Gaining access to credit shouldn’t be hard, but developing policies and procedures may prove difficult.
Opendoor, Knock.com, Offerpad and Zillow are frequently in the news about their direct purchasing of homes. Our first thought is that this is a valuable service and one that will be welcomed by thousands of homeowners as an easy escape from a house they need to sell immediately.
Our second thought is that many brokerage firms–local, regional and national–could offer this same service. Gaining access to the credit lines to provide this is likely not as difficult as it may seem. The more difficult task is to have the policies, systems, and personnel to deliver and manage the process.
For firms like Realogy with its Cartus subsidiary, this is not that difficult. Some 30 to 40 years ago, many brokerage firms offered something similar which called for the brokerage to buy a home if they could not sell it. Even today, Howard Hanna has a program that provides the same thing to its customers if they enter a special program to gain access to this service.
By the Numbers
Even if these four firms had access to, say $2 billion credit lines to purchase homes, and they could turn those dollars six times a year, all four would be able to buy $48 billion in homes in a given year. In a housing market where sales will total $1.7 to $1.8 trillion this year, this is a small percentage of the overall market. It may be higher in specific markets where they will focus their efforts. But still, it’s a small part of the overall market.
Will it Thrive in a Down Market?
It’s important to note that none of these firms or their services have been tested in a down market. Is there one coming? Yes, the market is already showing some signs of a slowdown–existing homes sales have fallen five out of the last six months compared to the prior year. How deep will a downturn go? It’s unlikely that it will be anywhere near that of the previous downturn, but still, this model has not been tested in such a market.
Finally, will any of these firms leverage this service to build a new form of brokerage? While we don’t know their future intentions fully, they certainly have the capabilities to do so. How that would impact competition, margins, etc. is unknown, but certainly, they would have every incentive to use real estate professionals in parts of their business. They become one of many new entrants into the brokerage business.