June 13, 2021
When I was a kid, my parents sold their small apartment to move to a bigger house that could house my baby sisters. This was a labor of love, an emotional roller coaster and a constant stress on our family. I remember them going line by line cost cutting, negotiating the cost and size of classified ads with newspapers, hiring a broker, and even selling my Dad’s car to finance the move. This process took months, involved a lot of fits and starts, included prospective buyers that turned out to renege on their commitments at the last minute. It also included lots of house tours and car showings. Over the past few decades, not much has changed in this process for families around the world.
Recently, entrepreneurs have leveraged the internet, mobile phone cameras, big databases, and artificial intelligence to create companies that can buy your house in as little as a couple of days based on pictures, address, details and features of your house subject to later confirmatory visit by one of their inspectors. They use their vast information to calculate a fair price for your house and then re-sell it to the ultimate buyer as soon as one can be found. These online real estate dealers have struck a chord with house sellers and have grown 7x in the past few years (see figure). That said, they represent still less than 1% of the US annual house transaction, estimated to exceed $1 Tn.
*Top 3 Brokers (Zillow, Opendoor, Offerpad) included
Sources: Zillow; Opendoor; Offerpad; Somar Analysis
Online real estate dealers bring several benefits to house sellers:
- Speed – transaction can be initiated and closed in as little as a few days
- Fair deal and certainty of close – you get a fair market price and no negative surprises from fake buyers, or buyers that change the terms between agreement and close. Online real estate dealers are fully funded and do not renounce offers made
- Convenience – avoid showings and open houses
- Flexibility – you choose your move-out date to fit your needs and avoid double moves and double mortgages
These are still very early days in the industry. That said, there are already several investment opportunities in the space: from online real estate dealers to online support functions (insurance, title verification, notary, e-signature, public electronic keys) to even new generation movers that eliminate much of the friction of traditional players. Somar is following all these closely and will report to our investors our investments in the space.