(Bloomberg) -- The implosion of Zillow Group Inc.’s home-flipping operation isn’t an indictment of a business model that uses algorithms to buy and sell houses, according to the chief executive officer of the company’s chief competitor.
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Opendoor Technologies Inc., which pioneered a tech-powered spin on home-flipping called iBuying, has invested heavily to accurately price houses and manage repairs efficiently, CEO Eric Wu said.
Zillow got tripped up by those tasks, and the collapse of its flipping business has raised questions among investors about whether iBuying is too risky to do at scale. For Wu, the answer is no.
“In 10 years, I’m not sure it matters,” Wu said in an interview. “If we’re able to deliver on what we’re aiming to deliver, which is the ability to buy and sell a home together, at the same time, in a digital way, consumers won’t remember.”
Opendoor shares plunged 15% on Tuesday as Zillow’s iBuying troubles spooked investors. The San Francisco-based company buys and sells more homes than its competitor, but isn’t as widely known. Its shares rebounded on Thursday, jumping as much as 19% for the biggest intraday gain since Aug. 12.
Read more: Zillow Shuts Home-Flipping Business After Racking Up Losses
Opendoor went public last year through a merger with one of Chamath Palihapitiya’s blank-check companies. It is scheduled to report earnings on Nov. 10, giving investors a window into how the company performed as it bought and sold thousands of homes in the third quarter.
In the iBuying model, a tech company uses algorithms to price homes, then makes light repairs and puts the property back on the market. Zillow CEO Rich Barton has said that he abandoned the business because it was too hard to predict housing prices. It’s become clear that the company overpaid for homes just as prices were cooling slightly. Opendoor, meanwhile, appears to have been more nimble in recent months.
Wu, who started investing in real estate as a student at the University of Arizona, said the basic premise of the iBuying business remains unchanged. Industries from retail, food delivery and even auto purchases have moved online. The same shift is coming for real estate, and in Wu’s view, Zillow’s decision to stop flipping houses won’t change that.
“It opens up the opportunity for us to be the market leader,” Wu said. “We’re going to lead the charge in this transition from offline to online.”
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