What Selling Homes Online Says About Changes In The Global Economy
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In some parts of the country, people who want to sell their home have a new option. They can go online, type up a few details about their house and sell their home to a big company for cash. Jacob Goldstein from our Planet Money podcast explains why this is happening and what it reveals about changes in the global economy.
JACOB GOLDSTEIN, BYLINE: In the past few years, several big companies have jumped into the business of paying cash for houses. There's Zillow, which is known for online housing listings. There is a startup called Opendoor that bought around 10,000 houses last year. Also Redfin, this big, sort of hybrid tech company real estate brokerage. Glenn Kelman is Redfin's CEO, and he told me about the first time an executive at his company suggested that Redfin get into the business of buying houses.
GLENN KELMAN: And then you know what I said? I'm too chicken. I won't do it.
GOLDSTEIN: Of course, he's chicken. He would have to put hundreds of millions of dollars on the line betting that Redfin could buy houses, turnaround and quickly sell them for a small profit. This is legitimately terrifying. But Kelman told me that legitimate terror notwithstanding, there were these three big changes that finally persuaded him and a bunch of other companies to get into this business.
KELMAN: The first is that people who sell houses through Redfin are having a time getting the money fast enough to buy their next place.
GOLDSTEIN: In other words, you're selling your house. You want to buy a new house. But since the financial crisis, it's been a lot harder to get a mortgage for the new house before you've sold your old house. So there is this new group of people who can afford to make a move, but they just can't make the financing work. That is change No. 1. Change No. 2 is technological. Companies like Redfin started building these algorithms that are really good at estimating home prices. And then change No. 3 is about finance. Investors all around the world started throwing gobs of money at tech companies. It was so much money, in fact, and it seemed so easy to get that it even surprised Glenn Kelman, who is the CEO of a tech company.
KELMAN: Redfin got a call from somebody representing Saudi Arabian money or Kuwaiti money. And then he said, I've got a problem. I have all this money, and I need to deploy it. And he just wanted to give it to us. And that's when I felt like something really deep and fundamental was changing in the global economy.
GOLDSTEIN: So tech companies that have built algorithms to estimate home prices are now flush with money and can use that money to start buying houses from home sellers who need money. The companies are mostly buying moderately priced homes in subdivisions with lots of identical houses. So if you live in a house like that, you can go online, enter some details about your house and in a few hours or a day get a cash offer from Redfin or one of its competitors who then have an inspector confirm that the house is in decent shape. It's fast and easy, but there is a trade-off. You probably will wind up getting a few percent less than if you sold your house with a traditional real estate agent. Kelman says he can imagine that something like 10% of people might someday sell their homes this way, and that is enough to be a little bit scary.
KELMAN: I think it's a new thing in the economy. And if I had to pick people to make prudent bets at the casino tables, tech people wouldn't be that. And so that's where I remind myself.
GOLDSTEIN: Would not - you're saying would not.
KELMAN: Would not.
KELMAN: And I just remind myself every night. If you look at the history of subprime, you see people making a ton of money in that space and other players getting drawn into it one by one. And it proved to be their demise because, you know, you chase profits, you follow the customer over a cliff and, you know, we're trying to be the ones who beat those odds.
GOLDSTEIN: Jacob Goldstein, NPR News.
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