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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
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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
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