Zillow Group (ZG 1.96%) (Z 1.74%) surprised the market by exiting the iBuying business recently. With only four major players in the space (now three), what does it mean for the pure-play iBuyers Opendoor Technologies (OPEN 9.59%) and Offerpad Solutions (OPAD 25.34%)? In this Fool Live video clip, recorded on Nov. 5, Fool.com contributors Matt Frankel, Jason Hall, and Matt DiLallo discuss what it could mean for these companies.
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Matt Frankel: My question is, is this a good thing for Opendoor, Offerpad, and Redfin (RDFN 15.91%) because essentially their biggest competitor is bowing out of the race, or does this spell trouble for the iBuying business in general. I know there's not a lot we don't know because we haven't heard earnings from the others. But do you feel like the others are experiencing the same things and just don't care, or do you think this is a net positive for the others?
Matt DiLallo: I think for especially Offerpad and Opendoor. Like they can't afford to get this wrong because they don't have a fallback option. If Opendoor, where it's like blow up their iBuying business...
Last time I checked, they were like $14 billion market cap company. Zillow is essentially saying that Zillow Offers is worth negative, it doesn't have any value whatsoever to their business because it's not like there's selling the business. It's not like they're partnering, and that does give me pause with some of these other ones, where is it worth anything? But they keep going back to the whole idea of execution and I think if they can buy houses, right as Jason was saying, and that was one of things both Redfin CEO and Offerpad CEO said in interviews, it's like it's all about where they buy homes and anybody who's ever flipped a home or watch house flipping shows, they always talk about it's where you buy it, that's where you make your money, is where you buy it.
Zillow's problems, obviously, they were paying too much on what they are buying it. But that also speaks to scale like if you can't buy homes right, how can you scale that business? I just have so many questions about iBuying. I love the idea. Can they scale it, can they execute? Especially if there's actually a real housing bubble in the future. If somebody is going to have so much debt in their balance sheet, could they actually blow up the housing market? There's just so many things that I'm concerned about with it.
Jason Hall: Go ahead, Matt.
Frankel: I would agree with that to some extent. We're a long way from iBuying becoming too-big-to-fail. I think it's fair to say.
Frankel: I could see it getting there. If iBuying would say 50% of the housing market, I could definitely us having some systemically important institution conversation. But I think this is a net positive for the others. That one, they've already proven that they're getting it right. This opens the door to not only get their biggest competitor out of the way but as you guys have alluded to, partner with their biggest competitor.