Like it or not, the iBuyer market share has exploded in recent years. In 2019, a top iBuyer purchased one out of every 100 homes sold nationwide, nearly double the amount from 2018.
However, amid the spread of COVID-19, all four major iBuyers — Opendoor, Zillow, Offerpad and Redfin — were forced to temporarily shutter their operations, leading many to question the sustainability of their business model.
With that in mind, let’s take a closer look at the future of iBuyers in light of COVID-19. This includes the advantages available to iBuyers as they navigate the current housing market, as well as the disadvantages they face and how each of those factors may affect their uncertain future.
The advantages for iBuyers during COVID-19
Although the four iBuying giants temporarily suspended their operations and laid off employees as a result of COVID-19, their services have mostly returned. As an agent, you have to learn to compete against iBuyers for the long haul.
In the current environment, there are a few unique advantages that iBuying has over the traditional method of buying and selling:
1. Technology enables a more contact-free experience
When you look at it, iBuyer technology lends itself to a more contact-free experience than the traditional real estate process. In this case, rather than having to open up their homes to potential buyers during showings and putting themselves at risk during the pandemic, homesellers can simply request an offer on the property with a few taps of a keyboard.
Often, iBuyers use algorithms, which compile local property data and current market data, to make an offer on the home sight-unseen. Although some iBuyers also offer the option to receive an adjusted offer after a professional evaluates the home in person, this service is frequently optional.
iBuyers usually will wait to put the home back on the market until the seller moves out and any necessary fixes have been made. This also offers the opportunity for a relatively contact-free experience for the buyer. In some cases, iBuyers allow potential buyers to tour homes without being accompanied by a real estate agent or having to deal with the technical complexities of a virtual tour.
2. iBuyers lend certainty to the selling process
In uncertain times, iBuyers provide the certainty of a readily available, in-hand offer. Although thus far in the pandemic, most of the nation has experienced a strong seller’s market, there’s no guarantee these market conditions will continue.
As unemployment numbers continue to rise, it’s possible that the market could start to see fewer qualified buyers, despite the current record-low interest rates. If that happens, available listings may start to sit on the market for longer periods of time — much longer than the time it takes to produce an instant offer from an iBuyer.
The disadvantages facing iBuyers during COVID-19
Given current economic conditions, iBuyers also face some sizable disadvantages in trying to grow their share of the market. Below is a closer look at the specific ways iBuyers may struggle to compete with agents during the pandemic.
1. Convenience comes at a cost
An iBuyer’s fees can range from 6 percent to up to 12 percent of the home’s purchase price, which is nearly double the amount of typical agent commission fees. Ultimately, the appeal of iBuyers is the ease and convenience of their services compared to the hassle of accommodating multiple showings. The major iBuyers knew it and, as such, charged this premium for their services.
In the current economic climate, where employment is uncertain and many are struggling just to make ends meet, sellers are going to be more likely to closely evaluate the costs that come with selling their home. IBuyers may find that fewer sellers are willing to pay for convenience over saving their pennies.
With that in mind, as an agent, your best bet is to be upfront about your commission fees, breaking costs down into a seller net sheet. Explain to your clients exactly what services are included in your commission to show the value they’re getting.
If they’re still deciding between you and an iBuyer, mention the premium iBuyers charge for the added convenience, and that it’s likely much more than your commission fees.
2. Many sellers expect a bidding war
As stated above, nationwide, many metro areas are currently in the midst of a strong seller’s market. Therefore, many sellers have taken advantage of current market conditions by working to get the greatest possible value and expecting a bidding war among buyers.
For iBuyers, which typically offer less than market value for the properties they buy, it may be harder to compete in this environment.
The bottom line
Although no one knows exactly what the future holds for real estate, things look particularly uncertain for iBuyers. The four major iBuyers likely have enough capital and experience to weather the storm, but smaller iBuying companies, many of which are still in the startup stage of their business trajectories, will have a much harder time staying afloat through the pandemic.
Luke Babich is the CSO of Clever Real Estate in St. Louis. Connect with him on Facebook or Twitter.
