Should Real Estate Agents Fear iBuying?

As a 14-year veteran real estate broker, Kala Laos understands the challenges agents face in generating leads and growing their businesses. Her goal as founder and CEO of Zoodealio was "making sure that the Realtor® maintains a place in this new normal" of tech platforms, iBuyers, and large-scale industry players. 

In a recent interview with RentSpree CEO Michael Lucarelli on the "It's Closing Time" podcast, Laos discussed her recent appearance in a panel discussion on the main stage at Inman Connect. Having survived market downturns early in her career, Laos "learned a lot about the industry and what it takes to have longevity and success. That gave us a really unique perspective on everything that has unfolded over the past few years."

Laos has seen a lot of new technology coming into real estate to change how it is bought and sold. "That is something we're really passionate about at Zoodealio: Making sure that the Realtor® maintains a place in this new normal," Laos said—so that agents can put that technology to work in their own businesses.

What is iBuying and how can real estate agents tap into its potential?

According to Laos, "iBuying is when a company comes in and buys a home directly from a seller. The seller doesn't have to worry about bringing their home to market. They don't have to worry about making repairs. They don't have to worry about showing the home. And so it kind of gives sellers a way to sell their home very easily to a company that's willing to buy it from for cash." 

iBuying has seen a significant spike in the past couple of years. What Laos has discovered is there are many companies that are making cash offers to home sellers across America. In addition, we now have what we call the retail iBuyers such as Opendoor, Offerpad and formerly, Zillow Offers, which was a retail iBuyer that has now shut down.

Besides these retail operators. "There are many, many, many other companies that are also willing to buy homes for cash directly from a home seller," said Laos. "And so what we saw happening in our marketplace … when Opendoor and Offerpad first started coming into the market, they weren't making that great of offers. And what we were finding is that home sellers were still taking them." 

However, this new process of buying homes from sellers came with a catch. "So we knew that if the seller could sell and give up a little bit of their equity, but have this awesome convenience of not having to get their home ready for market, not having to show it, not having to make repairs, they were willing to give up some of their equity in order to have that kind of seamless easy transaction," she said.

According to Laos, according to recent research, some 77 percent of sellers were willing to give up five to 11 percent of their home equity for a non-traditional home sale. "So sellers are kind of thinking, okay, we can give up a little bit of our equity to have this awesome experience." At the same time, fees and consumer skepticism are both going down.

Laos' innovation with Zoodealio was to make sure that the Realtor® can present these offers to their home sellers and their clientele by deploying technology that "rivals" retail iBuyers. 

"And then we also connect them with the appropriate offers and offerings in their marketplace," said Laos. "That way they can provide these to their clientele. So we think that iBuying, you know, is still a relatively small percentage of transactions nationwide. It's growing though. And I think that what we need to be looking at is the pain points that it solves for consumers."

According to Laos, by making iBuying an option in the Realtor's® tool belt, "when they go into a listing appointment or when they're working with clients, they can be sharing that they have access to these offers and offerings. And that way, if the seller is looking for a solution like that, then they see the Realtor® as that expert that can guide them through the process."

What is the difference between retail iBuying and other real estate investors?

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What's happening behind the scenes with iBuyers like Opendoor and Offerpad is that "they're actually selling off a lot of inventory to other companies that buy homes for cash," said Laos. "So they may be buy and hold type companies. So we may see some real estate investment trusts, some private equity firms, hedge funds, that sort of thing. They're buying a lot of this inventory up right from these retail IBUs." Zoodealio connects these opportunities directly to other companies that make great offers and are willing to buy these homes for cash.

One of the big stories in retail iBuying was the recent exit of Zillow from the space. According to Laos, "When the news broke that they were getting out of iBuying, it kind of spread like wildfire across the industry. I think a lot of people were excited, but here's the interesting thing. In quarter three they lost $422 million on their Zillow Offers segment,  so massive losses." 

"If you look at Opendoor and Offerpad, they started as practitioners. The CEO of Offerpad was a real estate broker. The CEO of Opendoor was an investor. So I think that when their companies started they really started with the frameworks necessary to be iBuyers. That includes things like construction companies and a lot of transactional experience that Zillow didn't have maybe because Zillow was a technology company and they pivoted to this. I think that they underestimated the power of that relevant, transactional experience in the real estate deal."

"They stated in their shareholder letter that one of the primary reasons that they were pivoting and shutting down the Zillow Offers program was because they couldn't predict the value of future home prices. So maybe they were leaning a little bit too much on their technology to tell them what that home would be worth in three to six months. And as we know, we've been in an unprecedented time for the market. So you look at the pandemic and all of the volatility that we've had and it's no surprise that if they were trying to predict those home prices, it could be kind of difficult," said Laos.

In addition to Zillow's lack of boots-on-the-ground experience in real estate markets, Laos saw their tendency to overpay and expand too rapidly as two additional stumbling blocks that led to their failure to catch hold in the retail iBuyer segment. "All of that, I think, just kind of created the perfect storm," she said.

With the emergence of a power buyer model, which allows buyers to purchase their next home in cash prior to the closing of the sale of their current home, Laos believes Zillow may shift to this type of strategy, allowing them to facilitate the sale rather than having to buy and hold homes outright. "Maybe they say 'We don't need to actually buy your house, Home Seller. What if we just bought your next home in cash? And maybe we held it for a couple of weeks while your loan was being made and then we sold it to you?' So I think we're gonna kind of see a shift into that."

In addition, because Rich Barton, the current CEO of Zillow, was the founder of Expedia, which has an aggregation model, 

Laos speculates that Zillow CEO  Rich Barton might explore an aggregation model similar to what Realtor.com is doing. Essential with Realtor.com, when you go in, you type in your address and click that you're interested in selling. Users see an aggregation model of offers and options. "Which is also something very similar to what Zoodealio does for the Realtor®," Laos said.

How do you think having a real estate background has helped Zoodealio understand some of the market dynamics that an algorithm cannot understand?

"When we're working on creating the valuations for how much we're going to be offering we're able to really tweak things and add additional expertise and insight because of what we know about the market.You will never believe what someone is willing to pay for a cul-de-sac lot. You just can't look at that and say it's an extra $10,000. There are some things that just will always surprise you in a real estate transaction."

"I think that having a little bit of that human involvement is, is really important," said Laos, "especially when we're considering taking down assets that, you know, on our average, are probably $400,000. You really need to also make sure you're putting a set of eyes on that, as well."

"We're just, we're really excited to empower Realtors® with, with the ability to get out there and lead generate like these iBuyers and power buyers do. It's just an irresistible value proposition for sellers," said Laos.

In addition, Zoodealio offers a lead generation option for real estate agents, including digital interaction tools allowing them to manage communications regarding offers for their listing clients. "They get their own branded suite. So that includes a front-end landing page that they can market with. It includes a backend dashboard and management system. And then we also include the sellers' offer dashboard. So the seller actually has a really neat digital space where they can look at all of their offers and options, and even accept one, right from the platform, or counter an offer," said Laos.

"We also provide a lot of other marketing content campaigns. We're going to be providing anything from postcards to social media posts to text campaigns, email campaigns, letters that they can be sending out. And so all of this marketing material is ready, made right from their platform. They can grab it, post it. We give them all the content and the copies. They don't have to think about anything," she continued.

According to Laos, in the space, Zoodealio serves, there's a lot of focus on brokers and team leaders. However, because of their ongoing weekly training, single agents can plug in and be part of her platform, utilizing a variety of tutorials to begin implementing it in their businesses. In addition, by working with individual brokers. As a result, Zoodealio can bring iBuyer services to markets that traditional retail iBuyers have overlooked.

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