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Housing demand is still very strong, and housing supply is muted. The number of new homes built per new household is at recession-era levels nationally. Prices are not insane multiples of rents (which track market fundamentals more closely).
Also, bubbles don't strike twice in a row in the exact same sectors. Lots of regulatory changes have been made to the mortgage industry since 2008 to prevent a reprise of that particular crisis. There are definitely elevated asset prices, but IMO not in the broader housing market.
Agreed.
It is a concern to me that inventory is still short, but we are talking bubble-talk.
And, I am hearing talk of stagflation. Oh, crap.
A 6% margin is rather low. Look up some tech company margins. Or banks. My bank enjoys a 30% margin between income and profit. It's quite high. I think what attracts tech to RE is not the margin % but the amount of money changing hands. If Opendoor can control the purchase and the sale, their 4% mostly stays in their pocket. They can employ on staff agents who do high volume work for a salary rather than commission. Once it scales it's a pretty good plan.
I believe you are missunderstanding what you are talking about. The high margins in high tech (20% or more), you are talking about, are margins on revenue: that is how much money in profit (= revenue - cost) I got from my revenue. The 6% real estate transaction cost is equal to the revenue in this equation. If you substract all the cost to do a real estate deal from the broker/agent such as offices, insurance, and car lease, and more, then you have the profit. Let's assume for the stake of this example that there is no cost for the brockers/agents, then the margin is 100%. So, whatever the transaction cost for the buyer/seller is: 6%, 4%, 3%, 2%, in this example, the margin will always be 100%. Pretty good business to be in .
What you are talking about is the Return over Capital Employed: ROCE. That is what is your profit for the amount of capital employed.
In our example, the 6% commision or transaction fee bearing no cost is your profit over the capital employed (price of the house). then your ROCE is 6% in the case the new real estate company buy houses and charge the typical 6%.
This ROCE is only one multiple or metric to help understanding a company cash/profit generation and is not really used in the high tech industry.
FYI, for the last twelve month of data, ROCE is only 1.7% for Salesforce and 13% for Microsoft. That is a lot of differences for two high tech companies that have a high market capitalization for their revenue.
The "enterprise value / revenue" multiple is 7.9 for Salesforce and 6.4 for Microsoft. So Microsoft with a higher ROCE is less valued on a revenue basis than Salesforce. that is the market thinks that Salesforce is worth more per $ of revenue than Microsoft.
I believe you are missunderstanding what you are talking about. The high margins in high tech (20% or more), you are talking about, are margins on revenue: that is how much money in profit (= revenue - cost) I got from my revenue. The 6% real estate transaction cost is equal to the revenue in this equation. If you substract all the cost to do a real estate deal from the broker/agent such as offices, insurance, and car lease, and more, then you have the profit. Let's assume for the stake of this example that there is no cost for the brockers/agents, then the margin is 100%. So, whatever the transaction cost for the buyer/seller is: 6%, 4%, 3%, 2%, in this example, the margin will always be 100%. Pretty good business to be in .
What you are talking about is the Return over Capital Employed: ROCE. That is what is your profit for the amount of capital employed.
In our example, the 6% commision or transaction fee bearing no cost is your profit over the capital employed (price of the house). then your ROCE is 6% in the case the new real estate company buy houses and charge the typical 6%.
This ROCE is only one multiple or metric to help understanding a company cash/profit generation and is not really used in the high tech industry.
FYI, for the last twelve month of data, ROCE is only 1.7% for Salesforce and 13% for Microsoft. That is a lot of differences for two high tech companies that have a high market capitalization for their revenue.
The "enterprise value / revenue" multiple is 7.9 for Salesforce and 6.4 for Microsoft. So Microsoft with a higher ROCE is less valued on a revenue basis than Salesforce. that is the market thinks that Salesforce is worth more per $ of revenue than Microsoft.
Yes I understand. I wrote income but meant revenue. And I agree, a 6% skim for skimming's sake is good when scaling it to a 300k average purchase. It's a good business model, the biggest issue is homes are not equivalent one to another. So it's not like you are selling widgets. And the sales price can vary widely. It was a good plan in a fast moving market but in a slow market? I dunno. It depends on if they can control a large amount of inventory so buyers can "trade up" or down internally. That is where you'd see the largest savings. Their model also works in a low rate environment, assuming they are financing these purchases.
Assuming a 5% average commission and a 2% fee to buyers agents, you're at a 3% spread which is quite narrow in terms of homes. The market can be very fickle and without local boots on the ground knowledge I do question their ability to make a profit.
Also it looks like they charge higher fees in other areas - up to 13%.
Quite telling that its mostly realtors vociferously attacking OD. If there ever was an industry ripe for a technology based disruption, its residential real estate brokerage, and I say that as a (former) third-generation realtor. Realtors are in the same position travel agents were in 30 years ago. Big changes are coming. I don't profess to know what those changes are exactly, or whether Open Door will be the new paradigm (I doubt it), but I believe technology and new business models will bring substantial changes to the industry moving forward.
Quite telling that its mostly realtors vociferously attacking OD. If there ever was an industry ripe for a technology based disruption, its residential real estate brokerage, and I say that as a (former) third-generation realtor. Realtors are in the same position travel agents were in 30 years ago. Big changes are coming. I don't profess to know what those changes are exactly, or whether Open Door will be the new paradigm (I doubt it), but I believe technology and new business models will bring substantial changes to the industry moving forward.
Uh.... Technology has been active in real estate for a long time.
I welcome a better common business model, if I see one. When do you expect tech to let me know how a house smells from miles away?
"Disruptors" with bottomless venture capital who can absorb losses whilst they price ruinously to take control of markets so they can create higher market fees after crushing competition?
Meh.
I don't apologize for not supporting grifting.
Citing legendary 6% commissions as "standard" is dishonest, unethical, and dangerous for a licensee, but OK for a non-licensee with a "disruption" model, vague ethics, and operating in gray legal areas.
Again, meh.
Last edited by MikeJaquish; 12-22-2018 at 05:05 AM..
I welcome a better common business model, if I see one.
Yes, I'm sure you do.
Quote:
Originally Posted by MikeJaquish
"Disruptors" with bottomless venture capital who can absorb losses whilst they price ruinously to take control of markets so they can create higher market fees after crushing competition?
No. And thats hardly the only possible outcome. But, come on, you know that.
Quote:
Originally Posted by MikeJaquish
I don't apologize for not supporting grifting.
Citing legendary 6% commissions as "standard" is dishonest, unethical, and dangerous for a licensee, but OK for a non-licensee with a "disruption" model.
Sorry, but I don't see any relevance in this to what I posted. But everything you said is exactly what I expected. Best of luck to you!
No. And thats hardly the only possible outcome. But, come on, you know that.
Sorry, but I don't see any relevance in this to what I posted. But everything you said is exactly what I expected. Best of luck to you!
Try to focus on the topic.
OpenDoor and other tech. Commissions and how disruptors will save commission money for consumers while providing convenience. That legendary 6% number has been mentioned more than once in the thread.
It is a long thread, and your reluctance to consider facts or to present practical industry knowledge does not render valid input invalid, or require constricted conversation.
Of course, when you say well-capitalized companies can lose money as long as they care to, they are looking to control markets after decimating them.
Other examples of well-capitalized "disruption" models attempting to become dominant include Amazon (sans AWS), Walmart, Uber, Zillow. Of course, of the four, only Walmart has developed real sustaining profitability.
What you don't "expect," or rebel against?
1. Fact, for some reason. That is puzzling, but not uncommon.
2. Academic discussion of fact. Presentation of facts that don't fully align with many folks' preconceived notions often is labelled "vociferous." Never surprising. Often unfortunate.
3. The bottom line being that I really don't much care about disruption models, as long as they work ethically and legally. I am willing to learn and discuss. And, it is clear that they have a lot to learn
Once you get some broad real estate experience (or any other direct to consumer big ticket experience), and learn about relevant and applicable value, ethics, laws, and how some consumers are easy targets for predators or even just smooth operators, you might willingly embrace open conversation that doesn't necessarily jive with your fixed notions.
Quite telling that its mostly realtors vociferously attacking OD. If there ever was an industry ripe for a technology based disruption, its residential real estate brokerage, and I say that as a (former) third-generation realtor. Realtors are in the same position travel agents were in 30 years ago. Big changes are coming. I don't profess to know what those changes are exactly, or whether Open Door will be the new paradigm (I doubt it), but I believe technology and new business models will bring substantial changes to the industry moving forward.
Yes because picking flights and a hotel is the same as selling and buying a home......
Try to focus on the topic.
OpenDoor and other tech. Commissions and how disruptors will save commission money for consumers while providing convenience. That legendary 6% number has been mentioned more than once in the thread.
It is a long thread, and your reluctance to consider facts or to present practical industry knowledge does not render valid input invalid, or require constricted conversation.
Of course, when you say well-capitalized companies can lose money as long as they care to, they are looking to control markets after decimating them.
Other examples of well-capitalized "disruption" models attempting to become dominant include Amazon (sans AWS), Walmart, Uber, Zillow. Of course, of the four, only Walmart has developed real sustaining profitability.
What you don't "expect," or rebel against?
1. Fact, for some reason. That is puzzling, but not uncommon.
2. Academic discussion of fact. Presentation of facts that don't fully align with many folks' preconceived notions often is labelled "vociferous." Never surprising. Often unfortunate.
3. The bottom line being that I really don't much care about disruption models, as long as they work ethically and legally. I am willing to learn and discuss. And, it is clear that they have a lot to learn
Once you get some broad real estate experience (or any other direct to consumer big ticket experience), and learn about relevant and applicable value, ethics, laws, and how some consumers are easy targets for predators or even just smooth operators, you might willingly embrace open conversation that doesn't necessarily jive with your fixed notions.
Look, you're approaching this emotionally, ethically and attempting to predict future sustainability. I'm not. I'm simply stating that the real estate business is, in my opinion (and many others), an inefficient industry ripe to be disrupted. Thats all. I'm making no predictions about whether thats good or bad for the consumer, or profitable for the disruptor. if its produces a poor consumer experience, or isn't profitable long term, then the market will force it to change again. Thats life. <shrug>
Look, you're approaching this emotionally, ethically and attempting to predict future sustainability. I'm not. I'm simply stating that the real estate business is, in my opinion (and many others), an inefficient industry ripe to be disrupted. Thats all. I'm making no predictions about whether thats good or bad for the consumer, or profitable for the disruptor. if its produces a poor consumer experience, or isn't profitable long term, then the market will force it to change again. Thats life. <shrug>
Yup. Emotion:
Otherwise, meh.
That is the cool thing about discussion of facts: It can be enjoyable until some fragile participant decides their vision is not being adequately revered.
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