iBuyers - Market Disruptor or Just Another Business Model?

Every few years in the real estate industry, something comes along that throws everyone into a bit of a tizzy. From public online listing portals to flat rate listing fee companies, the push to be more competitive and incorporate new tech is driving innovators and forcing traditional brokerages to rethink their business models.

Ug from HomeVestors

This decade's disruptor is the iBuyer. It's not a new idea - companies that buy properties directly from home owners have been around for a while, finding "ugly" houses and flipping them for a profit, no real estate agent needed. But the launch of Opendoor in 2014 has changed what it looks like and what the gains are for the purchasing corporations. Several companies have followed in the past few years - Zillow's Instant Offers, Perch, Redfin Now, to name a few - and are offering sellers another option to the traditional sale process.

The process looks like this. A homeowner can go to a company's website and click to solicit an offer to purchase. Answer some questions about the property, upload some pictures, and within 24 hours get a response. So far, I've done this with three properties, one of them my own home, and four of the iBuyer companies. Two declined to put an offer in for the properties that were already listed in the MLS. One was rejected because the company wasn't operating in Superior yet. Another was passed on because they couldn't find enough relevant comps to feel confident in an offer price. But in the end I did receive one offer on a listing in Broomfield and another on my own home.

My Broomfield listing received an offer almost 6% under the current listing price. The service charge for the sale was 6.3%, which is high for the Denver metro area, although these fees are not standard and always negotiable. The iBuyer company will do an inspection on the property once they are under contract, and any repairs they feel need to be completed will be subtracted from the offer price. The seller can decide when they want to close, I've heard anywhere from 1 week to 3 months. The offer on my home, also in Broomfield, was 8% under market value, with 6% in fees. They gave me the comps that they used to evaluate, and while two were fine the other three were different enough to argue that they should've been omitted.

Photo by Eric Allix Rogers

Right now, these companies are largely operating in cities where the housing stock is priced under $400,000 and homogenous enough where the automated valuations are fairly accurate. You can see market activity on this map. They aren't looking for fixer-uppers, but for mostly turn-key properties that they think they can turn around and sell fairly quickly. They aren't making money on the resale - no fix and flips - and are often selling for close to what they paid for, sometimes even less. They are making money on their fees, which in some places can go up to 14%. More importantly, they are buying market share and looking for future leads.

The pros for a potential home seller? Convenience and speed. No showings, no loan approval, no emotional buyers, pick your closing date. The cons? Very often less money in your pocket. Not being local or ever seeing your home in person, the values aren't as accurate as a local expert. Not getting advertising through the MLS and public websites means that you can't know for sure what your property could've commanded with adequate market exposure.

Conclusion? Just another business model. As a Realtor, I certainly have to pay attention to how the market responds to this and continue to provide value through my services and expertise. For some sellers, this service may be just what they need. But for most, I don't think that this approach will replace a competent Realtor. 
  

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I would love to help you with your real estate journey. 

Please contact me at 303-917-7143 or robbin@elevatedrealestate.com

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