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All of the details you don’t know about Broker Public Portal (BPP) teaming up with Homesnap

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The Broker Public Portal (BPP), which was designed to create a national MLS consumer-facing property search website, announced today that they will be partnering with Homesnap by executing a binding letter of intent.

Rather than rebrand, BPP will push listings from 115 MLS and broker partners (accounting for roughly 500k agents), will be funded through a $1.00 per MLS member monthly fee rather than advertisements or paid agent placement, and will adhere to Fair Display Guidelines (no one but the listing agent is displayed on a property listing).

Not a reinvention of the wheel

When the BPP idea was initially proposed, it was just that – an idea. Kind of a “for the people, by the people” idea. Nevertheless, many people had heartburn over what was not even a plan, but an idea. Fast forward to a group of brokers and MLSs that pitched in $5k each to cover a fundraising goal of $250K for startup expenses. A year ago, the executive committee was formed, and today, their first big move is to unveil the plan (to partner with Homesnap to move forward).

So how will this work? They’ll roll out first with MLSs (already revealed: Midwest Real Estate Data (MRED) with ~40k members, Connecticut Multiple Listing Service (CTMLS) with ~11k members, Northstar MLS with ~16k members, and Buffalo Niagara Association of Realtors®, (BNAR) with ~3k members) and eventually brokers directly.

You probably remember Homesnap from their 2012 launch at South by Southwest as an augmented reality app allowing you to “snap” a house and instantly get details from the MLS. It was originally a product of Sawbuck, formerly a Washington D.C. based brokerage which raised $2M in 2008 and $2M in 2012.

Partnering with Homesnap instead of reinventing the wheel could put BPP at an advantage since Homesnap already has consumer traffic and a slick mobile app. The project is not without challenges, however, as we all know that getting all brokers and MLSs on board is like herding feral cats – not impossible, just tough.

Competing with traditional portals?

BPP has said all along that they’re not seeking to become a Zillow or Realtor.com competitor and all Board members we interviewed say the same, but let’s face it, today’s announcement solidifies that the goal is exactly that. What else would a national consumer-facing MLS be?

Further, it certainly appears that a group of powerful brokers and MLS execs got together to pursue a dream scenario that they wish had happened with the industry’s operating agreement with Realtor.com. They’re pursuing the dream scenario where they’re in charge instead of stock shareholders and an ad salesforce.

Currently, Z/T/R are increasingly the first point of contact for consumers, so they own that relationship (not practitioners), an issue that has been contentious for many years. BPP’s structure indicates that they want that power back, they seek to own that relationship, they want to feature only the listing agent on a listing, and that they intend on getting one step closer to the consumer.

But is that a realistic possibility with such a small operating budget compared to Z/T/R’s mega millions? If the feral cats are all herded properly, then yes, but that’s the uphill challenge BPP has taken.

How will they compete in the market?

Homesnap CEO Guy Wolcott tells us that they intend to compete not with “Super Bowl ads,” but with their “secret weapon — participation by thousands of brokers and hundreds of thousands of agents,” noting that in the past year, agents using Homesnap Pro have invited over 4 million consumers to join them and scaling that to the number of agents that will use Homesnap through the BPP partnership will handily reach the market. “Agents won’t [invite users] because we pay them, but because it will be the best way to work with their clients and prospects.”

Cary Sylvester, VP of Industry Development at Keller Williams, who also serves on BPP’s Technology Workgroup and is a Board liaison, echoed Wolcott’s sentiments, noting, “By incorporating easy to use agent/consumer collaboration tools, BPP won’t need to drive growth primarily through direct-to-consumer advertising or app store and search engine optimization, but through agents themselves.”

“Our strategy is not to get out ahead of agents, brokers and MLSs – though we will undoubtedly generate plenty of free leads – but to support them by offering a great home search experience they can use not only to acquire clients, but to serve them and keep them for life,” says Sylvester. “Accomplishing that goal will make our greatest advertiser the agent themselves.”

What about the pre-nup?

The operating agreement is not public, and since it’s a private entity and there’s no National Association of Realtors (NAR) involvement, the agreement may remain veiled. As a news organization, of course, we want to sink our teeth into it, but three sources close to the matter tell us that despite not seeing the contract, they trust the “genius” of the executive committee at BPP, which is not the normal response we would hear, so it is certainly thought provoking.

There are some unresolved issues with this BPP/Homesnap partnership, though. The most pressing is – what is the pre-nup? What happens when the partnership agreement is up for renewal, or is the agreement in perpetuity? Couldn’t Homesnap just be built up by BPP (thus brokers and MLSs) and become a legitimate player to compete with Z/T/R, and say “no thanks, we’re big enough that we don’t need you” and take all of the work BPP put into it and build relationships on the back end and go public to make it a Z/T/R/H situation?

Wolcott assured us that their model was inherently “pro-industry” so it can’t go off the rails, and that because they already operate on the BPP model of “your listing, your lead” scenario that is on an “MLS-by-MLS basis,” the goal is to never relive past experiences of other portals. “The BPP didn’t have to ask us to change our stripes. We already had the right stripes.”

John Mosey, NorthstarMLS President & CEO, elected to the BPP Board of Managers tells us, “We entered into this agreement with our eyes wide open and antenna fully raised to the risks of getting engaged, then married to the wrong partner. Months of due diligence and what if scenarios were endured to find the ground on which we felt most secure that we are both in it for the long term.”

“During the process,” Mosey adds, “one of our negotiating team commented that the experience of building the terms of this agreement was also an exercise in building trust, mutually. That trust is the foundation for a future together that neither side believes will come undone. Nonetheless, we have a mutually acceptable pre-nup in place that protects the interests of the real estate community in the eventualities that you ask about and others.”

Show me the money

Another potential concern is the flow of money. How is it split between Homesnap and BPP? Wolcott tells us all money MLSs pay them for the BPP goes toward the suite of projects, but will BPP executives not see compensation? If a broker sends listings directly, can they opt out of the per-member fee at the MLS level? Are there plans for Homesnap to acquire BPP or BPP to acquire Homesnap, or will it remain a partnership?

In an internal document (but not the “pre-nup”) obtained by The Real Daily, some answers regarding the private agreement are made clear, thus explaining the aforementioned unresolved issues. The two companies will create a new company, and the Board will be comprised of 3 Homesnap representatives, 3 BPP representatives, and 1 third party rep (chosen by BPP). Each brand will own 50 percent of the company, revenue will be split 50/50, and under the direction of the Board, Homesnap will be responsible for maintenance of the site and apps, innovations, and marketing.

All that said, will people even care about the money flow if it means a nimble national MLS that is powered by industry insiders on the cheap (for a dollar per member per month)?

The tone of all appears to be hopeful

Overall, Wolcott tells us he is most excited just “thinking about what is possible when the entire industry is all rowing in one direction – and what awesome stuff we can build at the scale this will enable.”

Of the inevitable critics, Sylvester says they’ll handle it by delivering results.

The bottom line is that the overall tone of industry insiders we spoke to is hopeful, the verdict seems to be that competition is good, and that this is a reasonable plan for the BPP project. Now that the Homesnap partnership has been unveiled, we anticipate the secrecy is over and BPP/Homesnap is about to get aggressive. Stay tuned.

#HomesnapBPP

Lani is the Chief Operating Officer at The Real Daily and sister news outlet, The American Genius, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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Zillow nixes iBuying program and cuts 25% of staff, consumers go wild

(REAL ESTATE) After Zillow hit pause on their iBuying program, they’ve now cut it altogether and laid off staff. Can Zillow haters gloat yet? Maybe not…

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Today, Zillow Group announced their plan to shut down the Zillow Offers program (known as their iBuying initiative), also announcing a cut in their workforce of roughly 25%.

With a backlog of over 9,800 homes (several thousand more than they reported just days ago) that need to be sold, and a current 8,200 under contract that they’re still moving forward with purchasing, the company can’t simply cite labor and raw materials challenges.

The rapid escalation of the program in the past quarter is part of the subsequent sunsetting wherein they’ll be eating a $304 million in losses, and another $240-$265 million expected additional losses on pending properties.

They’ve instantly become famous for using their algorithm to wildly overpay on a ton of product, then losing their shirts for it.

Zillow Co-Founder and former CEO said earlier this week that he assumed purchasing would resume in Q1, but fellow Co-Founder and current CEO, Rich Barton stated, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”

Barton added, “While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.”

This combination of conditions has plenty of real estate professionals (that have long hated Zillow) gloating on social media.

We recently urged our readers to not get excited about their last announcement that they’d be pausing the iBuying program, and we stand by that today for several reasons:

  1. Fully 25% of their workforce got a pink slip today and that is nothing to celebrate – they’re people whose lives were just upended. But not Rich Barton’s, he’ll be just fine.
  2. This program is one of many for them and these losses don’t matter much in the bigger picture – it was a very small piece of their pie.
  3. Even if Zillow stopped getting every listings feed on the planet and every Realtor stopped giving them their money, they’ve created a scenario where they’ve applied for (and been granted by the federal government) nearly every conceivable generic patent on real estate online. Their evil genius will help leadership to survive any storm, like it or not.

Does the shutdown of this program spell doom for the iBuying model in general? It could be seen that way, or it could be seen that they moved far to quickly, or simply that economic conditions collided to make the perfect storm which wasn’t in their favor.

Either way, from our vantage point, the program has always felt like they were playing with Monopoly money, or like they were enjoying being WSB bros, and it’s now over and a lot of people are out of work today.

What will always remain consistent is real estate practitioners reminding each other that they’re who have fed the beast since day one, like this Realtor:

The only real downside for Zillow is the public relations hit they’re taking with consumers who are going wild about the news:

Stay tuned for what money moves Z makes next. This story isn’t over.

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Real Estate Corporate

The pending demise of iBuying real estate brokerages

The iBuying model is under speculation from regulatory bodies, and how they represent themselves to the public could be their undoing.

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financial cash flow iBuying

In my view, the iBuying model is fatally flawed and may only provide Consumers enhanced benefits in specific market conditions. Furthermore, there appears to be a “revenue at all costs” model to appease investors, providing the inference that a company is growing at the detriment to net profits as most homes are flipped at a net loss. 

It is my understanding that iBuyers record revenue as the sale price of the home. Recording the sale price of the house has increased iBuyer revenue exponentially, which increased stock values to all-time highs, however now there is an expectation of continuing revenue growth, which may pressure iBuyers to buy less favorable homes to maintain revenue volume.

Zillow’s recent announcement that they are “pausing” iBuying resulted in a significant drop in stock value and analyst downgrades. 

The Fallacy That Combining Brokerage, Mortgage & Escrow Services Enhances Consumer Experiences

My brokerage refers clients to third-party firms we have vetted and have a history of transacting. To gain our trust, third-party companies must exhibit excellent customer service with reasonable rates.

iBuyer agents may provide referrals because they share a cubical with the respective service provider. 

Navigating Down Markets

Sales are simple in an appreciating market, and profitability is enhanced (or losses softened). Conversely, transacting in a flat or price-correcting environment may disproportionally impact iBuyers as they are glorified home flippers who might rely on appreciation.

In a study by Mike DelPrete, arguably the preeminent residential real estate analyst, states, In Q2 2021, home price appreciation accounted for 70 percent of Opendoor’s gross profit margin.”

Federal Investigations Into iBuyer Representations | Per OpenDoor’s SEC Disclosure

“Federal Trade Commission (“FTC”) sent a civil investigative demand (“CID”) to Opendoor seeking documents and information relating primarily to statements in Opendoor’s advertising and website comparing selling homes to Opendoor with selling homes in a traditional manner using an agent and relating to statements that Opendoor’s offers reflect or are based on market prices. Thereafter, Opendoor responded cooperatively to the CID and related follow-up requests from the FTC.” 

“On December 23, 2020, the FTC notified the Company that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers if we are unable to reach a negotiated settlement acceptable to all parties. The FTC has indicated that they believe certain of Opendoor’s advertising claims relating to the amount of its offers, the repair costs charged to home sellers, and the amount of net proceeds a seller may receive from selling to Opendoor versus selling in the traditional manner were inaccurate and/or inadequately substantiated.”

When previously visiting Opendoor, in what appears to be a four-point font, OpenDoor discloses the following: 

“* Beginning on September 30, 2020, for new offers, Opendoor’s service charge will be no more than 5%. Service charge is subject to change, and has historically been as high as 14%.”

OfferPad appears to match the 5% cap, so we may witness a “race to zero” in the iBuying market. If a firm has difficulty achieving net profit when fees have “historically been as high as 14%,” profiting with a 5% cap may prove to be impossible. 

Acquiring Via Special Purpose Entities | Reminiscent Of Enron | Complex Financial Reporting The Average Investor May Not Understand

OpenDoor’s SEC 8K States: 

“The Company utilizes inventory financing facilities consisting of asset-backed senior credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. The credit facilities are secured by the assets and equity of one or more SPEs. Each SPE is a consolidated subsidiary of Opendoor and a separate legal entity. Neither the assets nor credit of any such SPE are generally available to satisfy the debts and other obligations of any other Opendoor entities, except to the extent other Opendoor entities are also a party to the financing arrangements.

These facilities are non-recourse to Opendoor and, with limited exceptions, non-recourse to other Opendoor subsidiaries. These SPEs are variable interest entities and Opendoor is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the entities through its role in designing the entities and managing the real estate inventory purchased and sold by the entities. The Company has potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.”

Understood?

Even OpenDoor is having difficulty with accounting/reporting as they disclosed the following: 

“We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations. We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.”

Generally speaking, it is time for all PropTech firms to reevaluate the accuracy of public representations as FTC complaints are filed and class-action law firms are evaluating claims.

The days of misleading consumers while denigrating Realtors are over. 

Ask Jack Ryan and REX Homes. 

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Real Estate Corporate

Zillow stops their home buying, but you shouldn’t get excited about it

(CORPORATE) Zillow has put the kibosh on their home buying program, and real estate practitioners are buzzing, but no one should get excited…

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Zillow has halted purchases of homes for their iBuyer home buying program, and many real estate practitioners are buzzing on social networks to gloat and analysts are saying the company is on the rocks, but that sentiment is missing the forest for the trees.

In Q2 of last year, they only bought 86 homes to flip. Their purchase rates then rose to 808 in Q3, then 1789 in Q4, and 1856 in the first quarter of this year. Fast forward to Q2 of 2021 and they invested in 3805 properties.

That’s one serious surge in inventory they’ve invested in, which means a major upswing in their backlog to get through.

The reason for the purchasing pace change is unclear, but no one is currently immune to the supply chain crisis which is making raw materials expensive or impossible to obtain, while labor shortages in the industry are creating a scenario where hiring to finish this many flips is extremely difficult.

Current market conditions are such that housing starts and permits have slipped a bit as the nation faces the same challenges as Zillow must now endure.

Further, with their average purchase price in the second quarter hitting $322,432, average renovations, holding, and selling costs reaching $26,334, their average return is $19,636. That’s a decent return on a flip, but professional flippers can reap larger returns than $20k – but not at the scale Zillow is accomplishing.

Spencer Rascoff, Zillow co-founder and former CEO told CNBC he suspects buying will resume early next year. That seems like a reasonable supposition.

On the note of what they’re accomplishing, Nevada Realtor, Sean Gotcher, posted a wildly viral video last month on social media about Zillow manipulating the housing market and consumers finally realized the possibilities of what a power like Zillow could accomplish. Whether they do the evil thing or not is yet to be seen.

Real estate practitioners have spent the last 24 hours proclaiming the death of Zillow, which is wildly off. The company simply has a backlog and is struggling with labor and materials like everyone else in America.

And even if their iBuyer program shuts down and they stopped getting every listings feed on the planet, they’ve created a scenario where they’ve basically applied for (and yuck, been granted by the federal government) every conceivable generic patent on real estate online.

Instead of reading a headline and gloating on Facebook, practitioners need to start paying attention to the possibility of Zillow patent trolling the world – the rest is all just chump change. They really are evil geniuses, and they’re definitely going to survive this small iBuyer blip.

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