In recent years, iBuyer platforms have emerged as one of the latest challenges to traditional brokerages. These online platforms are buying and selling houses for profit.
What are iBuyers?
iBuyers are online platforms which are utilized to purchase properties. What makes them special is the ease and convenience they provide to sellers. Although the model varies slightly from one iBuyer to the other, the process is essentially the same. Sellers fill out an online inquiry about the state of their home and within a few hours, they receive a tentative bid from the platform.
Once the bid receives an acceptance confirmation, the platform sends an agent to inspect the house. Once that happens, it only takes a few days for the iBuyer to make an all-cash offer on the house. Should the seller accept, the buyer will prepare the house for sale. iBuyers assume the cost of repairs, and like flippers, attempt to sell the house for a profit.
In exchange for the ease and rapidity of the transaction, sellers do have to pay fairly large fees. This is what distinguishes iBuyers from flippers. There is a 6 to 13 percent service fee to the iBuyer, depending on the platform and on the state of the house. In comparison to brokerage fees, which are much closer to 5 percent, this can seem like an exorbitant amount.
In truth, iBuyers make most of their profit from these commissions, in order to give the “flipped” houses competitive pricing. This, the platforms argue, is what will allow them to remain profitable even if the market slows. Furthermore, the fees cover the cost of renovations and the risk of not making a profit. It could be argued that the cost of the fees is offset by the speed of sale, as the buyer avoids paying property taxes and utilities for the time saved.
How are iBuyers Faring?
Given that there are advantages to moving quickly, it seems that iBuyers are creating a niche for themselves. Several platforms are enjoying success in the market, as well as increased buzz in the media.
One platform called Opendoor is now valued at US $2 billion. It also has plans for expansion with its newly secured $200 million in funding. By the end of this year, it hopes to offer its services nationwide. Opendoor has headquarters in San Francisco but operates in thirteen major cities.
Redfin Now, an extension of popular real estate website Redfin, is also doing well. Although they have not reported a profit and plan to operate through 2018 at a loss, they are reporting higher earnings. Furthermore, the website claims it has never sold a house for less than it was bought.
Even Zillow is joining in on the iBuyer trend. They have a platform called Instant Offers, which connects sellers with agents representing properties that Zillow owns. Previously, Zillow had been business partners with another iBuyer called Offerpad.
Are iBuyers Betting on a Bubble?
Given that so many platforms are vying for similar markets, it is interesting to note that iBuyer’s services are not widely in use at the moment. Of those who do complete the survey, 80 to 90 percent do not accept the iBuyer’s offer. Simply put, the market is hot for sellers at the moment. By fielding more traditional offers, sellers can get competitive prices and sell their properties relatively fast, negating the need for the speed of an iBuyer.
It might seem odd that so many platforms are jumping on this trend. It could come down simply to buzz about new technology in real estate. But with big names like Zillow and Redfin investing their time and money into iBuyer platforms, it seems that high-level executives are betting on this new way of selling to take off.
Some experts speculate that these platforms are counting on the real estate market slowing down. If prices stop rising and demand drops, sellers will no longer be able to sell quickly and at competitive prices. Given that scenario, iBuyers would become a very attractive option indeed.
While there are skeptics, some believe that iBuyers could create a new niche in the real estate market. With technology creating disruptions in established markets every day, iBuyers may be yet another piece of the changing picture of real estate. There is some worry, however, that in order for iBuyers to be truly successful, the real estate market must weaken significantly. Tell us what you think in the comments below!