THE AGE OF I-BUYERS: THE WHAT, THE WHO AND THE WHY

i-buyers: key in door home sale

WHAT IS AN I-BUYER?

An I-Buyer is, essentially, an instant buyer. It’s a real estate company that uses algorithms and technology to buy and then re-sell homes quickly. So, to put it simply, the company estimates the value of your home, then makes an offer. If you accept, they then sell the home themselves. 

These I-Buyers claim they developed due to the frustration caused by more extended, traditional real estate transactions & the more on-demand service many expect in today’s society. There is still a commission to be paid, though, typically 6 to 8%; it can be higher than a traditional commission due to the added convenience of their service. 

Although it might seem like I-Buyers and flippers are similar, the homes each target are unique to them. Flippers typically target low-priced homes with more repairs needed; while I-Buyers’ target homes that match the following specifications

  • Single-family homes in suburban areas
  • Built in the 1960s or later 
  • Valued between $125,000 and $500,000
  • No significant damages or necessary repairs

I-Buyers are looking for these styles of homes because they strive for efficiency. They offer and try to close quickly, then try to re-sell the house within 60 to 90 days. That’s why they prefer desirable homes in good condition and don’t typically go after the “as-is” homes that flippers search for. These companies are not only looking for particular houses, but also particular areas. I-Buyers operate in mostly metro, popular places like Dallas, Phoenix, and Los Angeles — the big players are not active in small, more suburban areas. 

COMPETITION IN MARKET

Perhaps the most well-known I-Buyer is Opendoor, which first debuted in 2014. They had large capital reserves to purchase homes and the technological capability to value properties quickly. From there, other I-Buyers began to come to market, marketing themselves as an alternative that address sellers’ pain points in the “traditional” home sale market. In 2022, the largest I-Buyer companies are the following.

OPENDOOR

This is the largest I-Buyer, serving 53 metro areas. In Q2 of 2022, they sold 10,482 homes — a 201% from Q2 the prior year. In addition, Opendoor has worked on becoming a one-stop real estate shop, including title, home insurance/warranty, home upgrades, and moving services. They are fee-based, with their charges averaging 5% according to their marketing. 

However, things aren’t all rosy. Recently (August 2022), the Federal Trade Commission (FTC) went after Opendoor for misleading advertising that deceived sellers into thinking they would make more by selling to Opendoor. When in reality, it’s usually the opposite; sellers typically make less by selling to I-Buyers. The report also found the following to be deceptive to buyers:

  • putting downward adjustments on market values, but claiming to offer market value
  • claiming to make money from disclosed fees but also made money from buying low and selling high 
  • claiming consumers would pay more for repairs in traditional sales, but likely pay the same amount 
  • overstated the costs of conventional sales 

OFFERPAD

This is the 2nd largest I-Buyer company with 31 metro areas serviced and 3,792 homes purchased in Q2, an 87% increase from the prior year. The fees are also stated as 5% in their marketing. 

KELLER OFFERS

This is Keller William’s version of an I-Buyer program, resulting from a partnership with Offerpad. This allows them to offer you both the I-Buyer route and the more traditional option if this new method fails to work for you. This I-Buyer program is relatively new, just being started in 2019. 

ZILLOW OFFERS & REDFIN NOW

Two other main players in the space were Redfin Now & Zillow Offers; however, both were recently shut down. 

Zillow went first. A big name in online real estate, Zillows announcement that it was getting out of I-Buying was a bit shocking to the market. So what went wrong? Well, Zillow put itself in a position where it offered above-market prices to homeowners — which they blamed on their “Zestimates” and the unpredictability of the market. Ultimately, they had to take losses to unload all of their final inventory, around 7,000 homes. However, in August, Zillow and Opendoor announced a partnership, bringing Zillow back into this market and customers to Opendoor. Whether this partnership will be more beneficial and profitable for Zillow than their previous I-Buyer model will be an interesting development to watch.  

Meanwhile, Redfin just announced the shuttering of its I-Buyer program in November 2022. They invested quite a bit into this portion of the real estate market but ultimately could not justify the staggering amount of money and risk for the uncertain benefit of it all. All in all, they expect a loss of 22 to 26 million dollars in 2022 from this discontinued venture. 

SO, WHAT’S HAPPENING NOW?

Recently, even the I-Buyers still in the market have pumped the brakes a bit. With the hot market, I-Buyers had to fight for a piece of the action, and they did so with aggressive, high offers. Now, these offers are more moderate due to higher mortgage rates, which has slowed down the market. I-Buyers have also slowed down over fear of having high amounts of inventory that they will not be able to offload as talks of a market dip loom. So instead, they’ve put their focus on selling off their current inventory. 

Experts still believe that I-Buyers fill a need in the market and that those still in operations will continue to do business. Whether it’s something that can go national and to what extent it will grow in current markets, still remains to be seen. Most of the research on I-Buyers is a bit dated now, so it’s something that will be interesting to watch develop.

BENEFITS & DRAWBACKS OF THE I-BUYER MARKET 

Benefits (+)

  • Seller does not have to “prepare” home for sale
  • Seller will not have to waste time with open houses or handling multiple showings
  • No traditional inspection process
  • All cash offer 
  • Typically a quicker process 

Overall: it can be a speedier process that allows for more convenience and predictability

Drawbacks (-)

  • Can be higher real estate commissions
  • Deductions due to repairs deemed necessary by I-Buyer
  • Automated valuations may not give you the most accurate current market value
  • Real estate agents can do the same thing 
  • I-Buyers typically buy one type of home 
  • Not available in every market 
  • No negotiations and minimal interactions 

Overall: if your home does qualify, you’ll likely receive less than a market offer and have no power for negotiations (price, repairs, etc.) in the I-Buyer transaction. 

According to the NAR, I-Buying only accounts for around 1% of all U.S. home sales. However, it is an option that some home sellers choose to take due to the benefits listed above. We always recommend that sellers consider all options available to them when selling their homes. If I-buying is available in your market, it is something you may want to consider if the benefits are something that will help you in your real estate journey.

 

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