[Note from editor: We publish a Weekly Transmission for Geek Estate Mastermind members that consists of long form articles covering the spectrum from shipping container co-living spaces to the battle for listing acquisition in the first iBuyer world war. Below is a sample Transmission.]

Certainty as a Service

BY GREG FISCHER
Originally Published: August 29th, 2018

As Opendoor and Zillow compete on certainty centered services, others may benefit from competing from the other side of the same coin by unbundling and compressing the market.

It’s possible the iBuyer label is too narrow to describe the emerging market associated with the onset of certainty as a service. While iBuyers comprise a segment of overlapping functions within the certainty domain, entire categories (such as rentals) are yet untouched by the concept in a significant way.

There are geographical markets, and price ranges the iBuyer model won’t work for today, where alternative services might be able to provide certainty-centered outcomes for consumers where iBuyers cannot.

Moreover, in markets where the iBuyer model is growing in popularity (Phoenix, Las Vegas, Atlanta), is an even more pressing incentive to unbundle certainty’s components. There’s an opportunity to sell into the new consumer disposition that corporations are spending millions to cultivate, but which they can’t yet serve at scale.

At first glance, it seems like investor offers are one broad product category providing certainty to home sellers by activating cash offers to purchase the home on a defined timeline.

Upon further investigation, investor offers is a marketplace of services that provide varying degrees of certainty across the transaction timeline more than any one action stands on its own.

LAY OF THE LAND

When reverse engineering the components that add up to a sum of certainty that Opendoor and Zillow are selling into the marketplace, I’d posit they revolve around a few core concepts; inspect, warrant, cash, carry, and float, which make up the ecosystem of certainty as a service (CaaS).

So while there are a few startups already specializing in some of these categories, the most efficient channel to sell services through is a brokerage. If audience is the golden egg of startup growth, then top producing brokers are playing with a stacked deck and just don’t know it yet.

With real estate practitioners spending so much time defending the status quo, it shouldn’t be a surprise they can’t see how easy it’d be for them to distribute certainty-based experiences to consumers if only their values and compensation were aligned with the kind of results those services produce.

Picking a fight over Zillow Offers might get a few likes from other agents online, but is challenging the notion of certainty in anybody’s best interest? Brokers should feel comfortable defending the traditional model, but not at the expense of new ones that are working too.

Not only are operators best positioned to unbundle the components of certainty, it’s not a stretch of the imagination to think they might be able to provide better results than all-in-one solutions can by anchoring certainty around what they do best; traditional sales, and bundling additional services as they enter the larger certainty ecosystem from the other side.

Here’s a closer look at the concepts driving certainty as a service, how iBuyers are addressing them, which startups are attacking the space, and what brokers might do to get in the game.

Inspect
to view closely in critical appraisal: look over

Example: Buyers purchase inspections after negotiating the sale, without knowing much about the material condition of the home or any of its systems before committing to buy it.

Future: Buyers see inspections, maintenance, and parts inventory before submitting an offer.

iBuyers: Zillow is actively prototyping experiences that induce homeowners to upload home inspections to their listing detail page, promising better visibility and more upside in a sale. It’s logical to think they’ll provide inspections on their own listings at some point.

Brokers: If Zillow promises better visibility for listings with inspections and more upside in a sale, why don’t brokers mandate that all listings come with a home inspection as a feature of their sales model?

Warrant
a writing that authorizes a person to pay or deliver to another and the other to receive money or other consideration

Example: Sellers rarely have a home warranty in place during the listing period, and buyers infrequently purchase or receive the product upon closing.

Future: Every party to a real estate transaction gets complimentary warranty coverage.

iBuyers: Opendoor offers a 30-day satisfaction guarantee allowing homebuyers to return their house to the company if they’re unhappy with the purchase, taking the idea of a warranty to a whole new level. New home builders provide warranties because its the law.

Brokers: If Opendoor and new home builders are providing warranties on every home they sell, what’s preventing brokers from attaching a one year warranty to every single house they sell? I do.

Cash
ready money

Example: Sellers enter negotiations without knowing how strong the loan application is going to be while buyers hang their hopes and dreams on an institutional backing.

Future: Every transaction side will have access to cash-like instruments as needed.

iBuyers: It’s quite apparent how Opendoor and Zillow leverage cash to make offers and remove a significant barrier to closing right out of the gate. The liquidity of this cash allows them to make minor repairs and upgrades to the home which helps it sell faster the next time around.

Brokers: If iBuyers use cash to make upgrades to the home and sell it faster than it would have before they got involved, couldn’t brokers use cash to make updates and unlock mobility for the seller without having to buy the entire house? Ribbon is one clue.

Carry
to keep on one’s books as a debtor

Example: The market traps aspirational buyers during any given year their circumstances don’t position them to buy.

Future: Buyers can lock in a position on properties they’ll purchase at a later date.

iBuyers: Zillow nor Opendoor provide this outcome in a very intentional way, but unlock its benefits the more they allow potential buyers to control rehab particulars or liquidate sellers and lease homes back to them to optimize logistics and seasonal market advantages.

Brokers: It’s not unreasonable to expect that brokers understand the market better than any algorithm does, and might benefit from holding rentals for transitional buyers as a strategy to increase capture rates and provide agreeable returns to investor clients. Divvy is another clue.

Float
the time between a transaction and the actual withdrawal of funds to cover it

Example: Transitional sellers are weighed down by the expenses of moving and make unnecessary compromises.

Future: Sellers can get access to capital for repairs or to secure the next property.

iBuyers: Opendoor and Zillow could provide this outcome over time as they develop in-house lending solutions that unlock creative approaches to removing roadblocks for even more potential customers than they already serve.

Brokers: If sellers are willing to gamble thousands of dollars on brokers, why aren’t brokers willing to bet the inverse? If iBuyers created a brand new business category to optimize listing acquisitions, why aren’t brokers spending in parallel? Felix might have the answers.

CERTAINTY THIS IS THE END AND THE BEGINNING
As soon as brokers stop battling over which overpriced and obsolete software stack is going to attract the most agents to their firm and instead start competing over which certainty-centered services will attract the most consumers to their firm, we’ll be entering quite exciting times.

As brokers double and triple down on outbound advertising models like predictive analytics and home value landing pages, iBuyers and other startups are doubling and tripling down on inbound strategies like providing transparency and increasing mobility.

Certainty isn’t a zero-sum game. If iBuyers have enough data to guarantee what they’ll buy a home for, then brokers should have enough data to promise what they can sell one for too. The opportunity at hand is to redefine and enhance how houses get listed in the retail segment, not to eliminate the channel altogether.

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