Real estate tech companies will be tested in 2019
Dec 29, 2018 — Jeff Andrews
Opendoor, Offerpad, and other proptech firms will have to contend with an uncertain housing market
- By Jeff Andrews on December 28, 2018 3:30 pm
Over the last five years, a wave of real estate technology companies, or proptech, have sought to merge technology and big data to upend a housing industry that’s remained antiquated for decades. Financial technology companies, or fintech, have also jumped into the space.
The list of new entrants is seemingly endless and yet still growing. With the housing market flourishing in recent years, proptech and fintech companies have risen along with it, gaining national attention and staggering valuations.
But the housing market is seemingly entering a new chapter. Home sales are lagging, the pace of home price appreciation is slowing, and inventory that’s been stubbornly low across the country has seen spikes in certain markets, particularly on the West Coast. Can these companies still thrive if the housing market goes from a seller’s market to a neutral or buyer’s market?
Obviously these changes would effect each company differently, but here’s a taste of the companies Curbed covered in 2018. So-called “iBuyers” like Opendoor and Offerpad offer an algorithmically determined price to motivated home sellers who for whatever reason need to move as soon as possible and don’t want the hassle of the conventional home-selling process. These startups then flip the house on the open market.
They claim the vast majority of their revenue comes from a transaction fee, not from price appreciation between the period when they buy the house and flip it. If that’s true, they’ll be more vulnerable to the home sales volume slowing than home prices leveling off.
Knock, a startup with a similar model, offers the inverse; the company buys a customer’s new home so they can move right away, and then they let the sale of the old home occur on the open market. The recently launched startup Ribbon also buys homes on behalf of customers, providing all-cash offers so a buyer can compete with other all-cash offers on a level playing field.
Three-year-old startup REX leverages big data to serve ads to people who may be in the beginning stages of looking to buy or sell a home as a way of cutting in line ahead of traditional brokerages. These companies also rely on a transaction fee.
Lenders like LendingHome and Roc Capital took home flipping from Main Street to Wall Street by funneling institutional capital into home flips across the nation. Amherst Residential launched a platform called Bungalo that buys, renovates, and flips homes to the first bidder, not the highest bidder.
And finally, mortgage lender CMG Financial launched a cash-back program called UpIt that helps prospective homebuyers raise money for a down payment while they shop. This compliments the company’s down payment crowdfunding platform HomeFundIt.
Set up around addressing the pain points in buying or selling a home, none of these companies appears to have a perfect or comprehensive solution to what is generally a long and arduous transaction. With the housing market potentially shifting in 2019, these business models will be tested, and it may be a risky time for new competitors to launch.
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