“We just had a baby. It was going to take a lot to get us to move,” said Cosmos Onyeyiri. But, he said, a pie-in-the-sky offer of $600,000 or more would be motivating.
A few months later, that’s exactly what happened. The couple sold their home for $616,700 — without ever putting it on the market.
But it wasn’t a typical homebuyer who made them their dream offer. It was Zillow.
Known as iBuyers — Opendoor, RedfinNow and Offerpad are some of the biggest — these companies use technology and data about a home and its market to make a cash offer on a property. After buying the home directly from the homeowner, the iBuyer makes some minimal repairs and updates and then sells the home on the open market.
“IBuying is appealing to a surprisingly large amount of people,” said Mike DelPrete, an independent real estate technology strategist and scholar in residence at the University of Colorado Boulder. “The pitch is speed, certainty and convenience. You don’t have to worry about the uncertainty of the market and how long it will take to sell, getting the house ready to show, which agent to choose.”
While sellers typically pay more for the convenience of using an iBuyer, the fees in competitive markets have been lower than the fees that traditional sales agents charge, said DelPrete. And the companies have been known to pay above-market prices for homes.
But while iBuyers can be appealing to sellers, hopeful homebuyers who are already being priced out of real estate markets fear the corporate competition and how it might further push home prices higher.
How iBuyers work
While iBuying has grown significantly over the past few years, it accounts for only 1% of homes sold in the US, or roughly 60,000 sales annually, according to a report from Zillow. But in some fiercely competitive cities like Phoenix, Atlanta and Charlotte, the share is more than 5%.
The largest iBuyer in the US is Opendoor, which launched in Phoenix in 2014 and now operates in 44 cities. The company bought 8,494 homes last quarter and sold 3,481. Zillow was a distant second. It launched Zillow Offers in 2018 in Phoenix and Las Vegas and most recently operated in 25 cities across the country.
But Zillow’s exit is not necessarily a knock on the industry. It’s more of a Zillow problem than an iBuying problem, said DelPrete.
“I’ve seen the other iBuyers make adjustments in this market,” he said. “They have changed their fees, or are changing what they are offering for homes, kind of reacting to the market. But I saw Zillow just barreling down.”
Opendoor, for example, is boosting its iBuying business by extending its partnership with Realtor.com and putting a “real-time offer” button on the real estate listing site so that some homeowners can see an immediate offer in cities where the company operates.
“Consumers want more visibility into the value of their home, and more choice when deciding how to move forward with their home sale,” said Marissa Mierow, vice president of product at Realtor.com. “We’re excited to bring these offers to even more consumers through our My Home dashboard and offers on off-market properties.”
Offerpad said it is not slowing down either, moving into seven new markets this year, with more coming in 2022. While iBuying relies on algorithms to make an offer, there is a human element to the pricing process, too, said Brian Bair, Offerpad’s CEO and chairman.
“The market will always change. You don’t win in residential real estate by only perfecting your algorithm. Your ground game is equally as important,” Bair said. “I believe iBuying will continue to grow and shape the future of real estate.”
The upside for sellers
The Onyeyiris were thrilled with the price they got for their home and the money they saved in sales commissions.
“Zillow definitely overpaid for our house, based on the sales in our neighborhood. I don’t think it will sell for more than what they paid us.” he said, although the home has not come back on the market yet. “They had a much cheaper fee, too. Real estate agent fees are 4% to 6%, but our service fee was 1%.”
While Zillow didn’t offer the level of service that a real estate agent might, Onyeyiri said the deal was well worth the lack of hand-holding.
“The Zillow Offers agent, once she had gotten our agreement, she fell off the face of the Earth,” he said….