2019, according to research firm CRETech) into property technology—what Silicon Valley calls “proptech”—as the real estate sector is one of the last industries to be digitized. Three serious iBuyers—Opendoor, Offerpad, and Knock—are duking it out in with Zillow and Redfin for control of the space.
“We may have been a bit starry-eyed and more than a little naïve,” Redfin co-founder David Selinger told Medium in 2017, “but from day one, every member of the team knew one thing: the current real estate market was all about serving the profit needs of the agent, not about the customer, and changing that would mean changing the most important financial decision for families. Forever.”
But some change takes time. “This consumer revolution, which puts buyers in the driver’s seat, has been slower than many of us envisioned,” says Tyson Kirksey, vice president of digital marketing for Dallas-based Highland Homes. People have only recently gotten comfortable hopping in a car with a stranger for a ride across town, an idea they would have balked at 10 years ago, Kirksey says. But when it comes to buying a home—typically the largest purchase most people ever make—“they still want to do it the way their parents did it because it worked for them,” he notes.
With unprecedented access to sales history and pricing information, home buying has become easier and more efficient. But getting a home ready to sell is another story. Knowing how to price a home correctly and finding reliable professionals to help sell it remains cumbersome. Some call it the next frontier for the real estate industry.
Consumers Take Control
Once buyers have found a home, the most common derailment to closing has traditionally been the sale of their existing home. Marketplace competitors Opendoor, Offerpad, and Knock are beating down home builders’ doors with offers to help eliminate that contingency.
New York and San Francisco–based Knock, which was launched by two Trulia founders in 2015, aims to make trading in a home as simple as trading in a car, says Allan Ziegler, Knock’s head of business development. Unlike Opendoor and Offerpad, which partner with new-home builders to buy existing homes outright, Knock focuses on representing individual buyers and sellers through the entire home buying and selling process—helping them find a home, buying it for them with cash, selling their old home after they’ve moved into the new one, and then selling the new home back to them (and financing the deal).
In servicing home buyers, Knock works closely with the major builders in the five markets it’s in (Atlanta; Charlotte and Raleigh-Durham, N.C.; Dallas-Fort Worth; and Phoenix), Ziegler says. “We can basically allow builders to convert any contingent buyer instantly so they’re not walking out of the sales office. Builders spend thousands of dollars getting valuable customers to walk into sales center, and the last thing you want is those customers walking back out because they need to sell their home first. But it happens all the time.”
Chandler, Ariz.–based Offerpad, which has seen growth triple year over year since it blazed onto the scene in Phoenix in 2015, is currently in more than 800 cities. According to the company, on average it receives a new offer request from homeowners every 30 seconds and acquires a home every 20 minutes throughout regular business hours. Builders including Meritage, Maracay, M/I Homes, Pulte, and Trendmaker have partnered with Offerpad, and Orlando, Fla.–based Maronda Homes is an exclusive partner, meaning Offerpad presents offers on potential buyers’ existing homes within an hour (instead of 24 hours)—so they have numbers in hand before they’ve even left the sales office—and gives them up to 270 days (instead of 180) to close, a flexible closing date, and a free local move.
New homes account for about 15% of transaction volume at San Francisco–based Opendoor, which was founded in 2014 to enable home buyers and sellers to transact instantly online. Founded on the premise that home sellers should never have to move twice, Opendoor provides competitive cash offers with flexible close dates that can be synced with the new-home closing. “This business is growing 25% to 50% month over month, and builders love it as much as consumers do,” says Nate Harbacek, Opendoor’s head of business development. “It’s really powerful for a builder to have a solution for contingent buyers when they walk into a sales center.”
Lennar CEO Stuart Miller noted in a recent BUILDER article that a “less stressful home sale will make homeowners more apt to move up to a new home.” Lennar worked with Opendoor as a pilot partner in 2018.
“When we take friction out of the transaction side of the business and create that transaction with ease in a condensed period of time, we take the fear out of buying a home,” Miller says, adding that if builders can help create a more seamless process, “it starts to increase the number of people that come to the new-home market and the number of transactions. That will trickle through the entire housing market, all the way up to the new-home builders.”
Opendoor buys and sells nearly 3,500 homes in 21 markets every month (more than one in two sellers accept the company’s offers, it says) and has partnered with 19 of the top 25 home builders, including Lennar, Pulte, and Taylor Morrison. The company has 30 staff people—with varying backgrounds from operations to sales to business development—dedicated to serving builders.
An investor favorite, Opendoor has raised $1.3 billion in total equity and $3 billion in debt financing so far. Lennar co-led a $325 million Series E funding round and spent a year and a half working with the company to create a “trade-up” program that lets buyers request cash offers on their existing home and coordinate the closings of both.
“Our increased investment in this round is a reflection of our enthusiasm for the opportunities that lie ahead—which are incredibly exciting,” states Lennar president and chief operating officer Jon Jaffe.
“Everything we’re doing is to provide more and more control to the consumer,” says Cortney Read, director of communications and outreach for Offerpad. “They’re used to having control with things like Amazon, Netflix, and Uber, and that’s finally transitioned over to real estate.”
‘Swipe Right’ Home Shopping
Even before Kalis started buying up homes from his basement, digital real estate marketplaces Zillow, Trulia, and Redfin had started to push home buyers online, at least for initial searches. As those sites gained traction, people got comfortable looking for homes and finding comps for their own homes in the digital realm. Today, according to the 2018 J.D. Power Home Buyer/Seller Satisfaction Study, 88% of buyers begin their searches online, though the vast majority still turn to a real estate agent to handle the actual purchase.
Home buyers want new homes—67% say they’re considering new construction—but they’re frustrated with real estate sites and services that don’t make it easy to find them, says Tim Costello, CEO of Builders Digital Experience (BDX).
In a recent survey of home shoppers and recent home buyers in 43 top markets for new-home sales, BDX found that 48% of shoppers who start their search preferring new construction end up buying an existing home when they run into friction. In response, enter HomLuv.com, a recommendation engine that leverages machine learning and artificial intelligence to help home shoppers discover their needs and design style by liking images of kitchens, great rooms, exteriors, and other spaces from new homes in their area and price range. The site, of which BDX is the parent company, then recommends homes based on those likes.
“HomLuv was designed to reduce the impact of friction points—to make the home-buying process easier for the consumer, and builder, and help builders increase new-home sales,” Costello says.
Home shoppers don’t want—or have time—to wade through the hundreds and sometimes thousands of unfiltered and uncategorized search results that come up when they enter a location, number of bedrooms and baths, and price range into traditional online real estate marketplaces, says Jay McKenzie, director of consumer insights and research for BDX, yet “since the dawn of the internet, the paradigm for searching for a home online had not changed”—even though buyers have.
Mark Law, a BDX vice president who led the HomLuv launch team, says millennial home buyers spend more time online looking at “visual assets” (photos) than “logical data” such as the number of bedrooms and bathrooms and square footage. They’re posting and curating their preferences on sites such as Houzz and Pinterest, but those products, Law, says, are roads to nowhere.
“They don’t get you to a builder, a community, or a house you can afford,” he says. “People create these champagne collections, but they have Coca-Cola budgets as millennials. That’s really not helping you shop.”
So while iBuying can help contingent home buyers sell their homes more quickly, sites like HomLuv can help buyers zero in on not only what they want and can afford in their new home but also which builders can provide it.
BDX launched HomLuv with a database of 100,000 homes across the U.S. listed on its digital listing service NewHomeSource.com. Users like and dislike images from those homes, giving HomLuv’s AI and crowdsourcing technology the data it needs to create a profile on them and start selecting and curating available homes they’re likely to swipe right on.
“With HomLuv, you’re looking at and liking images real quick, you’re entertaining yourself,” Costello says. “While you have fun, it’s working for you, finding products you’re going to love.” Younger consumers have come to expect this, Costello adds, unlike boomers, who are simply “amazed it’s all online to begin with.” He says 90% of digital native Gen Z buyers would consider purchasing homes online.
When HomLuv shoppers match with builders, they can go check them out at BDX’s TrustBuilder, a third-party ratings and review site for new-home buyers. HomLuv’s builder partners get data on how shoppers are interacting with their photos and reports on everything from popular paint colors to what they searched for first (kitchens and master bedrooms most often, FYI, not the exteriors that builders typically highlight).
One-quarter of the builders on NewHomeSource, including KB Home, Pulte, Meritage, and Toll Brothers, have signed on to be part of TrustBuilder, and a sizable number is also using HomLuv. KB Home CEO Jeffrey Mezger says he values HomLuv because it helps home buyers “better decide exactly what they want in their dream home, and we can partner with them to bring that home to life.”
BDX is also leveraging NewHomeSource’s photo library with InScene, an AI engine that spits out instant insights about photos that builders can use to improve SEO, understand items in each room, access data quality, create interactive images that allow shoppers to try out different options, and even include links to sell furnishings and finishes from model homes.
“We help builders understand if their imagery is capturing the elements shoppers have said they want to see,” Law explains. “One-third of consumers going into Google jump immediately into image search. Are you tagging and representing your photos in such a way that Google will find them when someone searches for white kitchen counters in Austin?”
Highland Homes uses InScene, and Kirksey says it has been beneficial in helping all 700 employees, whether they work in purchasing, sales, or architecture, search for, filter, and access the more than 100,000 photos in the company’s library. “It’s been a real game changer,” he says.
