Just five years ago, in 2014, the first ibuyers went live online and started making offers on properties in a few select markets. At the time, Opendoor and OfferPad did not refer to themselves as ibuyers, but today they have fully embraced the terminology. “What is an ibuyer?” the Opendoor website asks. “An ibuyer is a company that uses technology to make an offer on your home instantly,” the company perkily responds, also noting, “We call it a good customer experience; everyone else calls it iBuying.”
While the notion that ibuyers make instant offers is somewhat accurate, the process is a little more complicated than it seems at first. Once the initial offer is made via technology, the company (and you) spend a bit of time verifying the state of your property and the viability of their offer. Basically, the instant offer is a starting point and the dollars start coming off (or on, but off in most cases) from that point. For example, if your exterior paint is 8 years old and shows it or you have a minor moisture issue in your basement, that is going to cost you. On the upside, working with an ibuyer means no showings, no repairs directly out of your budget before you sell, and little to no negotiating. Some ibuyers will even buy your house, then rent it back to you until you find a new place to live, which makes them very appealing in hot markets where finding a new home can be difficult and time-consuming.
Top Markets for iBuyers
At present, the markets that attract ibuyers tend to be the markets that attract everyone else as well. “In many of the markets where ibuyers are present, we are seeing home prices reach their peaks,” noted ATTOM Data chief technology officer Todd Teta. He cited examples like Atlanta, Georgia; Charlotte, North Carolina; Dallas-Fort Worth, Texas; Denver, Colorado; and Houston, Texas. All of these cities host active “branches” of Opendoor, OfferPad, and Zillow Offers. In Atlanta, home prices have increased 62 percent over the last five years.
It appears likely that more ibuyers will enter these and other markets in the coming months, with most ibuying companies focusing mainly on Southern and suburban markets with relatively affordable housing – on a national scale, at least. Opendoor is expanding into Los Angeles, California, likely thanks to support from institutional buyers who purchase about 10 percent of major ibuyers’ inventory. Despite selling properties at or very near retail prices, three institutional buying entities appear to be buying up large portfolios of ibuyer-sourced homes for single-family rentals.
“There are a lot of buyers, both big and small, looking to grow their SFR portfolios, and inventory is very tight,” said Renters Warehouse CEO Kevin Ortner. He added, “This is leading to creative ways to find new product – from built-to-rent programs, off-market inventory programs, and ibuyer initiatives.” Ortner predicted more firms will work to position themselves “to be able to help bring supply to meet the demands of investors” in the future.
How iBuyers Affect Market Activity
Any time a buying force with a different set of priorities than the established buying populations, typically homeowners and investors, the housing market dynamic changes. In the case of ibuyers, the effects are still emerging as their presence grows in major markets. At present, ibuyers are purchasing homes that tend to need relatively few, cosmetic repairs, and selling at or slightly below market value. Some, like Zillow, charge a service fee for the purchase of as much as 7 percent, while others profit from the transaction in other ways.
Sellers cite advantages of working with ibuyers like avoiding staging the home, avoiding showing the home, no uncertainty about whether or not closing will happen, and not having to worry about appraisals coming in at the right value as reasons they like working with ibuyers. Much as reality real estate television has changed the way buyers look at homes for a potential purchase, it seems likely that in addition to keeping markets highly competitive, ibuyers may affect the demands sellers have of their selling experience as well.
Keller Williams, which recently debuted its own ibuying program, Keller Offers, this month in Dallas, is hoping to get ahead of the curve with its cash-offer program. Keller Offers will pair users with Keller Williams agents in order to offer the best of both worlds (representation from a live person and the ease of process that comes with an ibuyer) to both buyers and sellers. Opendoor recently announced its own partnership program, Opendoor Agent Partner Program, which works with sellers who have properties or selling requirements that do not fully fit within the automated Opendoor system.
An Opendoor spokesperson explained, “Not only will this give homeowners peace of mind…but it will provide a new way for agents to build their businesses with high-intent, high-converting buyers and sellers.”
Tell us what you think:
- Are ibuyers in the market to stay?
- Would you sell to or buy from an ibuyer?
- Are ibuyers affecting your local market?
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