Will the ibuyers succeed?
Sure, they offer convenience, but the reason it works is because it’s so vague – sellers will never know the money difference between selling to an ibuyer or an open-market sale. The trendy-hip, sell-with-a-click factor could lure sellers into giving up an extra 5% or so without ever realizing it.
(pay 3% more in ibuyer fees and then sell for less than open-market sale)
Hat tip to reader ‘just some guy’ for sending in the article:
When Dora Cagnetto decided to sell her townhouse in Phoenix this year, a real estate agent told her that she could get around $375,000 for it. Maybe $390,000. But she would have to replace the carpet and paint the walls. At 68 years old and recently retired, she thought it sounded like a lot of work.
One evening, after the carpet had been ripped up, Ms. Cagnetto saw an online ad for Zillow Offers. Zillow, better known for telling people what their homes are worth, would buy her home itself. She uploaded some photos and got back an offer: $382,000, minus a fee for Zillow. No repair work or open houses necessary. And Zillow paid cash.
Ms. Cagnetto estimated she effectively paid $10,000 to $15,000 for the privilege of turning over to Zillow the job of replacing the carpet and the bathroom countertops and doing other light repair work.
“My son, he’s like, ‘Well, oh, I could have done that,’ and maybe he would have saved a little money,” Ms. Cagnetto said. “But to me it was like, I don’t want to do that. I don’t want to hire somebody to do that, I don’t want to put carpeting in, I don’t want to paint these walls.”
The Phoenix area has become a hub of the iBuying phenomenon. With its relatively new housing stock and miles of buff-colored subdivisions, the market is affordable, uniform in look and steadily growing.
Whether iBuying works outside markets like Phoenix and Las Vegas is an open question. The model has yet to break into the Northeast, where the housing stock is older, the weather drives up maintenance costs and there are fewer of the kind of cookie-cutter subdivisions that the industry’s algorithms assess best. Prices are higher, too, making mistakes costlier for the companies.
I think sellers could live with leaving $10,000 to $15,000 on the table – any more and it sounds like they are giving it away.
If the ibuyers employ terrific salespeople who can convince the sellers to agree to a lower sales price, they could make some real money.
From the article:
Zillow essentially acknowledges that it doesn’t expect to make much money per home on its instant-offers program. Instead, it sees selling homes as a way to generate business for its mortgage-lending arm, which it developed after acquiring Mortgage Lenders of America last year, and for other services. It is the rough equivalent of the car dealership that sells cars at a loss but makes money by offering financing.
Home sellers in Austin, Los Angeles, Sacramento, San Antonio, San Diego and Tampa will soon be able to use Zillow Offers™ to request a no-obligation cash offer from Zillow to buy their home. Zillow announced today plans to launch Zillow Offers in each of these six markets by the end of the first quarter of 2020.
Launched last year, Zillow Offers is a service that aims to take the hassle and uncertainty out of home selling. With Zillow Offers, Zillow directly buys a house, prepares it for showings, and then quickly lists it for sale—all on the consumer’s timeline. Agents from local brokerages represent Zillow in the transaction.
“Zillow Offers launched just over a year ago and we already receive a request for an offer every two minutes, which represents more than $200 million in transaction value per day,” said Zillow Brand President Jeremy Wacksman. “More than 100,000 sellers have requested a Zillow Offer since we launched last year, and we’re excited to announce we’ll be serving 20 markets just two years after buying our first home.”
Wacksman continued, “It’s clear people want a simpler, easier and less stressful way to buy and sell homes. To meet the needs of today’s on-demand consumers, Zillow is rewiring real estate to create a seamless and integrated transaction experience. We’re rapidly innovating on a number of services that span the entire transaction, including Zillow Offers, mortgages through our affiliate lender Zillow Home Loans, and the ability to tour and unlock Zillow-owned homes on any schedule.”
Zillow Offers is currently available in Phoenix, Las Vegas, Atlanta, Denver, Charlotte, Raleigh, Houston, Riverside and Dallas. In addition to the new markets announced today, Zillow previously announced plans to launch in Miami, Minneapolis-Saint Paul, Nashville, Orlando and Portland, Ore., bringing the total to 20 markets by the end of Q1 2020.
There will be some serious questions about the prices that ibuyers pay.
1. Are they comps?
2. How long are they comps?
3. Were they retail comps when purchased that reflected the real value at time of purchase (prior to fix-ups).
4. Are the eventual sales to the retail buyer at market value, or higher? Certainly the ibuyers will push for top dollar.
5. Will buyers get the same trendy-hip fever and want to (over)pay for a ibuyer listing? Answer: Probably.
Personally I don’t like the ibuyer (aka corporate flipper) system from a consumer or individual investor standpoint but I totally see why they are doing it.
With their competitive advantages including venture capital providing the gasoline in the form of advertising dollars, I can some of the general population selling and buying from them at least for now.
The other issue is how they will fare if real estate in their markets go through a downturn or even correction? Will they continue to be able to raise money and will Wall Street be ok with their numbers then? I think at least a couple of them will figure it out and even if they don’t, I see why it makes sense for them at least to try.
The ibuyer is a principal in the transaction much like a car dealer is when negotiating on the value of your trade. Think about it.