Online estate agency Emoov has launched a residential ‘instant buyer’ scheme in the UK, giving homeowners the option to avoid property chains and sell their properties quickly.
Similar to ‘iBuyer’ firms in the US, such as Opendoor and Zillow, Emoov uses algorithms to value a property and make an offer, reducing the time and fees involved in a traditional transaction.
Emoov, which is owned by proptech platform Mashroom, allows sellers to list their properties and, if they have not been sold within 30 days, they can request an offer directly from Emoov.
The price Emoov offers will be the market value of the property, minus the cost of buying and reselling it. That cost varies from property to property, typically ranging from 3% to 7% of the value.
In order to finance its offers, Emoov has agreed a credit facility with Selina Finance, a UK lender focused on flexible financing for SMEs, which last year raised £42m to grow its UK and European business.
Emoov’s expansion into the iBuyer market is an attempt to reduce the financial risks of failed transactions.
In a 2018 report, the Homeowners Alliance found that 69% of home sales fell through because of buyer-related reasons, while a government report estimated that a quarter of failed transactions incurred wasted costs of £1,000 or more.
Stepan Dobrovolskiy, CEO of Mashroom, said: “Property chains are a pain for the UK housing market: 30% of transactions fall through, people waste hundreds of millions a year on fees. The existing solutions capitalise on the huge distress that chains are causing to customers. This is also driven by the short-sightedness of service providers and unavailability of data. Emoov is the first company to offer an affordable data-driven solution to facilitate the transactions.”
How new are iBuyers?
Emoov said it launched the UK’s first instant residential property buyouts this week, but it competes with at least one other company for that title. These businesses have largely been inspired by firms in the US.
The largest iBuyer firm in the US is Opendoor. The business, which sold close to 19,000 homes in 2019, merged with a special purpose acquisition company last year, valuing it at $4.8bn. Its share price has risen dramatically since its IPO and, at the time of writing, Opendoor’s market cap is $17.6bn.
But iBuyers are still a niche part of the US market, with Opendoor and its peers – such as Redfin, Zillow and Offerpad – accounting for less than 1% of transactions in the US. Their market share fell to just 0.1% in Q2 2020 after all the major players suspended purchases at the start of the pandemic.
In the UK, several companies have offered solutions to the problem of chains, delays and fees within residential transactions. Although there is some overlap with what Emoov does, they take slightly different approaches.
OfferHive, which calls itself the UK’s first “agent-powered” iBuyer scheme, launched last year. Unlike Emoov, it creates a provisional offer range using its algorithm before matching the seller with a local estate agent. That agent then finds an approved buyer who makes an offer at a discount to the home’s market value.
In other words, customers take a financial hit in exchange for a speedy deal with a cash buyer. An example on OfferHive’s website suggests a home valued at £250,000 would leave a seller on OfferHive with £224,070 in cash through a process that takes 24 days, compared to £234,250 through a traditional sale, which it estimates would take 173 days.
The idea is similar to Emoov and Opendoor, but it acts more as a middleman than the other two.
Meanwhile, UK-based fintech firm Immo Capital buys homes directly from homeowners, thereby creating portfolios of single residential assets, which it refurbishes, manages and rents out on behalf of investors.
As an asset manager with vehicles consisting of rental properties, Immo Capital has little in common with Emoov or OfferHive. But the way it acquires those properties – using an algorithm to value a home and offering homeowners a faster way to sell – targets the same issues around speed, chains and fees on the sellers’ side.
Asked whether it can lay claim to being the first iBuyer in the UK given OfferHive’s own claim to that title, Emoov said it is the first service in the UK that combines direct acquisition by the company with proprietary data algorithms for a property’s price and liquidity.
How risky is this business?
With Covid-19 forcing Opendoor and others to suspend purchases, 2020 dealt a blow to the industry. Months before its successful merger, Opendoor laid off a third of its staff. It then told investors in November that it expects total revenue to reach $3.5bn in 2021 – almost 26% below 2019 levels – with a rebound to above pre-pandemic levels more than a year away.
Regardless of the pandemic, Opendoor and Zillow operate at a loss. In its 2020 accounts, Zillow reported a loss of $320m in its homes business despite revenue increasing to $1.7bn from $1.3bn the year before. Opendoor, similarly, reported a net loss of $339m in 2019 (its 2020 results will be published later this week).
If their businesses grow as they have forecast, profitability will still be a few years away. However, both companies do highlight that, on average, they make a positive return on the houses they buy – although this does not take into consideration other costs within the business.
Emoov said it will test its iBuyer model in parts of the UK before rolling it out nationwide. When asked whether the profitability of other iBuyer businesses concerns Emoov, Alexander Badalyan, CFO at Mashroom, told PlaceTech: “According to our estimations our unit model would be profitable on both the gross and contribution margin level, but we will gather actuals as we deploy the proposition.
“We are confident that given our UK operations and track record, coupled with our data models, we can create something meaningful for the UK’s market.”