Just as Zillow quits trading, RedfinNow enters the Twin Cities
As Zillow Offers consolidates its operations in the Twin Cities, RedfinNow is moving in.
Just days after Zillow announced plans to shut down the company’s division that offers sellers near instant cash offers, Redfin said it was expanding its own version of the service to the Twin Cities.
Both metrics highlight the challenges – and opportunities – these tech companies face as they attempt to disrupt the way homes are bought and sold across the country.
Zillow initially launched its iBuying division in the Twin Cities in early 2019. Typically, iBuyers buy homes directly from sellers at market price, make improvements quickly, and then list them. Unlike traditional “house fins”, these houses have never been listed on the open market.
When Zillow announced earlier this month its intention to shut down the operation, the real estate technology company only had 166 homes for sale in the Twin Cities metropolitan area.
Days later, Redfin announced plans to bring its iBuyer service to the Twin Cities – a move scorned by many traditional real estate brokers and agents who say that while there is a place in the market for such a model, the traditional model will remain dominant.
“There are so many variables when it comes to determining the price of a home, as well as all the personalities,” said Todd Urbanski, former president of Minneapolis Area Realtors and sales agent at Fazendin Realtors in Wayzata. . “I don’t think it’s possible to price a house using any technology or algorithm that is beneficial to the consumer.”
Companies that pay sellers in cash on the spot for a quick sale have been around for decades, but these new iterations of the model are being operated largely by well-funded tech companies that take a technology-centric approach. The idea is to streamline the home buying process by wooing sellers who have become accustomed to buying everything from groceries to cars online. The concept has also been adopted by Offerpad and Opendoor, which also has an established presence in the Twin Cities.
Typically, iBuyers’ profit model is based on the assumption that the business will make a profit after the property is quickly repaired and resold. In some cases, companies also benefit from referrals from agents and other affiliate services, including mortgages and securities.
So when Zillow announced last week that it was shutting down its nationwide iBuyer operations because it had not found a way to make the model profitable, some mainstream brokerage firms said it was not. not surprising given that the company was buying and selling properties on the basis of proprietary valuations which its oft-watched “Zestimates” used.
While Zillow said the error rate for its Zestimates can be around 2%, company CEO Rich Barton said in a statement that his software was unable to accommodate market fluctuations and a shortage of labor and supply chain issues made it difficult for the company to relist properties quickly after their acquisition.
For example, in early September, Zillow paid $ 277,400 for a 1,308 square foot home in Minneapolis and, after a quick refresh, listed it with Twin Cities-based Kris Lindahl Real Estate (KRLE), a month ago. later for $ 274,900.
According to many agents, these Zestimates were not able to accurately reproduce the type of analysis that could be performed by a local agent. And although Zillow and Redfin adopted a similar iBuyer model, companies differed in their approach.
Redfin employs its own locally licensed brokers and agents who are able to work directly with people wishing to buy and sell in the traditional way, but they also represent the company in the resale of the properties it purchases. Zillow worked with local “partner agents” such as KRLE to manage the resale of the acquired properties.
Chris Prescott, Minnesota market manager for Redfin’s brokerage firm, said the company’s ability to offer sellers the option of a traditional listing situation or an instant offer gives the company a competitive advantage over Zillow offerings, he said.
He said Redfin’s iBuyer Twin Cities division will have its own staff, including a district manager, who will be responsible for handling these transactions. Prescott said the expansion to the Twin Cities was due in part to constant requests from local vendors requesting an instant offer option, which he relayed to headquarters in Seattle.
“There is no single consumer, which is why it’s so important to offer Minnesota homeowners a variety of selling options to meet their needs,” Prescott said. “While many sellers still choose to work with their Redfin agent to sell their home on the open market, we know that many would prefer to skip the listing process altogether and sell their home as is to RedfinNow.”
The Twin Cities metro is RedfinNow’s 12th new market this year. The service is offered in 30 markets in 15 states and the District of Columbia.
Like the Zillow offers, RedfinNow uses local information and its proprietary machine learning algorithms to make a cash offer based on the location, condition, and cost of home repairs. Like other iBuyers, RedfineNow sellers can choose their closing date after accepting RedfinNow’s offer. OnceRedfinNow owns the home, performs updates, and then lists the home for sale on the open market.
Prescott said RedfinNow will initially be available in the 13-county metro, but plans to expand to 15-county metro by the end of the year, and possibly Rochester and St. Cloud in 2022.
He said that even as the company assembled its local team, the response to the announcement had been positive.
“We have already sent offers to sellers,” he said. “About half a dozen so far.”