Thoughts on OfferDepot, Opendoor, Zillow

Mike Delprete, the man behind Adventures in Real Estate Tech, recently sent out an email newsletter (I can’t find the article on his website) about OfferDepot:

A Keller Williams team in Phoenix recently launched OfferDepot, an instant offer play, to “help with all the confusion with cash offers vs bringing your home to market.”

Why it matters: This is the first move from a traditional real estate company into the instant offers space.

If you’re not subscribed to Delprete, you’re missing out. Sign up for his newsletter. He is seriously smart. I’ll have to quote from the email liberally as I can’t find a link to a post on his site, but I wanted to engage in some freeform thinking. And as I’ve often said before, I don’t know what I think until I’ve read what I’ve written. So… here goes.

UPDATE: MikeD has published the article on his website. Go read the whole thing.

A Tickle in the Brain

I agreed with just about everything Mike wrote in the analysis of what OfferDepot (and future iBuyer initiatives from traditional brokers and agents) means for dedicated iBuyers like Opendoor. He wrote:

The online experience isn’t great. In a design reminiscent of the mid- to late-90’s, users must struggle through a form to submit their home’s information. It’s a far cry from the premium experience Opendoor strives to offer its customers through the entire process.

But it works. It does what it needs to and collects leads. And it is this dilutive effect that is the biggest implication to dedicated iBuyers like Opendoor. As I wrote in that same analysis:

The proposition from the incumbents will be poor, but it will be enough to soak up a portion of the demand in the market and take momentum away from Opendoor and other iBuyers.”

It’s simple economics. If we assume the demand remains constant, the addition of supply will dilute the amount of business any one iBuyer receives.

Certainly, Mike is correct. The user experience will be poor, but it will still soak up demand. That will have an effect on incumbent iBuyers.

And yet… there’s this tickle in the back of my brain. I don’t know what it is yet. But something about this doesn’t seem as cut and dried as Mike lays out. That’s the itch I’m trying to scratch.

Web-Based vs. Personal

So let’s start with this basic observation: iBuyers are web-based, traditional real estate is personal.

Is that right? I think it’s right, but have things changed so much in the past couple of decades that traditional real estate is also web-based?

When I wrote about and talked about Zillow’s entrance into the iBuyer game, I thought one of the most significant pieces was that Zillow was going to generate a tremendous amount of seller leads. In my head, I contrasted that with the traditional seller lead generation process of real estate agents farming a neighborhood, working their spheres of influence, and getting referrals. I felt that even in 2018, most homeowners are not turning to the web to sell the most valuable asset they own; they would ask friends and family, or if they had a pre-existing relationship with a real estate agent, contact that person for advice.

Zillow and the iBuyers were going after a small fraction of consumers who were much more comfortable with getting impersonal, automated offers from giant faceless companies. Sure, that would still result in a flood of seller leads, which are incredibly valuable right now, but the vast majority of sellers would still contact a real estate agent via referral.

Along that line of thinking, I believed that Zillow’s iBuyer program importantly allowed Premier Agents who are participating to present an offer from Zillow during a listing presentation. So it wasn’t a replacement of the web-based iBuyer program, but a wholly different channel, and one that fit in seamlessly with the personal relationship-based marketing of real estate agents. Redfin has been doing that this entire time, after all.

In my June Red Dot, I recommended to brokerages that they implement an iBuyer program. And now I realize I didn’t spell this out, but I was thinking less about the web-based approach and more about giving agents the ability to present a choice to the seller during a listing presentation. Here’s what I wrote:

With the entrance of Zillow into the iBuyer space, that entire business model can be said to have been validated. Furthermore, the strategies of both Zillow and Redfin show that the iBuyer business isn’t only about flipping houses. It’s also about offering consumers a choice between risk and reward: less money with certainty right now, or potentially more money later with less certainty….

Once again, it isn’t about buying and selling houses on your own that matters as much as at least attempting to answer the consumer frustration with the process, and offering them a choice – just as Redfin does.

Now that I think about it some more, the notion wasn’t so focused on seller leadgen over the web; it was to arm the agent, who already has the seller lead gen covered via her marketing activities, with the ability to offer a choice to consumers.

Presumably, the Keller Williams team that launched OfferDepot is doing just that: offering choices to their seller clients during the listing presentation. Why not throw up a website and collect leads as well? Hardly costs anything to do that, and if it leads to a few sellers filling out the form, well, so much the better. It’s no different than the “What’s Your Home Worth?” tools that have been around for ages.

I haven’t spoken to anyone on the Kenny Klaus Team, the guys behind OfferDepot, and the site is so new that I doubt real data is available just yet, but it would be interesting to see/hear what the impact of this program has been for them. Is the site really generating a flood of seller inquiries? In Opendoor and Zillow’s backyard? If so, that would be interesting in its own right.

Lead Generation or Service?

Closely related, I suppose, is the strategic focus of OfferDepot. Is it meant to be a lead-generation and lead-capture play, or a service delivery play? I know, it can be both, but which takes precedence?

If the latter, then I think it can be enormously beneficial and successful, while posing no threat whatsoever to incumbent iBuyers.

If the former, then the program has serious problems, but does pose a threat (like Mike D says) to iBuyers.

Let’s think through that.

Service Delivery

If OfferDepot is focused more as a service delivery play (i.e., offer sellers the choice of less money with more certainty today, or more money with less certainty tomorrow), then the implication is that Kenny Klaus is sitting with the homeowners at their kitchen table at the time the offer is presented.

Those sellers may never have contacted Opendoor or Zillow. They did what just about every seller does and calls an agent–in this case, the Kenny Klaus team. Maybe it’s because of a referral from a friend or family member, or maybe Kenny Klaus is the dominant listing team in the area, or whatever. The traditional methods of lead generation led to that homeowner calling Kenny Klaus. That doesn’t shift demand away from Opendoor; those people were never going to fill out a form and ask for an impersonal offer on their family homes.

If anything, OfferDepot done as a service to sellers adds to the demand. The true demand here isn’t for iBuyer services; the true demand is for something better than the broken, pain-in-the-ass process of selling a home.

Promotion/Lead Generation

On the other hand, if OfferDepot is focused more as a lead-generation play, then there are some significant problems for Kenny Klaus team.

First, people have to know about OfferDepot. Trying to battle it out on Google against the likes of Opendoor, Zillow, Redfin, and the thousands of others who are gaming SEO like mad is… well… you can do it, but I’m skeptical. Show me the money, as Rod Tidwell would say.

Or, the Kenny Klaus team can invest a shitload of money into advertising OfferDepot. That is no different than anybody else investing money into advertising to let consumers know about a website. So once again, competing against the marketing budgets of Zillow, Realtor.com, Opendoor, and Redfin in the crowded media consumer mindshare attention span space is… well… you can do it, but I’m skeptical.

Second, now the user experience that Mike D talks about is a real problem. To give a personal example, I recently purchased some products from Amazon rather than from the company that makes (and sells!) the product simply because the user experience on Amazon is better than on the company’s own website. It was more expensive on Amazon; I didn’t care. That’s how important user experience is, and I’m not convinced that any real estate brokerage or team can compete with the UI experts and the design budgets over at actual tech companies.

Third, operating OfferDepot, doing SEO on it, advertising it — none of those are free. I wonder if that money could be spent where Kenny Klaus Team is already strong to make it stronger, rather than where it is at a major disadvantage. That is, what if Kenny Klaus Team invested even more in the personal relationship type marketing like farming, sphere communication, and the like? That’s an area where the iBuyers are weak.

That’s the Tickle, I Think

So we arrive at something resembling a conclusion. And I feel like the itch has been scratched.

It isn’t that OfferDepot is bad–it’s fantastic, actually. I recommended it in my Red Dot, after all. But I couldn’t put my finger on what it was that was bugging me. I think it’s this:

Do iBuyer programs, but as a service to sellers, while focusing on where your strength lies in lead generation: personal relationships.

To do otherwise, to jump into trying to become an iBuyer yourself, is to compete where you are weak: technology, websites and mobile apps, and media advertising. It’s a form of the Don’t try to out-Walmart Walmart principle.

The challenge for real estate brokers and agents and teams is not to launch a successful website that generates inquiries by the thousands. The challenge is to prevent your past clients from referring Zillow to their friends and family.

Let me end with a quote from a strategist far more brilliant than any other:

You can be sure of succeeding in your attacks if you only attack places which are undefended. You can ensure the safety of your defense if you only hold positions that cannot be attacked.

– Sun Tzu, The Art of War

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10 Comments

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  1. As always, well said my friend. And, as I have stated for way too many years, as it relates to all things consumer. “The proof is in the process” with the important caveat that the consumer’s assessment of that process must include that it is being delivered at a fair price.

  2. Could it be that the Kenny Klaus team just sees a potential objection/threat from iBuyers and just needs to tick that box to keep the process moving?

    “We’d like to have you list our house but we’re going to get a price from OpenDoor first.”

    Now the Kenny Klaus listing specialist has the tool to neutralize that objection before it’s even mentioned:

    “We can list your house at $X or, if you’d rather avoid the hassles, etc. we’re prepared to give you a cash offer of $Y right now.”

    They can fine-tune their sales pitch to help the seller make their preferred choice on the spot.

    I see the potential for this to be licensed out to all brokers (especially those that don’t have the capital to support carrying 1-10 homes) and the ability to make a localized, white-label app or website to tie it all together.

    It seems like the natural broker reaction to iBuyers but one that could turn into its own iBuyer program.

    That said, I don’t think OpenDoor is going to be caught off guard by this. They had to see it coming and it will be interesting to see how they address it.

    1. “I see the potential for this to be licensed out to all brokers (especially those that don’t have the capital to support carrying 1-10 homes) and the ability to make a localized, white-label app or website to tie it all together.”

      What exactly do you see brokers licensing? It seems to me this is nothing more than a fancy lead generation form, and relationships with local investors/Zillow/Opendoor/etc.

      Are you more thinking there will be an Opendoor clone (AVM, financing, showings tech, construction, experience, etc) that white labels their whole offering, rather than go direct to consumers the way Opendoor is? Buying homes is a heavy, heavy capital expense… seems if someone is doing that, they’d want significant control over what is purchased/not purchased. More than they’d get with a brokerage controlling the whole experience. Not that it can’t be done… just thinking through the hurdles needed to succeed with that model.

      1. Drew,

        Kenny Klaus (or another player) could white label this, especially with a boost or blessing from KW.

        The data/AVM is relatively easy (written by a guy with extensive data/AVM experience) and there seem to be capital partners with money burning holes in their pockets.

        The reason a broker or team may offer it could be quite different from why Opendoor or Zillow do it.

        My point was that if franchisors/brokers feel pain from this, they will find a way to respond.

  3. So far no one has organized this market niche – but they will, and when they do they will sit on top of these brands. iBuyers won’t like it. They will all have to compete against each other for every deal.

    So, if you want to play, up goes the offer price and down goes the margins. Oh yeah, the local flippers are competing as well….and a homeowner that’s willing to take on the project, local investment groups etc. – lots of competition, not good for the model.

    But, I’ve been wrong many times before. I just happen to see the bigger opportunity and that is to turn the iBuyers into….well, just buyers.

    #wehavealltheibuyers.com – “When buyers compete – you win!”

    Thanks,
    Brian

  4. Rob,
    What happens to the ibuyer when 2008 happens again? I work in a very competitive market (Phoenix) and the reason these companies are doing so well is that sellers have equity in their homes.

    When you people what their true cost could be with an ibuyer, and how a closing cost credit for repairs manipulates the true sales price, their only advantage is moving when you want to.

    If the market were to crash again, ibuyers will be left holding the bag.

    I would argue that rates going over 5% are causing more of an issue than anything else. If you bought a home in 2011-2014(5) you have a ton of equity and a low rate/payment. Where is the motivation to move up when your payment increases by 300-900/month and your rate jumps 2%? Find the answer to that and you’ll unlock the inventory issue very quickly.

  5. Humble brag alert: KK is brilliant. Most iBuyers offer agents a referral fee to agent who bring them a listing.

    As a part of my listing presentation, I will let my potential client know that they have choices. I break down the net sheet based on their options and let them choose. Either way, whether I get the listing or not, I get paid and I represent the sellers best interest.

    Win, win, win.

    KK is doing this on a much more grand scale. I’m sure that he has negotiated a better referral fee and a more direct line to the ultimate decision makers @ Opendoor, etc. Therefore, streamlining the process for the consumer.

    It remains to be seen whether the cost of advertising his new platform will be prohibitively expensive or not. My suspicion is that he will do very well.

  6. Looking at companies like opendoor and instant offers it will be short lived as others eluded too. If there is any correction in the market they disappear. Retail residential investing just doesn’t work to well with a market like it is right now. The big money that was made in RE investing last 8 years was in the secondary mortgage market and and all the big players in that space have throttled back big time. They where multi billion dollar hedge funds most agents and brokers don’t even know exist. They already made their money and got out.

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