[Music] Hello everyone and Welcome to another episode of Selling Greenville your favorite real estate podcast here in Greenville, South Carolina I'm your host as always Stan McCune realtor right here in Greenville and you can find all of my contact information in the show notes if you need to reach out to me for any of your real estate needs text me call me email me any of those things I will warn you email has some new security things going on as of the past couple of weeks so it might be best to start by texting me but nonetheless I do try to check my SPAM with regularity because important emails go in there all the time now and my email is hosted by Gmail even though it is a not a Gmail address in terms of the URL anyway all my contact information is in the show notes and just a reminder as always if you get anything out of the show please subscribe so you don't miss future episodes just hit that little subscribe button that helps the show and please if you can just take a moment to leave a festar rating in apple podcast and to to type up a short little review in the podcast app you just have to go to the show page and scroll down a little bit and you'll see five stars you just hit it and and that's pretty much it today I am very much under the weather you can probably tell by the tone of my voice but coming off of so I'm recording this on Monday January 30th I'm coming off of having just watched Patrick Mahomes in the AFC Championship game with his gutsy performance basically hobbled on one leg carry the Kansas City Chiefs to the Super Bowl and and that is inspiring me to produce my own guty performance here on less than my normal vocal cords I'm going to get out a podcast episode because I actually have a conference this week that is going to take up the majority of my week and so I'm having to go ahead and record this now in less than ideal conditions but but hopefully you guys can understand that my voice is perhaps not the way it normally is but I'm going to do my best here today I want to talk about an article that Bloomberg Bloomberg newspaper magazine whatever it is publication just produced yesterday that I thought was very very interesting it's about the situation with what we call I buyers which are in short large companies large corporations typically on the West Coast or out west somewhere which have been the past couple of years buying up real estate and flipping said Real Estate and and making a profit that way I did an episode on them last summer and at the end of the episode so I I just talked about the whole I buyer process and just kind of what they do if you want to go back I believe it's episode 127 and at the end of that episode I said you know with the market changing and with the reality that these I buyers basically don't rely on local expertise at all they're basically just relying on algorithms and and computer models to determine if what they should buy real estate for what they should do to it and then what they should sell it for I'm very interested to follow whether they're able to keep up with the shifting market and by the way in case you don't know whenever I say something like that that's me basically I'm not willing yet to make a prediction because I don't know enough you know I haven't seen the books on some of these ey buyers such as open door or offerpad but when I say something like that where it's like I'm very interested to see it means that I'm skeptical of whether what they're doing is going to work out but I just don't have enough data to actually make a prediction that's kind of generally speaking when you hear me talking those terms on this show that's what's going on in my mind I I don't like to make a prediction unless I have actual data I will make some predictions I had a bold predictions episode a few weeks ago where I was kind of making predictions off the cuff but a lot of those predictions were fueled by data at least in the background whereas I just don't have enough data on exactly what companies like offerpad and Open Door are actually doing what kind of profit you know what their profit margins are all of these things for me to really be able to make predictions at least back in the summer I didn't but I said I wanted to closely monitor this because I was interested in it to see as the market shifted if they would shift and if they would be able to adapt well Bloomberg came out with an article yesterday a scathing article about ey buyers particularly in the Phoenix Market basically saying they have not adapted at all and I have to say this made me really excited not only did they say that these ey buyers haven't adapted but they contrasted them with local mom and popop house flippers who are crushing it right now and this is exactly what I said in my podcast that I feel like local expertise and I'm not just saying this because I'm a real estate agent local expertise doesn't just mean Realtors right there are other just the house flippers I know in this market they have inherent local expertise themselves but they also know who to tap into who to talk to who to network with who to bounce ideas off of in order to increase their knowledge as well whereas these ey buyers they tend to have people you know I don't even know if if half the people that are working for them are even in the United States I don't know it doesn't really matter though whether they are or not if they're in Silicon Valley they have no idea what's going on in Greenville their computer models as the Zillow estimate has shown us is frequently going to be wrong but what was interesting what I pointed out back in episode 127 was that sometimes they were offering more than a house in my opinion was worth and then that would end up up potentially being a problem for them now when you have a market that's appreciating 20% year-on-year it's not as big of a deal if you over if you overspend then you just have to wait a few months for the market to catch up and then you can sell the home well what happens when the market slows down as Warren Buffett says you know the people that are naked in the water when the tide goes back out something like that I butchered that but you you you know who's naked in the water when the tide goes out that's what we're seeing we're seeing right now as the market shifts who is in the water naked and guess what Bloomberg was very excited to publish an article that shows that these eye buyers have been caught naked in the water by the way Bloomberg you have to m have a subscription to get access to these articles but I have a PDF of it I went ahead and just Sav this article to PDF if you want to read read it just reach out to me again with that contact information in the show notes I'm happy to share this article with you it wasn't chock full of data but it was just interesting it was an interesting read but I am going to summarize some of the high points in this episode so they start the article by talking about a house flipper Yousef Yousef has done very well the past couple of years flipping houses and interestingly one of the and again all of these examples are in Phoenix as far as I as far as I know so they they talked about Yousef he he flipped a a two-bedroom Town H home and he actually sold it to open door and he was kind of amazed or at least it seems the article would allude to that he was amazed what open door was willing to pay for it there were willing to pay really a tremendous amount for it now he had already flipped it and this is interesting because any of my listeners that flip houses will be kind of it'll be strange to them to hear that a company that specializes in flipping houses bought an already flipped house right is that not the first rule of flipping houses you don't buy a house that's already been flipped there are exceptions right when someone starts a flip and then can't complete it because they get underwater and then it ends up you know coming on Market or maybe being an off off Market kind of situation where they just need to offload it because now now they're underwater that I can understand but this is a situation where the seller was not underwater he had flipped the house he had done everything it was TurnKey open door then came and purchased it and then tried to to relist it that's my understanding of how this all went down well now they have had to reduce the price dramatically and so here's what here's what Bloomberg said open door let's see here in April paid $265,000 for this town home $30,000 above the five other biders insane Open Door outbid other biders Open Door is now asking for $218,000 for this house a $47,000 loss not including its fees and renovation expenses probably the renovation expenses were fairly low right because they had purchased a property that appears to have already been town TurnKey but but even that asking price is too high according to Yousef and here's the here's the crazy thing this guy The Savvy mom and pop investor house flipper now he's looking to potentially buy this property back now the article ends he hasn't yet purchased it back he's he's waiting for the price to come back down as the market has shifted but wouldn't that be the ultimate Heist if he sell sells this property for an insane amount to open door and then ends up buying it back to them for pennies on the dollar I mean that would just be that would just be incredible that's like a Disney movie right for those of us in real estate that's like a Disney movie my kids would not consider that to be much of a Disney movie the the article goes on and talks about another couple that purchased a property from open door that Open Door had paid back in June $646,000 for and they bought it from opor for $485,000 a 25% loss by Open Door not to mention nearly a $200,000 loss in just 5 months that is insane that that's what we call not not changing your strategy not shifting with the shifting Market you have to shift with the shifting Market you have have to understand when the market is is turning that something needs to change in your approach and in your strategy the article goes on to say that in Phoenix again this article was was pretty Centric to the Phoenix Market open door lost money on 89% of the homes it sold in the fourth quarter an average of $58,000 a piece before accounting for fees and expenses and this is according to Tom ruff an analyst with Arizona data with Arizona data firm information Market the company in that same quarter on average flipped homes for 12% less than it had originally paid he found in November Open Door wrote down its real estate portfolio by $573 million as a Friday its shares had fallen 94% since their high in February 2021 not not great if you are an eye buyer and and not great if you have invested in these I buyers you know as a stockholder or something to that effect they have I I mean if these numbers hold in outside the Phoenix market and I can tell you right now I've seen multiple instances of this in the Greenville market I'll see a home that that one of these I buyers has for sale and it bought it for top of the market in the summer and now you know it it didn't do a good they didn't do a good job with the flip there's all sorts of of you know little issues when you walk in that are very apparent there's one that I went into recently where you know the backyard it's it's in a neighborhood that people want to have at least some semblance of a backyard and the backyard was so sloped it was unusable well guess what when they're looking at their algorithms their algorithms don't account for a sloped backyard it can't right I know that they don't go into that level of detail because I've dealt with them before they're not looking at that kind of stuff what they're looking at is the yard size is it fenced in how big is the house where does it sit in relation to the yard they're not factoring in important things like is this yard really really sloped is it actually usable a yard that is you know 2 acres for instance a fifth of an acre if it's unusable because of how sloped it is you might as well pretend like it doesn't exist and so I saw this I saw an example of a house in a pretty hot neighborhood that Open Door had for sale that they had bought top of the market it had basically no usable backyard space and they had to keep reducing the price last I looked the price was basically where they purchased it at who knows what sort of money they had to put into it not to mention holding costs not to mention that they're going to have to pay realtor fees once they sell it so that is a that's that's tough again if you're an ey buyer I'm thankful that I'm not I'm thankful that I've not invested anything into that technology because I've never believed in it because I've seen over the years this is before I became a realtor I remember the first I I remember the exact day I learned about the zillow's estimate it was before I became a realtor and this was during the kind of as we were coming out of the Great Recession my boss was talking about how his home had gone up in value and it was like how do you know that and he pointed me to this website that had an automated estimate and I was fascinated by it but then as I started flipping houses and and and doing things in real estate even before I became a realtor I realized this estimate is like useless now there is a sense in which uneducated parts of the market such as my former boss might think that it's actually useful information but it it's it's really not do not look at this estimate that will not help you listen if you want to know what your home is worth reach out to me I'd be happy to to go through look at your home see how big it is see what the market is doing and give you an idea from looking at comparable sales and from what's on the market currently what your home might be worth but outside of those handful of people that are uneducated that don't understand that the zillow's estimate is worthless I think most people most people Now understand that that number you know it it might have some truth to it but it's generally speaking going to be pretty far off I think the majority of people out there are starting to understand that now and for sure ey buyers are now starting to understand that because they based they put so much stock in these algorithms and here they are now Now with you know in in the fourth quarter of this last year in one major Market losing money on 89% of the homes that sold and I bet that number if you included the fees and expenses since that doesn't include that what about the homes that they just made a little bit of money off of on paper but you don't include those fees and expenses I bet that number is in the mid90s if you if we had access to all of that data it's it's just it's insane here's what here's what me Meer tulson an Open Door division president said in a statement she said and and well actually I'm just going to read this paragraph because the whole paragraph obviously Bloomberg they produce some of the of the best in my opinion some of the best economic articles that are out there I'm a big fan of of the content that they produce but their paragraphs leave no fat on the bone I mean word for word every word is important so I'm just going to read this Megan Meer tulson an Open Door division president said in a statement that the mix of a post-pandemic housing market as well as rising inflation and interest rates resulted in a once in 40-year Market transition I find that very fascinating because a lot of people have been comparing the market today to this the late' 70s and early 80s so it appears that open door came to that conclusion as well saying this was a once in a 40-year market transition quote we were anticipating a shift in the market but it was the speed and scale of the change that was unprecedented she said the company could have mitigated losses this is not part of the quote this is Bloomberg summary the company could have mitigated losses by cancelling pending contracts but chose instead to honor them oh good for them good for them I'm sure their shareholders are happy about that quote our customers and their trust comes first oh not your shareholders well that's a that's an interesting statement I I think that that was just for the for the pr to to be completely honest I don't know we we'll have to maybe I'll reach out to her for for a statement for this podcast no just just kidding I could care less or I couldn't care less I don't know I could care less doesn't make sense it's really it really should be I couldn't care less but I digress so they were anticipating a shift in the market but it it was the speed and scale of the change that was unprecedented you didn't see this like I I'm actually amazed that they would issue a statement like that that they did not see the speed and scale of the change that was coming I've been talking about this for I mean what at least a year on this podcast I don't know I'd have to go back and and and look and see how long we've been talking about this but we all knew that the pace that we had from you know the middle of 2020 through the middle of 2022 that it had to come down that the that the rate of appreciation that the that the low inventory that the days on Market till sale like there there was no way that it could stay at the rate that it was and we saw the writing on the wall I mean in early 2022 I was telling you guys changes are coming early 2022 it was very obvious that that was going to happen the fact that a major maor company with shareholders and the like is claiming that they didn't see the speed and scale of this change coming that to me is shocking I think that they probably need to hire some more Realtors because they've been trying to cut us out they hate us cuz they ain't us ain't us yeah that that probably didn't sound as good let me try that again this is my throat not working so well for me they hate us cuz they ain't us which is if you don't know about that phrase that is just a pop culture phrase I don't know where it comes from anyway that's the way I feel about I buyers I don't care if they stay or go but if I were a shareholder of a company like Open Door issuing a statement like this I would be very very frustrated and I'm sure that a lot of I'm sure there's a lot of angst behind closed doors over there at their headquarters here's another quote from the article while Open Door is nursing losses local flippers sold homes for 20% above purchase price hey if you're a local flipper and you're listening to this pat yourself on the back you have You've Won right you've been competing with these I buyers for the past several years and you came out on top 20% above purchase price on average I'm I'm not sure if this is talking about the entire Market or just specifically Phoenix but I've seen this in Greenville local flippers are still doing just fine they tended Here's the the the rest of the quote they tended to buy distressed properties though they also generally put more into Renovations the typical Phoenix homeowner is sitting on an additional $100,000 in home equity since the pandemic began according to real estate data firm Black Knight Incorporated listen the local having local knowledge is right now for for the time being and and for for a while I I don't see this changing probably for several decades having local knowledge is going to beat computer algorithms artificial intelligence algorithms all of these things they are far behind on their ability to project home values potential arvs after repair values all of these sorts of things they are nowhere near capable of doing that you need to have local expertise to be able to do that and they were able to get by the past two years right when you have again 20% year-on-year appreciation even if you mess up even if you make a mistake on those valuation numbers just wait it out a few months and you'll see your property go up 6 to 8% in value and then all of the sudden now it's worth what what you have it listed for you just had to wait a little bit longer than normal that's exactly what was happening in my podcast that I recorded this past summer I said that on average these ey buyer homes tend to linger on the market longer than the other homes why they were not in as good a condition as the other homes and also they were priced at the top of the market well they were able to just wait it out you know 60 70 80 days then the market came up to where it was listed at and then they were able to sell at that point and and make a Profit just not as quickly as you guys you guys that were flipping houses those of us that were flipping houses we were able to make the same amount of profit just a lot quicker so I promise you guys that I would be monitoring the I buyer situation very closely and here we are we have actual data showing that they did not adjust the way they should have to this Market they overpaid in a lot of instances and now they're selling for pennies on the do and an interesting conclusion from this the article cuz they they actually reached out to a real estate broker in this article for comment that she's actually targeting these properties now and that this was kind of a learning thing for me as a realtor I'm not afraid to admit when I learned something that I hadn't really thought of I tend to shy away from these ey buyer properties because I don't like the shoty work that I've seen in many of them they're difficult to to work with difficult I said this in my in my episode over the summer difficult to schedule a showing with them difficult to work with them just kind of in general and so for me as a realtor I don't want my clients to have to go through that I don't want them to have to buy a house with shotty work a house that's going to be very a very difficult transaction I want to help all of my buyer clients get the perfect house for their situation and to have just an ideal smooth transaction I've not seen that with I buyers up to this point but what this Bloomberg article pointed out is that for for properties that have been on the market with these ey buyers and have had multiple price reductions this is a blood inth water kind of situation where you might be able to purchase something for for even less than it's worth even right now because of the the situation these ey these properties off they're they'rebuyers right now are just having to dump cutting losses at this point and so I'm going to be approaching this a little bit differently moving forward because in the past there might be reasons for caution to exercise caution when working with a big corporate house flipping organization such as an i buyer but now there might be some unique opportunities to to find something below market value in a shifting market and take advantage of the fact that these large corporations have have overextended themselves and and revealed that they are naked in the water if you have any questions about any of that or if you'd like a copy of that article my contact information is in the show notes also if you have any real estate needs my contact information is in the show notes I represent buyers I represent sellers investors owner occupants and the like just let me know if you enjoyed this episode and this show please make sure you are subscribed in your podcast app I'm in a bunch of podcast app apps although the vast majority of you use apple and Spotify but we're in several others so please make sure you subscribe to the show please leave a rating please leave a review and we will talk again next time [Music]