Homebuying Startups Keep Raising Money in Softer Housing Market

(Bloomberg) --

Slowing home sales haven’t stopped investors from backing startups that buy and sell residential real estate.

Perch, the latest to line up new money, has raised $20 million in equity and $200 million in debt in a fundraising round intended to help the company build out operations and ramp up home purchases, Chief Executive Officer Court Cunningham said in an interview. The fundraising follows recent efforts by larger competitors Opendoor, which recently closed on a $300 million round, and Offerpad, which brought its total funding to $975 million in March.

Those companies, along with Zillow Group Inc., Redfin Corp. and a handful of other so-called iBuyers, use algorithms to predict the price that a home will sell for in the near future. They buy properties based on those predictions, make minor repairs and list them for resale, charging a fee to alleviate headaches associated with selling a home.

The process exposes the iBuyers to risk because a downturn could make it harder to offload assets. The housing-market slowdown in the second half of last year didn’t appear to diminish the startups’ ability to raise money, as venture-capital firms and commercial lenders have been willing to look past those short-term risks.

“The housing market is in early innings of tech disruption,” said Andrew Eisenson, an analyst at Bloomberg Intelligence. “You’re seeing investors that look 10, 20, 30 years out and say, ‘This industry is going to look different down the road, and tech is going to have a part in that.’”

Perch differs from its competitors because it’s focused on building an entire suite of services for people selling one house and buying another, said Cunningham, previously the CEO of online marketing company Yodle. To that end, Perch’s offers are valid for up to six months, during which time the company’s agents help customers find a new home to purchase.

What Bloomberg Intelligence Says

“Private equity has been actively investing in tech-driven real estate and iBuyer firms that buy and sell homes using an automated value model and other tech, and we expect this to continue. The real estate market remains fragmented in tech development, making it attractive for disruption.”

--Andrew Eisenson and Mandeep Singh, technology analysts
Click here to view the research.

Perch, which operates in Dallas and San Antonio, also provides title services and plans to eventually offer mortgages. Those ancillary services, which some of its competitors also offer, could prove more lucrative than the core business of buying and selling houses, Cunningham said. They could also help insulate the company from swings in home prices.

“We view ourselves as a next-gen broker that’s automating the closing process,” he said. “We’re not betting on where the market is going. We can do well in any market environment.”

To contact the reporter on this story: Patrick Clark in New York at pclark55@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, Christine Maurus, Daniel Taub

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