What you need to know about this fast-growing category of real estate tech, where it’s available and how to use it to grow your own business.
What is an iBuyer?
If you’ve ever pulled off the freeway in a major American city, you may have noticed a sign, perhaps handwritten and tacked to a nearby telephone pole, promising to “buy houses fast!” Or maybe it advertised a service that “pays cash for houses,” or purchases “your ugly home now!”
Obviously, there is something sketchy about roadside signs like this. But they also hint at a larger and very legitimate need: Some people want or need to sell their homes quickly and conveniently, and they might be willing to offer discounts to someone who can make that happen.
Enter the iBuyer.
iBuyers are companies that offer homeowners cash for their houses. The companies typically do minor repairs and maintenance, then try to quickly re-list the home and sell it for a profit. Homes can reappear on the market within a matter of weeks or months, but the key is to buy and sell a lot of houses and do it quickly.
For anyone who has seen one of those roadside signs, or who knows a home flipper, this sounds like a familiar story. But there are a couple of key differences that have allowed iBuying to explode over the last few years. One of them is funding.
“It’s a little bit of a weird thing that’s been around for a long time,” Victor Lund, founder of the real estate consulting firm WAV Group, told Inman. “But I think what we’re seeing now is a little bit different thing, which is companies backed by financial investors.”
Indeed the biggest iBuyers right now are funded by millions of dollars of venture capital (more on that below), or are part of large, publicly traded companies. It’s that massive amount of funding that lets the companies do enough volume to be viable businesses.
The funding has also made it possible for the companies to build technology platforms that streamline the buying and selling process — and this technology is the second big thing that sets iBuying apart from other, more antiquated business models. The technology includes both apps and websites, which typically give consumers offers within 48 hours or less, as well as backend analytics that guides company decision making. Cortney Read, a spokesperson for iBuyer Offerpad, told Inman that about 10 percent of the analysis on homes is done by people. Machines handle the rest.
“Our product that delivers our offers is about 90 percent technology and data based,” she explained. “Our algorithm gets us to about 90 percent.”
Some iBuyers leverage their technology for other purposes as well. For example Opendoor, the biggest and oldest of the big iBuyers, uses its app to unlock on-the-market homes for would-be buyers.
The result of all this funding and technology, the iBuyers hope, is a new experience for both buyers and sellers, who can now interface with a single company and reach a deal with greater ease and certainty.
“The premise around these iBuyers is to use capital and use technology to reduce friction,” Pete Flint, an entrepreneur and former CEO of Trulia, told Inman. “There’s a significant amount of consumer demand for this type of service.”
What's the difference between iBuying and home flipping?
The iBuying business model is similar to flipping homes — take a house, fix it up, sell it — but the companies actually doing it say there are substantive differences between the two approaches.
“We’re absolutely not a home flipper service,” Read, from Offerpad, told Inman. “What we’re doing is truly trying to help the consumer and truly trying to buy their house.”
iBuyers want liveable properties
Probably the biggest difference between iBuyers and traditional home flippers is that iBuyers typically don’t purchase distressed properties. Whereas a home flipper might buy the cheapest, most run down house on the block then try to upgrade it to make a profit, iBuyers want homes that are already in decent shape. The iBuyers do make improvements to the homes they purchase, but those improvements are more often cosmetic.
“We’re not coming in and knocking out walls,” Tyler Hixson, Opendoor’s Real Estate Industry Strategy Lead, told Inman. “We’re essentially coming in and doing the deferred maintenance. Minor renovations, interior paint, carpet, landscaping.”
Hixson summarized the approach as looking for “livable properties.”
High volume allows iBuyers to make less money on each home
Mike DelPrete — a scholar at the University of Colorado, Boulder, and consultant who has written extensively about iBuyers — said that while some of the difference between iBuying and house flipping comes down to semantics, the two approaches actually do have different profit strategies.
“A home flipper will give somebody 70 percent of a home’s value, but iBuyers will give somebody 98 percent of the value,” DelPrete told Inman. “Those are two totally different markets.”
Both Hixson and Read confirmed that making offers closer to market value was indeed a way that iBuying differed from house flipping.
“Our goal is to get as close as we can to the value that somebody believes they would get for their home,” Read said. “And there’s a lot of times where we’re higher.”
This iBuying strategy has worked so far because the companies doing it are able to do far more transactions, far more quickly, than the average person flipping houses. And volume is key.
“The main difference is a flipper is going to come in and need to maximize returns,” Hixson said. “We’re not trying to maximize the margin on each individual home. The velocity at which we can buy and sell homes completely changes the paradigm for us.”
Who are the iBuyers?
The company first started buying and selling homes in Phoenix and today operates in more than 20 different cities.
Opendoor’s chief rival in the space is Offerpad, which was founded in 2015 and also first launched in Phoenix. Though Offerpad is smaller than Opendoor, it too has raised millions of dollars and currently operates in nine major metro areas, with plans to expand to many more.
A handful of other startups are jockeying for space in the market as well. Atlanta-based Knock currently operates in its home state as well as in Texas and North Carolina. And Bungalo Homes, which is backed by real estate giant Amherst Holdings, is doing business in Texas and Florida.
The old guard joining the fray
The rapid growth of iBuying over the last few years has proven irresistible for comparatively traditional real estate players as well. In 2017, Redfin launched RedfinNow. The move made the tech brokerage the first of the existing industry players to mount a serious challenge to upstarts like Opendoor. And in a recent earnings call Redfin CEO Glenn Kelman said the company is committed to the program even as the market shifts.
Redfin competitor Zillow plunged into the iBuying pool this year when it began buying and selling homes using its Zillow Offers program, which initially launched as Zillow Instant Offers in 2017 and allowed outside iBuyers, such as Offerpad, to make cash offers to sellers on Zillow’s website. Now only Zillow itself makes cash offers on homes through Zillow Offers.
This fall, news also broke that Austin-based real estate franchisor Keller Williams had been testing a fast-cash iBuyer program and had closed nearly 100 deals — though the program was still in an “ideation” stage and not widely available. In addition, a Keller Williams franchise in Phoenix launched its own iBuyer-adjacent business called Offerdepot in 2017 — though the company sees itself as having a symbiotic, rather than competitive, relationship with heavyweights like Opendoor.
Finally, also this fall, Realogy announced that it too was getting into the iBuying game via its Coldwell Banker brokerage.
Some of these companies are also working together. Case in point: a Keller Williams franchise is representing Zillow as the company deploys Instant Offers in North Carolina.
Where are the iBuyers doing business?
Ibuyers have quickly spread across the country, but in many ways Phoenix was the first epicenter of the industry. Opendoor, Offerpad, and Offerdepot all launched there, and Arizona’s capital city has been a priority for other players, such as Zillow, entering the market more recently.
DelPrete said that Phoenix makes sense for iBuyers because it has an abundance of cookie cutter houses that provide the companies with “a lot of certainty” as they make calculations their various transactions.
“Everything’s the same,” DelPrete said. “You can look at it and make these predictions.”
Expansion tends to focus on metro areas that bear some similarities to these cities, with an abundance of mid-range suburban housing that isn’t too old. So, places like Dallas, Orlando, and Las Vegas.
On the other hand, some markets have been more difficult for the iBuyers to crack. The Northeast, for example, is yet to see any significant iBuyer presence. Knock CEO Sean Black told Inman in August that the absence of iBuying in the region had to do with the its lack of affordability and its volatility.
“That’s not to say we won’t end up there eventually,” Black explained of areas in the Northeast, “but they aren’t in the top 10 for most companies.”
What kind of customers are using iBuyers?
Though in theory iBuyers would probably like to have every home sale, in practice they actually tend to target middle class homes that were built no later than the mid 20th Century. Hixson, from Opendoor, said that his company usually focuses on properties that cost between $100,000 to $500,000. The company also looks for homes that sit on half an acre of land or less, though each market has its own unique characteristics and there are some exceptions.
Read, from Offerpad, said her company will “consider all homes” but typically wants to buy properties built after 1969 and costing between $200,000 and $450,000.
DelPrete’s data suggests that Opendoor and OfferPad tend to stick to an even narrower range in Phoenix, typically buying houses between $200,000 and $250,000. He described it as a “disciplined” approach.
“Those companies don’t get distracted and are focused just on the sweet spot,” DelPrete added.
Given these numbers and the iBuyers’ geographic distribution, individuals working with iBuyers tend to be middle class folks, often living in the Sunbelt or the South. They’re also going to be people who want a quick sale, convenience, or both.
“With iBuyers, they occupy a segment of the market, people who are motivated,” Lund, the consultant, explained. “They’re ready to do something, and they’re frustrated. And these guys have the capital to do it.”
Not all of the customers working with iBuyers, however, are individuals. In fact, an analysis last month showed that Opendoor and Offerpad sold one out of every 10 of their homes to institutional rental investors.
How big a deal is this? And how big will it get?
Market share for iBuyers varies considerably from city to city, in large part because the companies have expanded so quickly that they have wildly different levels of maturity in different regions. However, figures compiled by ATTOM Data Solutions and provided to Inman show that from January to October of 2018, iBuyers in the Phoenix area made a combined 3,635 home purchases out of the region’s total 90,312. That means the iBuyers had captured a total of 4 percent of the market in Arizona’s capital city, an increase of 1.5 percent over 2017.
In Raleigh, North Carolina, the iBuyers had a combined 2.8 percent market share over the first 10 months of 2018, up from 0 percent in 2017.
The iBuyers’ market share in all of the sector’s 10 most active metros has increased significantly compared to 2017, with Orlando, Las Vegas and Charlotte all seeing big increases this year.
Data from ATTOM shows that iBuyers had a market share of 0.3 percent across the entire U.S. during the first 10 months of 2018. However, that number reflects the fact that major iBuyers are still not operating in large major cities.
ATTOM’s data was collected from public records on home transactions and looked at deals done by Opendoor, Offerpad, Knock and Zillow.
The take away from all of these numbers is that iBuying is a niche product, but growing significantly.
“I think the most impressive to me is the growth rate we’re seeing,” Daren Blomquist, a senior vice president at ATTOM, told Inman. “These are businesses that just started a couple of years ago and now are doing thousands of transactions on homes, and that’s an operational and logistical feat.”
The modest percentages also may obscure the fact that the companies are doing thousands of transactions across the country. According to ATTOM’s data, the four big iBuyers bought nearly 11,000 homes between January and October of this year.
Opendoor told Inman that it alone is currently doing more than 2,000 deals per month, including both buying and selling. It has served “more than 27,000 customers” since launching, the company told Inman in an email.
Zillow told Inman that in the third quarter of 2018, when its iBuying program was only available in Phoenix and Las Vegas, the company bought 168 homes. Fourth quarter figures are not yet available (the quarter isn’t over), but Zillow also said that it sold a similar number of homes in October alone. The service is now available in four cities, with plans to launch in three more in the coming months.
Other companies said they are growing their iBuying products by hundreds of percentage points. Offerpad, for example, has reported growth of 276 percent since June 2017. And in a November earnings call, Redfin reported that it’s iBuyer program had grown 237 percent year-over-year.
A key question, however, is if iBuying can be sufficiently profitable over the long run. Asked about profits, DelPrete described iBuying as “very low margin, probably in the single digits.”
“I think it’s barely profitable,” he said.
Moreover, DelPrete’s data shows that the margins of the major iBuyers have actually been decreasing over time, which he said is “definitely a trend.” Still, he added that the “customer proposition of iBuyers is amazing and unbeatable,” which at least bodes well for the model’s long-term viability.
Blomquist said that while iBuying’s overall influence remains to be seen, the rapid growth of the sector is unique and suggests it has staying power.
“At this point the momentum is so strong that I think we’ll see this have a lasting impact on the industry,” he added.
Can the iBuyers get much bigger in the future?
Clearly, iBuying is a niche service, but most observers who spoke with Inman also expect it to remain limited in the near future. DelPrete, for example, pointed out that not only is iBuying in Phoenix still holding at single digit percentages of market share after several years, but expanding significantly could lead to labor shortages among the people doing home repairs. And, he said, consumers may still have misgivings about trusting one of their most significant financial decisions to relatively new companies.
“I suspect there are psychological headwinds at play,” he added.
Lund also pointed to Arizona, where he said the number of available homes in the iBuyers’ target price and age ranges could limit their growth.
“I guess I just don’t see it becoming 10% of the overall marketplace,” Lund explained.
However, even with a limited share of the market, Lund expects iBuying to be a transformative development in the real estate industry.
Flint took a longer view and said that further down the road iBuying will likely evolve beyond the typical cash offer that it entails today. As that happens, he believes, iBuying could gobble up significantly more market share.
“I could see the iBuyer expanding into multiple different flavors and models that are appealing to every single customer out there,” he said. “It won’t look exactly like a 48-hour Opendoor offer, but I believe it has the potential within the decade to transform the majority of real estate transaction.”
Why has iBuying taken off so suddenly?
The “we buy houses fast” roadside signs have been around for years, but the full iBuying package that includes venture funding, high-tech tools, significant scale, and the legitimacy all of these things bring is relatively new.
There are a few factors that have allowed iBuying to really thrive at this moment in history. For starters, there is a lot more money available from investors. Flint said the cash started to flow after the housing crash a decade ago when “opportunistic folks on Wall Street saw housing assets” and “money moved in a big way.”
“As the market has bounced back and Wall Street has seen returns in that area there are significant amounts of capital that are available that can be put to work,” Flint said.
Lund also suggested that historically low interest rates could be a driving force because investors know that “having cash sitting on the sidelines is kind of a problem.”
Read said that the technology is a big part of what has enabled iBuying to take hold. But she also added that consumers themselves are changing. Trained on services like Uber and Lyft, people want to move quickly. They want convenience. And for many, iBuyers offer those very things.
“The majority of [our customers] do select us because of the flexibility of the close and the cash offer,” she added. “Real estate was the last industry to focus on on-demand.”
Is iBuying the apocalypse for traditional agents and brokers?
It’s easy to imagine a scenario in which the iBuyers have grown so much that both buyers and sellers simply turn to them directly, cutting out agents entirely. But most experts don’t think it’s quite that simple, or that dire for agents.
Flint noted that while iBuying can significantly streamline a real estate transaction, most consumers still need help understanding both their local market and their options. The result, he suggested, is that agents who want to survive should beef up their branding and service roles. They should, in other words, become advisors first and foremost.
“The agents themselves have to differentiate themselves less on sales ability and more on service ability,” he said.
Adam Hergenrother, founder & CEO of Adam Hergenrother Companies, agreed, telling Inman that iBuyers offer another “tool in an agent’s tool belt.” Smart agents working like consultants can shop a property around to various iBuyers, for example, and then present multiple cash offers to a client as part of a broader selling strategy.
But Hergenrother offered a blunt assessment of agents who fail to adapt.
“I think most people are still living in an old world,” he said. “The transactional agent is going to go away.”
The good news is that for now, the iBuyers want to work with agents
Hixson said that Opendoor loves “working with agents and agents now love working with us because we sort of expand their super power.”
The underlying idea behind that comment is that right now at least iBuyers are generally content to see themselves as one among many options. Opendoor told Inman that 90 percent of buyers are already working with agents by the time they come to the company, and on both sides of the transaction the company believes iBuying represents a tool that agents can wield.
“It’s a huge benefit to agents and a lot of the work that I do on my day to day is working with agents,” Hixson said. “You always have an option for your seller.”
Read told Inman that the company “works with agents every single day.” Agents who connect sellers with Offerpad have two options: If they have an agreement in place to represent the sellers, Offerpad pays them a traditional 3 percent commission.
If the agent doesn’t have an agreement with the seller in place, and the seller ultimately opts to work directly with Offerpad, the company pays the agent a 1 percent referral fee. The option raises the specter of generally lower profits for agents, but Read pointed out that Realtors can collect that money after they’ve done a single meeting with potential sellers — meaning they could end up with a more convenient process that allows them to do more volume.
“We haven’t had any pushback,” Read added. “I think that the majority of the agents, they do like the convenience we offer them.”
Some agents have also gotten into the iBuying game themselves
While any individual agent can study up and start working with the iBuyers in a given market, a brokerage in Phoenix decided to go one step further and launched their own company to cope with the trend.
That company, Offerdepot, is meant to be an aggregator of iBuying offers. Kenny Klaus, whose Phoenix-based Keller Williams brokerage created Offerdepot, described the company as doing for real estate what Expedia or Kayak.com does for travel. It doesn’t buy homes itself — and is therefore not technically an iBuyer in its own right — but instead aims to be an all-purpose interface for consumers.
“Marriott is still the hotel, or Hilton’s still the hotel, but they’re just sorting it all out,” Klaus said of travel aggregation sites. “So we’re just trying to make that convenient model more convenient.”
Much like a travel aggregator, Offerdepot works by presenting sellers with various different iBuying options presented in a single, simple webpage. The company promises to have those offers within 24 hours, and provides a number of other amenities, such as a free market evaluation and a moving truck, to customers.
The Offerdepot model is not something that every brokerage in the U.S. can or should replicate. But it does show how traditional real estate players are responding to a growing trend. And it’s a trend that is likely to continue reshaping the industry.
“I don’t think it’s going away, let’s put it that way,” Klaus said when asked about the long-term viability of iBuying. “And for agents it’s been a great tool because when you present that offer you find out pretty quickly where your seller is really at.”
How will a shifting market impact iBuyers?
Here at Inman we’ve written extensively about changes in the housing market. Though it doesn’t appear that buyers are about to take the upper hand, there is a broad consensus that growth is slowing down — which could have cascading effects across the industry.
So can iBuyers, with their thin margins and reliance on quick turn around, weather the changes?
Though counterintuitive at a glance — iBuyers would seemingly need price growth to make money — most experts and industry insiders who spoke with Inman said that iBuying might actually thrive in a softening market.
“We’re built to work in an up market, a flat market, and a down market,” Hixson, of Opendoor, said. “In a down market, there’s actually potential for us to become a higher value service. The value of certainty increases.”
In other words, Opendoor believes that if the market turns, the prospect of a confirmed, fast offer may be even more valuable than it is today.
Outsiders tended to agree with that view, saying that stability and speed may become even greater assets as home sales soften.
“It’s quite possible that in a falling market people are willing to accept a heavily discounted rate just to get out of the market,” Flint said. “As long as the modeling and the analytics from the iBuyer are strong enough, they’ll do just fine.”
Lund further noted that though iBuying “really makes sense when home prices are increasing,” the major players in the market today are relying heavily on new data-based technologies that should enable them to weather a downturn.
“I think that if they have a seller who agrees with the data and they’re able to present that information correctly, then they should be fine,” he said.
The verdict, in other words, seems to be that a downturn alone wouldn’t eliminate the sector. Ibuying, in other words, is here to stay.
How can agents get in touch with ibuyers?
RedfinNow offers a brief explanation for agents and brokers, and can be reached via email at firstname.lastname@example.org or by phone at 951-229-0511. And Zillow’s information page for agents includes an option to sign up for an “interest list.”
Knock provides information for agents on its FAQ page, and interested real estate professionals can contact the company at either email@example.com or (470) 48-KNOCK. Bungalo Homes has an agent landing page and can be reached at 855-644-1295.
This post was updated after publication with ibuyer contact information.