Earlier this week when the most dominant online real estate marketplace publicly announced it was halting its buying program here in the Valley of the Sun the news sent shock waves throughout the local Realtor community.
The Phoenix metropolitan housing market, real estate experts contend, has become a battleground of sorts for new and emerging business models designed to buy, sell and rent commercial and retail brick-and-mortar.
Zillow Group, Inc. on Monday, Oct. 17, abruptly halted its buying program citing a large backlog of existing single-family homes to be sold amid pandemic supply-chain issues.
The about-face in business model was first reported by Bloomberg News whereas the news of the change sent the value of Zillow stock tumbling down 11% on Wall Street.
The 21st-century phenomena of the digital real estate agent is no myth here in the Phoenix metropolitan housing market as hundreds of properties have changed hands in recent months, numbers show.
At the Maricopa County Recorders Office, numbers show from May 1 to June 30 “iBuyers” — the preferred nomenclature for digital real estate platforms — sold over 400 homes. Overall, the Zillow Group has purchased more than 3,800 homes last fiscal quarter.
“Backtracking several years ago, Zillow built up a very successful home search portal or website, in fact, it is the No. 1 real estate search portal in the country,” said Greg Hague, Arizona real estate expert and founder of Hague Partners.
“Their business model and its stock price is based upon the foundation, propelled further by the amount of traffic coming to the website, but they have a very serious vulnerability. All of their data, all of their listings are given to them for free — by Realtors.”
Hague argues the iBuyer model is based upon convenience for the consumer; however, what many do not know is the consumer is losing out on tens of thousands of equity. Turns out, numbers illustrate his argument.
From May 1 to June 30, iBuyers sold over 400 homes that they had previously purchased from Arizona homeowners, according to the recorder’s office.
Numbers show an iBuyer’s average profit was $40,669 from homes bought/sold from May 1 to June 20. Most iBuyers purchased homes that were in the $200,000 to $400,000 range, making their profits a huge percentage of seller equity, Hague speculates.
“Think about having a business where it is 100% dependent on another business. There are 1.4 million Realtors together and if we decided to do our own website, why should we give it to Zillow?” Hague said of his initial reaction to the iBuyer model. “They are fed the data through what is called an IDX feed. I think what is going on is they are recognizing that vulnerability.”
Flanked by views of housing in and around the Valley of the Sun, Greg Hague,
founder of 72SOLD.com, argues you can serve both the end-user and Realtor.
Relationships are everything
Gary Shapiro, a longtime Scottsdale Realtor and co-founder of Scottsdale Leadership, explains from his view — a view that spans 50 years of selling Arizona real estate — selling real estate practices will evolve, but there is no substitute for customer service.
And, he says, he doesn’t expect much to change given recent news of Zillow halting investment buys here in the Valley.
“I don’t expect buyer or tenant demand for homes in Arizona to decrease. Floods, hurricanes, tornadoes, forest fires, and rotten weather in other parts of the country help fuel demand. By all accounts, we’re a great place to live and consumers know it,” Shapiro said.
Furthermore, he says, he anticipated no major shift in general economic indicators.
“I don’t expect prices to drop or the market changing to become a buyer’s market. Instead, I agree with other real estate professionals that our annual appreciation rate will moderate versus breaking new records,” he said. “Based on my 50-years of experience as a Scottsdale Realtor, my best advice remains unchanged. It’s wise to buy Arizona real estate and it pays to do business with a real-life person who can be your advocate and fiduciary.”
Gary Shapiro, middle, has been selling real estate for a long time in the Valley of the Sun. And guess what? He says the sun is still shining and there will always be a need for those we broker and serve consumers a part of the real estate business.
Savvy tech but faulty business model?
Hague explains iBuyer programs are efforts to control the seller side of the American real estate equation, which began in earnest several years ago.
“These groups are worth billions of dollars. I warned about this, they are going to get home inventory, and they are going to aggressively buy and sell to learn how to sell real estate,” he said. “Quite frankly, a smart move. I don’t like it, but who wouldn’t? After a pretty short time, they came into Phoenix and other markets with their buying program.”
For Hague, he knew the buying program was coming to his home state.
“Phoenix is known nationally as ‘the’ market to test. For whatever reason, the nature of this market causes companies to come in and test new models,” he pointed out. “If you can make it work in Phoenix, you can make it in Topeka, Kansas.”
Hague, the dynamic founder of Hague Partners, who four years ago announced his program 72SOLD.com, has become a nationwide endeavor with over 1,000 Realtors within ranks from coast to coast.
“We are on the Realtor side, the 72SOLD model, we are the most aggressive marketer and we have a home-selling program that offers all the same benefits, you can pick your sale date, pick you closing date, stay in your home for six months,” he said of the business model.
“iBuyers charge a commission too — they just call it a service fee,” Hague explained. “The bottom line is we have gone head-to-head with Zillow, spent a fortune, and we knew the third quarter would tell the tale.”
According to Hague, his company had nearly 6% of market share, while Zillow had obtained 1.1% of market share.
“That is why they bailed, which we believe, is a testament to how we do things. A facilitation model, if done right, when you are selling to the end-user — and not trying to take advantage — it really can be done more cost-efficiently,” Hague said.
"While Zillow and the other iBuyers profit an average of $40,000 per home and often earned a 5%-9% commission too, they all lose money overall because of marketing, salaries, and overhead. The iBuyer model won’t survive because home sellers lose and the business does too."
Terrance Thornton
Executive Editor
@ININEWSMAN
tthornton@iniusa.org
I am an enterprise community newspaperman constantly trying to improve the craft of purposeful reporting in turn empowering the readership of our various publications and website.
I follow every lead and strive to provide a balanced approach to both traditional and emerging reporting styles and mediums.
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