I’d like to share two additional bits of evidence that shows we are moving to buying and selling SFHs as commodities which will lead to the destruction of the 6% commission. I laid out the argument in the previous post, “MayDay for the 6% Commission”.

We will get to the point where many SFHs can be bought and sold as commodities with a ‘market maker’ offering to buy a SFH at a “bid price” or sell a similar home at an “ask price”. A current example of this is the car selling, and now buying companies, (AutoNation, CarMax, TRUECar, Knock, Carvana). Here’s the pitch from CarMax to buy your car even if you don’t buy ours: “At CarMax, we’ll buy your car even if you don’t buy ours®.” This is a ‘bid/ask’ market.

The bid/ask spread is where these new home sales disrupter companies will make some of their money. But there are also other revenue streams in this model which is why so many companies are rushing to get into this field. The other revenue streams are for the embedded services in the home buying process. Brian Stevens of NREP has an excellent video rant on this subject (3 min, 6 sec point):

Here’s the first bit of evidence: “Why buying and selling a house could soon be as simple as trading stocks.”

“Krishna Rao, a Zillow analytics executive, likened the current evolution in real estate to the democratization of stock trading decades ago. Not only is it possible to look up the value of any stock instantly today, he noted, but “there’s a kind of perpetual bid-ask spread on every stock, right? I think we’re a long way away from that in the real-estate space, but how do we take incremental steps toward it?””

“In ten years, it’s likely that most people will be buying and selling homes to and from companies, not individuals. Those companies will look a lot like ours and it will be less expensive than it is today,” Knock’s Black said.”

Zillow and Knock directly admit that a bid-ask spread market is the end objective of their model.

And from another article: “Sell your home with a Realtor or an algorithm? Maybe both.”

“For his part, Frasier sees iBuyers as a sort of housing market stabilizer. He thinks they follow in the footsteps of companies that once disrupted the used-car marketplace, like Carmax KMX, +2.16% and Carvana CVNA, -0.82% . Those companies buy consumers’ used cars, sell different products and services, such as warranties, and “were more profitable through the crisis because they were able to be an institutional support and liquidity provider,” Frasier said. “The reason I think our business model is long-term more scalable is that houses appreciate in value, whereas with autos, they depreciate.”

This implies that they will only make a market in specified areas, “We would start locally with relatively small areas in which an entity ‘makes the market’ offering a bid ask spread.”

“To start, when someone requests an offer on their home from Opendoor but it’s outside of our buy criteria, our brokerage will refer them to one of our Agent Partners.”

Here’s the second bit of evidence: “Appraisal Threshold to be Raised for First Time in 25 Years”.

This is addressed at the start of Brian Stevens/NREP rant (0 min, 44 sec point):

This is an incremental step to reduce the transaction cost of home buying and selling. We will see similar pressure on other parts of the process including title fees (doomed by block chain technology), recording fees (same), escrow company fee (doomed by esign and mobile notaries), and more. The Wall Street Journal (WSJ) even proposes that your appraisal, if necessary, might be done by algorithms and drones; “The next time you buy a house, your lender might deploy a drone and a computer algorithm to size up the property instead of a tape-measure-toting human appraiser.”