With Technology comes innovation and changes to the way business is done. The way people buy and sell homes has evolved; I am talking about iBuyers. The term “iBuyer,” which was coined in 2017 by Stephen Kim. Mr. Kim has held many titles such as managing director of equity research homebuilding and building products for Barclay’s Capital to his current position as the senior managing director and head of Evercore ISI’s Housing Research Team. Mr. Kim has been an authority figure on the trends of real estate over the last two decades. Mr. Kim has illustrated in several whitepapers, reports, interviews and presentations the rise of tech companies and how they have changed the real estate paradigm. iBuyer’s existed before Mr.Kim by a couple years but he coined the term that has now become common vernacular.
Opendoor was the first company to buy and sell residential real estate through AI; in fact they are headquartered in San Francisco a hop, skip and jump away from our home base in San Carlos. Opendoor was founded in 2014, is publicly traded and is yet another success story to come out of the tech hub of San Francisco. In 2021 Opendoor bought 15,181 homes and sold 5,988. Opendoor remains the largest iBuyer company operating in 47 metropolitan areas across the US followed by Offerpad with Redfin Now making great strides to compete with the first tier iBuyers previously mentioned. Zillow, you may or may not know, retired from the game in November of 2021 after over $1 billion in losses over 3.5 years. The company was forced to scale back considerably resulting in laying off 25% of their staff, OUCH! Clearly, their algorithm called “Zestimates,” was chalked full of errors. Zillow continues to publish estimates on the value of homes that are inflated; giving homeowners an unrealistic picture of the value of their home.
iBuyers are relatively new and exemplified by Zillow, are unpredictable. iBuyers do not operate everywhere and are advantageous to some regions more than others. Currently iBuyers accounted for 1.3% of the national market share, approximately 120,000 transactions in 2021. However, in our eyes there is never an advantage to working with an iBuyer when you could work with a direct home buyer.
Working with iBuyer will vary on terms and policy from company to company. I repeat there is no human touch as to how iBuyers arrive at a price point, leaving the entire process very cold. iBuyers direct you to a form via their website where you will give details about your home. It will start with the basics for example how many bedrooms, bathrooms, square footage, year it was built and so one then move onto getting more details like what kind of countertops do you have in the kitchen, are you part of a homeowners association. Filling out the form probably takes longer than if you could simply talk to a person. Then they will ask; do any of these apply to your home Y/N:
Leased or financed solar panels
Known Foundation Issues
Mobile or Manufactured home
“Unique ownership structure: tenants, Co-Ops etc.”
Existing active or inactive underground fuel oil tanks
Cesspool on property
They will want to know your moving time frame, are you currently working with a homebuilder and ask you to upload pictures. Some companies request videos. iBuyers will make an offer without an inspection incurring a grave risk on their end of things for what may lurk behind the walls. However, it isn’t a guarantee home buyers will buy your home, they tend to look for new(ish), single family homes with nothing custom or unique unlike direct home buyers who will buy any home especially the unique ones.
iBuyers cut out the agent but not the fees. They charge a service fee on average, 9% compared to real estate agents who typically charge around 7% or in vast contrast compared to direct home buyers like ourselves that charge ZERO, niente, nada, zip, zero zilch.
In conclusion, iBuyer companies offer to buy your home based on an algorithm. Additionally, they charge higher service fees than a real estate agent. They completely remove any personable touch from the real estate transaction. They indubitably do not have your best interest in mind. There is no gray area when working with an iBuyer. When you think of iBuyers, you should picture yourself calling your insurance company where you are relentlessly prompted by automations that drive you mad, leaving you screaming into the phone “Person, person, customer service, I want to speak to a person.”