iBuyers, and what do you need to know.
If you are familiar with the real estate industry, you would undoubtedly have heard of this new way for people to buy and sell homes. If you are not deep into the industry, however, you may be interested to find out what an iBuyer is and how it could affect you.
What Is an iBuyer?
According to nerdwallet, “An iBuyer, or "instant buyer," is a real estate company that uses algorithms and technology to buy and resell homes quickly. When selling a home to an iBuyer, you may get a cash offer in as little as 24 hours without the hassle of staging and repeatedly showing the home.
You can also buy a home from an iBuyer. The companies' websites or apps let home buyers view available properties, schedule tours and request information to get started. Closing may occur more quickly with an iBuyer because you don't have to accommodate a traditional seller's timeline.”
A couple notable companies that do this are:
- Zillow Offers
These are only a handful of options that provide these services, and its quick growth certainly provides insight on the potential revenue that companies could get from this type of business. These companies all have something in common, they will offer to buy your property for cash – with the intent of fixing and flipping the property for a profit. This is an understandable and fair thing to do. They are simply acting as “just another buyer” and could be a real possibility for the right property in the right circumstances.
How They Work
A key point of interest is that the companies typically utilize technology and data to come up with purchase offers on these homes. Because of this, iBuyers operate in large metropolitan areas, such as Dallas, Atlanta and Phoenix. Not only is the pool of buyers and sellers much larger and the opportunity to find the perfect fix and flip opportunities, but there is plenty of raw data for their algorithms to accurately offer on homes on which they can make a profit. Currently, iBuyers makes up about 1% market share, so there is room for growth. Seeing more “For Sale” signs from companies like Redfin, and not a more familiar local brokerage will become more prevalent. What remains to be seen is how these companies will operate in a buyer’s market, since we really haven’t seen one since these companies have started operations. It would be fair to assume that their offers would become a smaller percentage of list price and they may become more selective on the properties that they buy. In the first half of 2021, iBuyer offers averaged 104.1% of market value, according to a report by Zavvie, a real estate technology company. In 2020, iBuyer offers averaged just 97.6% of market value. Essentially, when the companies think that prices are going up, they will pay more and vice versa.
There is certainly a lot to like when it comes to iBuyers. You don’t have to worry about finding a buyer, putting the property up, dealing with showings, back and forth negotiations, and simply getting the process “over with.” In some instances, the commission or other attached fees are less than an average real estate agent.
The Zillow Problem
If you have been paying attention to real estate news, you’ll know that Zillow lost a little over $300 million dollars on their iBuying business this past year and has halted operations citing market volatility and labor/supply shortages. "We've determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility," Rich Barton, Zillow Group's co-founder and CEO, said in a statement.”
Essentially, the conundrum of the local market and accurately pricing certain homes has not been cracked by technology and the delays/costs of not finding labor to fix the homes before being able to sell was too much for the balance sheet. This goes to reinforce why these iBuyers work in the larger markets with large subdivisions of homes very similar in size and construction. According to NPR in a recent article “Economists say the companies' pricing algorithms work better in places with thousands of similar cookie-cutter homes. But in places with more variation, it's much harder to figure out the right price.”
This is not to say that these iBuyers will never crack the code, with more information they will only get better at evaluating properties. But this can help understand the real difficulty in real estate, namely that each property is one of one and there are rarely identical properties to accurately price a home. It is certainly a nuanced process that iBuyers are only beginning to figure out. This should go to show the importance of having a local resource to know the market and price a home accurately. You may have heard it a thousand times from real estate agents, but it's TRUE. It's critical to get the local knowledge and insight that even a multi-billion-dollar corporation hasn’t completely figured out.
Crested Butte and the local Market for iBuyers.
The rise of iBuyers means very little in a small community such as Crested Butte for the forseeable future. Not only is it a small community, but also comes with a wide diversity of homes and an intricate set of variables that can lend to the value of the home. This means that there is a small data set and variables that are very wide, eliminating the possibility of an algorithm being able to compete with local knowledge. Add to that higher prices, more competition, and less buyers you would have to think that a place like Crested Butte is the last place you would see a “For Sale” sign with a Zillow logo on it.
This only goes to illustrate why you should trust experience when selling your Crested Butte property. Understanding the intricate variables that create value in a property is critical for buyers and sellers to compete in this market. If you are considering selling your home, give me a call to learn why I have the experience and expertise to be your Crested Butte Real Estate agent.