Inside the Realogy-Blackstone iBuying venture

Finnegan runs an outfit for which Home Partners of America holds a significant, undisclosed stake. Chicago-based Home Partners is a corporate landlord that gives tenants an option to eventually buy their home. Blackstone Group agreed to buy Home Partners for $6 billion in June. The Wall Street Journal reported that Home Partners owns over 17,000 homes in the U.S. and that about 20% of Home Partners renters eventually purchase their home.

The Realogy/Blackstone foray comes at a pivotal, if not existential, moment for iBuying, which lets people sell their home for cash instead of listing it on the market with a real estate agent.

After pouring billions of dollars into iBuying, Zillow announced its exit from the sector this month. The main remaining iBuyers – Opendoor and Offerpad – are growing fast but report net losses.

The Realogy/Blackstone partnership also raises questions about whether iBuying is directly leading to fewer owner-occupied homes – at a time when real estate faces an inventory crisis – and more homes owned by investors. As part of its wind down, Zillow is actively looking for corporate landlords to buy its properties, and reportedly has sold 2,000 homes to New York City investment firm Pretium Partners.

A study released last week by the corporate landlord lobby disputes a major connection between iBuying and its members. National Rental Home Council “member companies acquired fewer than 4,000 homes through September 30 using iBuying services,” the study reads, “an amount less than .08% of the 5,195,000 total homes purchased by all buyers in the United States during that time.”

RealSure, meanwhile, is…maybe growing fast? In a video interview with HousingWire, Finnegan gave a pitch for why RealSure might succeed where others have not, but was short on specifics including what, exactly, Realogy is investing in the venture.

Realogy is the biggest brokerage in the country by sales volume, per RealTrends figures. In other words, it has a lot of real estate agents who might not be happy about alternatives to listing your home with a real estate agent! But, as Finnegan explained, RealSure does seek to work with agents.

Here is an edited version of that conversation with Finnegan, who conducted the session with her pet in the background at a dog-friendly New Jersey hotel:

HousingWire: You have a background working at Walmart and Rite Aid, but not a background in brokerage. How can your prior experiences assist in your current position?

Katie Finnegan: Walmart was such an amazing experience, where I really understood what scale and impact meant. Walmart is just this next level step change, where 160 million Americans go into a Walmart store every week. And so, when I left Walmart, I thought, ‘What can I do next that going to give me the same amount of impact?’ And I don’t think it’s going to be in retail, right? Because that is the culmination of scale. And, so, I actually looked around industries that I felt I could add value from a consumer lens perspective. Where I felt that probably the consumer experience hadn’t been disrupted, and I could bring learnings from other industries.

And, so, the three that came to mind for me at that time were health care, education, and real estate. And, so, when I got into this – It was like, wow, that’s one of the three, that’s amazing.

Also, having two very large real estate titans backing this gives you confidence that you’re going to get to that massive scale in one of the largest asset classes that exist.

HW: Is RealSure similar in corporate structure to a joint venture? Is it 50% owned by Realogy, 50% owned by Home Partners of America?

KF: The structure has not been disclosed at this time. But they are both deeply involved and deeply invested in the success of RealSure. And you heard it firsthand from Ryan Schneider at the Realogy earnings how it’s one of the top strategic priorities of Realogy. Obviously, Home Partners doesn’t have public earnings calls, and you can’t hear it from them, but you could assume a similar tone.

HW: Any specifics you can give about how much money Realogy is putting into Real Sure, or any kinds of goals in terms of homes sold?

KF: We’re not quoting consumer metrics. But what I will say is that qualitatively the RealSure team have really spent a ton of time figuring out the financial model, the economics, and the customer value proposition. Homebuying is a very complex transaction with a lot of zeros attached to it, right, so you want to be very precise.

And that was impetus for hiring for me, for hiring a CEO. This summer, they said, ‘Okay, now’s the time to make this a massive strategic focus of ours.’

HW: Zillow just wound down its iBuying. Even if you mostly chalk that up to issues specific to Zillow, Opendoor and Offerpad have lost money doing it. Why will RealSure be different?

KF: I mean, there’s like, put this in air quotes, kind of a venture way to look at things where it’s like, ‘Oh, if you build it, they will come to you.’ And, I will say, that’s not the perspective that this team has taken.

And that’s why they’ve been a little bit ‘go slow to go fast,’ right? The last two years were focused on figuring out and building it.

Differentiating from some of the others you mentioned is twofold.

One is an extremely profitable lease-to-buy program. So, there is a program that has been created by Home Partners – which was why Blackstone acquired them – that has found a way to take homes and make a profit out of them. So, we have a way to actually offload those homes quite profitability.

Second, is their predictive analytics and data modeling function. The core competency of Home Partners and Blackstone has been that they need to understand the market opportunity for an individual home with so much precision, because if they’re off by 10 basis points at billions of dollars that becomes a lot of money. And that allows us to really understand what to bid on homes in a way that is extremely scalable and profitable.

HW: Given Blackstone’s history as a landlord renting single-family homes and Home Partners’ business model, when RealSure buys a home will it be an option to lease the home out, instead of immediately trying to resell like other iBuyers?

KF: It’s not super black and white as to where the home goes and how we do it, right? Because we have all the options that we’re pricing in, but that is one of the options for sure.

HW: If you want to use RealSure to sell your house, how does it work?

KF: We’ll price the home and say, ‘Listen, we can give you this, obviously, you don’t have to then stage it, and you have the certainty of selling it.’ And the fees are different because you’re not listing.

However, you can also list it simultaneously for 45 days and see what the best offer is, right?

But it allows you to know that a sale is guaranteed, you’re going to get X dollars in the bank, and you can make family decisions. A lot of times, these families are just sitting in limbo, not sure when they can make decisions. This allows you to effectively do both options simultaneously and make the decision that makes the most sense for you.

HW: How many homes has RealSure bought so far? How many has it resold?

KF: To be honest, I don’t even know that number off the top of my head. I would say it’s insignificant for what it’s going to be in the next 90 days.

HW: In terms of how Realogy’s agents work with RealSure – How does that work?

KF: It depends on your preference. So you’ll come in and say, ‘I want cash for my home,’ and we’ll say, ‘Okay, we’ll give you $250,000 for your home.’ And then we’ll say, ‘But if you want to list it, we can help you do that, too, right?’

So, then we’ll assign you an agent. And most or all of the agents assigned are in the RealSure program and sort of selected for this, right? So, they’re very well versed. We’re going to continue to optimize the matching program and make sure the personalities fit. Because as I’m sure you know, an agent is very much a personal relationship. So, making sure that maybe a working mom has a working mom as agent.

HW: Opendoor has gone to charging consumers a flat 5% fee for all home purchases they make. What is the fee RealSure charges consumers?

KF: It’s similar. I actually don’t know if it’s the same in every market. It’s very standard to what the usual fee is for a broker.

HW: Let’s close with the Zillow question. Here’s a company with seemingly all the resources and brand visibility in the world, and they gambled on IBuying and lost. What assurances can you give that RealSure will not suffer a similar fate when it tries to scale up its iBuying operation?

KF: With Home Partners and Blackstone, the tires have been kicked and pressure tested. And, so to me, it just shows the importance of really the approach the team has taken with “go slow before you go fast” and taking two years to really work through it. So then when we scale up, we’re very confident in our approach and what that means for our balance sheet.