The Reality of iBuyers

by Jim the Realtor | Sep 13, 2018 | ibuyer, Jim's Take on the Market, Listing Agent Practices, Thinking of Selling?, Why You Should List With Jim | 2 comments

The ibuyer is the sexy new shiny object in the real estate game.  While the idea of a quick and easy sale sounds great, the reality is already much different – and, as the market transitions, their quotes and repair costs should get more conservative (and home sellers be less enamored).

The only local story I’ve heard was one where the ibuyer checked out the property in person, but then didn’t offer, saying it was outside their buying range. You can’t blame them for being picky, and only take the gravy. They will probably stick to the lower-end vanilla properties that are more predictable.

Here’s an article with more examples:

An excerpt:

Opendoor, which launched in 2014, says it’s not a house flipper. “We aim for fair market offers, making money on the fees we charge, not the profit on resale,” says Jim Sexton, head of Opendoor’s broker development. The company says it sells 800 homes a month across its 11 markets, with plans to expand to 50 markets by the end of 2020. Currently, it has nearly 3 percent market share in Las Vegas.

Opendoor eyes markets with ample volume, size, and liquidity, Sexton says, adding, “We’re looking for markets that don’t have many barriers to entry, such as hefty transfer taxes or other local or state regulations that make a transaction difficult.”

An Opendoor competitor, Offerpad, operates in eight markets with plans to expand, while Zillow, one of the newest entrants into the direct buying niche with its Instant Offer program, has been successful in Las Vegas and Phoenix, where it expects to buy and sell up to 1,000 homes by year’s end. The new Redfin Now program is available in two California test markets, and Knock, operating in Atlanta and in Charlotte and Raleigh, N.C., enables “trade-in” clients to buy a new home before their existing home is listed.

These companies all claim to speed up and simplify the real estate transaction while removing uncertainty and inconvenience for sellers and buyers. The appeal of the marketing spiel is easy to understand, but how applicable is this model for most consumers? And how likely is it that these companies will become significant players in many markets?

“The market is really driving this model,” says real estate consultant Victor Lund, founder of WAV Group. “The convenience factor, along with an alignment of circumstances are contributing to the growth of iBuyers. Consumers have built up a lot of equity in their homes since the recession, interest rates are low, days on market are low, prices are up, and there’s lots of competition, which puts cash buyers in a better position to buy.” These circumstances create the optimal environment for iBuyers to thrive. Lund believes that once prices slip and homes generally take longer to sell, consumer interest in iBuyers will fade.

Among agents who have interacted with these models, what are they finding? Despite iBuyers’ claims to revolutionize the real estate transaction, some agents are finding their transactions are neither quick nor seamless.

For example, after Ockey’s clients accepted the Opendoor offer, the next step was the inspection. A team of five Opendoor contractors—one for electrical, one for plumbing, one for foundations, and so on—went through the house with a magnifying glass, says Ockey. “They asked us to fix everything you could think of. They wanted bathtubs and toilets replaced if there was even the slightest blemish. They wanted showers retiled and regrouted. It wasn’t little projects; they wanted to remodel the home, and they wanted the seller to pay for it.”

The requested repairs came to about $16,000 on a $300,000 home. Ockey spent weeks negotiating that figure down, which added time and worry to the transaction. “Having representation saved my clients thousands of dollars, but in the end, they made about $10,000 less than they would have selling to a traditional buyer. It’s not horrible, but it’s a lot of money when you only have $20,000 or $30,000 in equity.”

The automated aspects of working with Offerpad didn’t faze Kellie Parten, an agent with HomeSmart Realty in Phoenix, who helped her clients buy a home from the company in May. “It was robotic, but in a positive way,” says Parten. “You can tell that they’re a little bit of a machine, but I didn’t mind because they were very responsive and organized. I never had to ask for something twice.”

Although Parten wouldn’t hesitate to bring a buyer to an iBuyer home, selling to one is a different story. “Offerpad and Opendoor offers on a couple of properties I’ve listed seemed exciting at first, but after you factor in the concessions they request and the additional credits in lieu of repairs after inspections, the net is usually too low and the deals never came together,” she says. One iBuyer recently offered $750,000 on a home that Parten later sold to a traditional buyer for $900,000.