How iBuyers are Changing the Real Estate Market
Gone are the days when selling your home meant tedious cleaning, staging, and marketing—not to mention weeks (or even months) of waiting time. Thanks to a new option called iBuying, selling a house is as easy as a few taps of the keyboard.
What Are iBuyers?
iBuyers are companies that purchase homes outright, directly from the owner. The seller doesn’t have to pay an agent, list the home, stage it, market it, or even show it to potential buyers. Instead, they tell the iBuyer about the property—things like its age, condition, and zip code—and using data and mathematical algorithms, the iBuyer predicts the home’s future value.
The iBuyer will then present the seller with a cash offer, which they can accept or decline. If they accept, they get their cash within a few days (or weeks, depending on the closing date they choose), and they’re free to purchase another property or use their profits as they wish.
In most cases, iBuyers take the properties they purchase, fix them up, and eventually list them on the open market or sell them to investors at a profit.
Top iBuyers and How They Work
There are a number of iBuyers currently on the market, and each one has its own slightly different approach to business. Here are the top iBuyers as of early 2019:
- Opendoor: Launched in 2013, Opendoor is the original iBuyer. The company both buys and sells properties and operates in nearly 20 markets across the U.S.
- Knock: Knock is technically an iBuyer, but it’s mostly designed for homeowners looking to sell one home and buy another simultaneously. Its trade-in program helps sellers essentially “swap” properties without dealing with the open market.
- Offerpad: The second iBuyer to market, Offerpad works essentially the same as Opendoor, both buying and selling real estate. It operates in 11 markets and includes free local moves.
- Zillow: Zillow branched into iBuying with the launch of its “Instant Offers” program in 2018. It’s currently only available in a handful of markets, but the company plans to expand to more in the future.
- Redfin Now: Redfin Now is similar to Zillow’s Instant Offers. The discount real estate brokerage announced the program in mid-2018 and has been expanding it ever since.
In addition to these big players, there are also smaller, more market-based ones. In Dallas, for example, there’s Door. In Phoenix, there’s Offerdepot. Traditional real estate firms and brokerages (like Keller Williams) are even creating their own internal “iBuyer” programs to give customers more options.
Pros and Cons of Using an iBuyer
Convenience and speed are the big benefits of using an iBuyer. For sellers, there’s no tedious staging or marketing of the home, and they don’t have to wait weeks or months for inspections, loan underwriting, and closing processes to take place. Instead, they can sell their property and move onward and upward in just a few days’ time. This can be especially advantageous for sellers needing to relocate quickly or those who just don’t have the time and resources to deal with the open market.
Using an iBuyer also means cutting out the need for a listing agent. In most cases, listing agents take 6% of the total transaction cost in commission. This can be a hefty amount of money, especially in some of the country’s costlier markets.
Still, iBuyers have to make a profit, and to do that, they can’t offer sellers full market price for their homes. This typically means sellers get significantly less for their home than they would if they used traditional methods. iBuyers also need to cover repairs and maintenance in order to make the home marketable. These expenses can cut into a seller’s bottom line as well.
- Fast sale
- No staging, cleaning or marketing
- No showings
- No agent commissions
- Lower sales price and fewer profits
- Less personal interaction (it’s all technology-based)
- Not available in all markets
- Not all homes are eligible (iBuyers generally want fairly liveable homes — not real fixer-uppers)
iBuying is growing in popularity, especially with investors. According to ATTOM Data Solutions, nearly 10% of Opendoor and Offerpad sales came from bulk investors in 2018. In cities like Phoenix, the two accounted for 4% of all real estate sales in the city in 2018 — a 1.5% jump over 2017. It just goes to show that for today’s consumers, convenience and technology reign supreme.