When Opendoor, Zillow Offers and other “iBuyers” popped up around the country a few years ago, they hoped to upend the traditional homebuying process by doing for real estate what Amazon did for online shopping by using technology to eliminate all the hassles and uncertainties of buying and selling a house. That included offering sellers “instant” online offers on properties the companies would later resell.
But during the spring, with the pandemic bearing down on the economy and the future of the real estate market uncertain, those iBuyers stopped buying, interrupting efforts to disrupt an industry that has long relied on face-to-face interactions. But now they are back at a time when there’s a shortage of house listings and properties are selling in record time, prompting some analysts to say the promise of an instant offer isn’t enough.
“Overall, iBuyers are struggling in this high-demand, low-inventory market,” said Mike DelPrete, a global real estate tech strategist. “The consumer proposition of an instant offer is less relevant and appealing now than it’s been in the past.”
Opendoor and at least a half-dozen players in the iBuyer space, including Zillow Offers, RedfinNow and Offerpad, said that to make the model more relevant they have retooled the buying and selling process with new systems aimed at eliminating face-to-face contact between buyers and sellers.
And in an effort to raise more cash, Opendoor recently made its case to investors. Opendoor started trading on the New York Stock Exchange after an initial public offering that valued the company at $17 billion just weeks after announcing a national expansion.
The iBuyer model is the product of tech companies that have built national websites that feature house listings and real estate data that’s gleaned from multiple listing services and public records. Those companies are using that information to create complicated algorithms based on recent local sales of comparable properties that enable them to quickly determine the value of a property without an initial visual inspection.
Instead of a traditional real estate commission, sellers pay iBuyers a fee that’s negotiated before the sale. After acquiring the property the iBuyer does minor repairs before listing the house for more than they paid.
‘It was painless’
Though critics of the model said iBuyers deprive sellers of the opportunity to expose their property to a broader market and the possibility of a higher price, proponents said the services offer sellers the ability to forgo all the typical premarket home preparations, including home repairs and staging. Sellers also don’t have to worry about open houses, home showings and listing photos. They also offer a flexible and guaranteed closing and a quick sale.
“It was painless,” said iBuyer customer Amanda Broz. “I couldn’t imagine going the traditional sales route with two little kids and being so busy in our careers.”
When she and her husband, Dave Broz, decided they needed a bigger house, they wanted to know how much their house might be worth. They went to Zillow.com, which provides home-value estimates, and clicked on the “instant offer” button.
They had no intention of doing of a virtual sale, but when they received an instant offer just a couple of days later, they decided to play it through. The promise of not having to ready the house for sale and being able to set a closing date based on when the new house they were buying would be ready was enticing.
“Maybe we could have gotten a few thousand dollars more (via a traditional sale), but it’s hard to know,” she said. “And we didn’t do one repair to our house or touch up paint or fill nail holes. We literally just walked out of the house. We didn’t even have to clean it.”
Such deals account for just a fraction of all real estate transactions nationwide, according to an analysis of MLS and public records by real estate transactions by Redfin, which operates its own iBuyer platform via RedfinNow.
During the third quarter of 2020 those iBuyers accounted for 0.2 percent of all U.S. home purchases. That was a slight increase from the previous quarter, but far below a peak of 0.9 percent during the same quarter a year earlier. Just four years ago such transactions were virtually nonexistent.
In March, Zillow, Redfin and others halted home purchases because of local and state coronavirus shutdowns but also because of uncertainty in the housing market.
Jim Lesinski, Minnesota general manager at Opendoor, said that during the shutdown the company updated its process to make it fully digital and contact-free for sellers. That included new virtual interior home assessments, enabling the seller to walk Opendoor reps through their home via video.
“Today, we’re seeing consumers more widely adopt digital solutions,” he said.
Because the company is still in the quiet phase following its IPO, the company wasn’t able to provide additional details on market share or future expansion plans. But DelPrete said that while Opendoor is still the dominant iBuyer, its national market share had fallen from 70 percent in 2018 to 50 percent this year. Zillow, meanwhile, had a 3 percent market share in 2018, but now has 26 percent of the iBuyer market.
“I believe iBuying is here to stay,” DelPrete said. “It remains a unique customer proposition for a segment of homeowners and solves friction in the process. But the path to success and profitability is a long, uncertain road.”