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Pilot program could put realtor.com on the rentals map [Exclusive first look]

Doorsteps, owned by realtor.com, has quietly launched a pilot program to see how renters will react to a “hyperlocal content-rich experience,” which we believe will succeed and go national.

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If you’ve ever been to Austin, you know that the phrase “Keep Austin Weird” is around for a reason, and that the enthusiasm about living in the city is palpable. There’s this quiet, giddy smile on local faces as part of an unspoken bond that unites residents like a web. It’s oddly kumbaya-ish as gun totin’ rednecks, inked up art snobs, university students, and philanthropists can sit in any restaurant together, happily eating tacos and chatting about their favorite local swimming holes. According to the U.S. Census Bureau, 110 new people move to the Austin area every single day, and the growth spurt that started in the 80s continues to rapidly accelerate.

So what better place to test a new rental listings program than a diverse city with an influx population, and a very, very, very healthy rental market? And who better to write about such a mysterious pilot program than a native Austinite who also happens to be a renter who might use the site, and also happens to be a real estate writer that will offer an unfiltered first look and the raw product?

Introducing Doorsteps Rent

Introducing Doorsteps Rent, powered by realtor.com. They’re testing what they’re calling a “rental experience,” starting with Austin as the pilot city, and they’re offering a “hyperlocal, content-rich experience” with editorial content alongside listings. You can learn about the flavor of a neighborhood, why the market is so hot (ahem: increasingly expensive), and it’s all original.

If this had existed a decade ago, it would have negated endless content generation real estate professionals have had to do to explain the rich history and current feel of specific neighborhoods.

Take a gander at the screenshots we’ve nabbed, and note that the design is clean, modern, has an urban feel, and is overly simple to use (a win for smartphone-using renters on the prowl):
[vc_row full_width=”” parallax=”” parallax_image=””][vc_column width=”1/1″][gallery_post_embed gallery=”4412″]

So where does all the data come from?

One of the challenges of multi-family rentals is that the software they’ve been using for nearly two decades, adjusts prices by the hour based on supply. If there are two 3-bedroom units left on the property and one leases, the price on the remaining unit instantly goes up. If four 2-bedroom units skip in the first week of the month, the glut pushes the pricing down to move them. This makes it nearly impossible for rental search to be accurate, which is why the industry continues to post price ranges instead of unit prices.

This makes the data flow complicated – imagine if prices of homes for sale went up and down every hour based on a computer algorithm.

Where does all of the data come from? The company tells us that they have the same MLS feeds that are syndicated to realtor.com (so real listings uploaded by real realtors), direct feeds from apartment communities, and data feed agreements with third parties that include apartment communities and single units (for example, we immediately saw listings flowing through Appfolio).

They note that in most cases, their listings are updated every 15 minutes, and they tell us that they are “working towards real time unit level availability and pricing, collaborating with property management software providers on those integrations.” Bingo.

Is Doorsteps going away?

A lot has changed at Doorsteps since its inception three and a half years ago – in 2013, the small company that provided a knowledge base for home buyers was acquired by Move, Inc. (operator of realtor.com, which itself was acquired by News Corp. in 2014), to much fanfare, they launched Doorsteps Swipe, the beautiful app that reminded everyone of Tinder but for real estate.

This summer, founder Michele Sero left to pursue other opportunities, but her team remained and have been hard at work on the company’s evolution, all under the continued theme of humanizing real estate search by educating consumers.

The company tells us that Doorsteps has always been an educational vehicle for homebuyers, but they’re “exploring the extension of that relationship to serve the needs of renters today.”

Why Realtors should care about the pilot

Doorsteps says the idea behind the product is not only to extend that relationship, but to offer a more targeted search experience and better understanding of neighborhoods as a means of yielding better rental leads.

Christie Farrell, Director of Corporate Communications at Move, Inc. tells us, “the rental market is a huge opportunity for Move to do what our vision is – connect realtors and consumers, and to provide consumers with the best possible and most consistent and reliable experience online.”

We translate that to mean that this is one more way to keep consumers focused on the realtor brand and fill the pipeline earlier on in the process.

How long will the pilot last?

The company does not have a set date for the pilot program to either end or blossom into a national offering, but we were assured that it would be months, not years.

They’re currently looking to measure the impact and effectiveness of Doorsteps Rent and see if the hyperlocal content resonates with renters – this process doesn’t take place overnight.

Monetization of the product

Based on who owns it, Doorsteps is officially a media company, which means they bank on advertisers. There are no current ad products on the site, and the company has not finalized their offering, but here is where it gets sticky.

The big pink blowup elephant in the room is multifamily budgets – rents have gone way up nationally, and especially in Austin, so the properties must be rolling in extra cash, right? Not really – they’re actually reinvesting that money into remodeling units, building new amenities, and improving the property. Our sources tell us that marketing budgets have changed very little in the last decade, despite increased profit margins.

Why does it matter if Doorsteps Rent is another line item on a budget sheet for a property manager? Because Austin is this rare little town where thousands of apartment locators (many of whom are licensed realtors) live on this same marketing budget. The rental market is so hot here, that many properties have already cut locator commissions simply because they don’t need them. It’s already a struggle.

If properties’ marketing budgets are gobbled up by Doorsteps Rent, so are the incomes of locators, and we can’t imagine that a realtor-branded product would ever intend on damaging their constituents.

So if the advertiser isn’t the property, then who is the advertiser? Realtors and apartment locators that want to have their headshot posted up next to rental listings? Or will featured listings be the bread and butter? Perhaps banner ads will hit the sweet spot. All Move models are free to consumers, so the end user won’t be the one padding the coffers, but the direction they head with the monetization will dictate whether or not the real estate practitioner backs it.

The product speaks to the greater good

If you’ve searched for rentals on the big portals, you’ve already seen that there are some serious accuracy problems. Spend five minutes searching sites that don’t rely on MLS data, and within that time span, you’ll find listings that aren’t real, or are straight up scams. Trust me, it only takes five minutes.

This has done a lot of damage to the rental industry – portals allowing bad listing data to be uploaded has abused the consumer and destroyed the trust between real estate practitioner, consumer, and even search portals.

If a consumer spends time on Doorsteps Rent and finds the data to be accurate (and we hope it is, even though unnamed third parties will be feeding data to the site), this could play into the national campaign between realtor.com and the National Association of Realtors to re-establish trust and faith in the industry.

What we hope the future holds

There are three things we hope the future of Doorsteps holds: Swipe update, UGC, and AI. Let me explain.

First, if Doorsteps Rent does not lead to a Swipe product for rentals, I will literally lose my mind. If you aren’t familiar with Swipe, go spend five minutes on it and tell me you’re not hooked and suddenly in the market for a house .

Second, it would make sense for this to finally be the place where some user-generated content (UGC) is opened up. It can’t exactly be done on realtor.com, because a random consumer adding comments to a listing could be extremely tricky, given how highly regulated it is. But, I imagine Doorsteps Rent could very easily be the Yelp of neighborhoods, with consumers adding pictures of what they’re up to in the area, the newest fish taco place (eww, but whatever), or how the new highway development is impacting commutes, and so forth. I doubt there will be any star ratings, but I predict that consumers will be invited to participate in the process not only for the added benefit of unfettered content, but because their creating a login to do just that means one more contact opportunity for realtor.com and the incubation of consumers much earlier in the sales cycle.

Lastly, I should note that this pilot marks the first step in personalization for renters, an often overlooked segment of the population. After this step comes geo-targeting and maybe the acquisition of a company like Nextdoor, a private social network that enables members to communicate with neighbors. After that, I hope the ultimate evolution of Doorsteps Rent will include more predictive search that understands a consumer’s desires based on their past rental experiences, but that’s like hoping for the site to be complete with artificial intelligence. A girl can dream.

The final verdict

Doorsteps Rent is an important piece in the puzzle. For years, the image of real estate practitioners in the rental field has been tarnished by the bad behavior and greed of non-MLS search portals, and consumers have been left to use subpar sites with subpar information.

Personalizing the process with this gorgeous, urban design, brings future homebuyers into the fold much earlier, which is a huge win for realtors.

Ultimately, the success of the pilot depends on the monetization strategy, a strict devotion to data accuracy, and quality content that resonates with renters.

We believe the pilot will succeed and anticipate that it will become a national offering. We predict that it will ultimately lead to a Doorsteps Rent Swipe product, future acquisitions to better connect neighborhoods, and the evolution of the site into a Yelp/Doorsteps hybrid.

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.

Real Estate Corporate

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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