Everyone is coming after real estate agent commissions, DelPrete tells ICLV

Inman Connect Las Vegas got off to a raucous start with Brad Inman taking the stage to the strains of Beyoncé and telling the audience that nothing, in her words, will “break his soul.” He then challenged the crowd to a TikTok-style dance-off to the song, with the winner getting free airfare and tickets to Inman’s next event in New York. While we can’t capture that magic here in this newsletter, here are insights from two major conversations that took place on the first day of ICLV.

Everyone is coming after real estate agent commissions, Mike DelPrete tells ICLV

THE NEWS: It used to be that sustained unprofitability was the name of the game in the real estate technology space — whether a company actually made more money than it spent wasn’t immediately important. But the shift in the housing market has meant that tech companies now actually have to show a profit and they’re increasingly looking to a specific source for it: agent commissions. That’s according to real estate tech expert and strategic adviser Mike DelPrete, who spoke at Inman Connect Las Vegas in a session called “2022 WTF.”

“We are in the midst of a massive financial reckoning in the real estate tech space,” DelPrete told attendees. “Some of the biggest real estate tech companies out there are bleeding money, hemorrhaging huge amounts of cash.”

BEHIND THE NEWS: The session prompted considerable schadenfreude from some attendees, indicating the hostility that some companies with cash to burn — “that is incredibly difficult to compete with,” DelPrete noted — have generated in the real estate industry. When DelPrete pointed out that iBuyer Opendoor has lost more than $1.6 billion since 2017, someone in the crowd laughed gleefully, prompting the audience at large to laugh. “If you like that, you’re going to love what’s coming up next,” DelPrete joked. He showed a slide of Zillow’s losses over the years, prompting cheering from some attendees.

But in an era where real estate tech companies are having to pivot toward sustainable business models, they’re now going after “one unrivaled source of revenue and profitability” that is going up even as the market shifts because of rising home prices: agent commissions. “This is this natural resource underground like a reservoir of natural gas and … everybody’s trying to tap into it because that’s the one way to make money,” DelPrete said. Read the full story here.

>> NUMBER OF THE DAY: $93 million gross profit last quarter for Offerpad, the company’s third straight profitable quarter <<

Redfin CEO at ICLV: Market correction is ‘sharper,’ ‘faster’ than expected

THE NEWS: Redfin CEO Glenn Kelman argued that the current correction in the housing market is likely to be “faster” and “sharper” than is widely understood, and noted that brokers are also arriving at a kind of existential moment where they have to choose which trend to lean into.

Early in the conversation at ICLV — which Inman founder Brad Inman moderated — Kelman said markets where home prices spiked during the coronavirus pandemic are now seeing widespread markdowns on listings. One reason that’s happening, according to Kelman, is because institutional buyers have become a major force in the industry and are more likely to price aggressively in an effort to stay ahead of the market. At the same time, builders are offering a variety of perks such as higher commissions to buyers’ agents and upgrades such as nicer countertops. These upgrades are “in lieu of lowering their price,” and consequently mask just how much prices have softened.

BEHIND THE NEWS: At the same time, Kelman said the housing market is becoming more volatile. That’s happening in part due to the flood of well-funded institutions, which respond to market changes more quickly than individual buyers and treat housing more like shares in a corporation. Kelman contrasted that practice with how housing traditionally has worked, noting that pervious generations saw a home as a stable investment that over the long run would only go up.

Kelman concluded that he is generally “enamored” with increased efficiency in real estate, but is not thrilled by rising volatility. “I just think as Wall Street owns more of Main Street,” Kelman said, “the housing market will look more like the stock market, which is extremely volatile.” Read the full story here.