Technology brings revolution in every direction in which it moves. And it has rapidly gone from being on the horizon for real estate investment to now running with a thunder across the landscape. Its swift and efficient motion, combined with the rising cloud of dust indicating its onward march, leaves us unable to deny its approach at our doorstep.
The fast-forward pace of iBuying platforms is starting to impress computer-savvy sellers.
We ignore this market movement at our peril.
What is iBuying?
Many of you may be asking, “What is iBuying?” The question is a valid one, as iBuying’s first identified platform was only recently established in 2014 with the creation of the website Opendoor.
In short, iBuying is the latest, most advanced technological development in real estate buying and selling. Driven by the deep pockets of large corporations, iBuying utilizes instant offers, home “trade-ins”, all cash payments, and instant escrow with seller-chosen closings.
Now, this is a simplified explanation of the technique, but broad enough for a comprehensive understanding. Basically, iBuying is designed to make it easy, convenient, simple and fast for the seller. Several options are built into the structure to personalize the deal.
How is it different?
John found a new job that reduced the frequent long distance travel required by his former job. He decided, with more time available to enjoy living at home, that he would sell his current home. They liked the idea of their cookie-cutter, early-21st-century house, with its postage stamp yard and block wall fence, sitting squarely in a quiet cul-de-sac-suburban neighborhood.
She’d always wanted a 20th-century Craftsman cottage in the heart of the urban core, surrounded by a landscaped, landscaped yard—all within walking distance of the neighborhood’s haunts that were bustling with energy and activity. . He believed that the time had come.
Considering his new job and home changes, John had a lot to start with. First, she decided to quickly sell her existing home so she could focus on her new position. A friend gave him the name of a realtor she had used, and John set up a meeting.
The Realtor explained to John what needed to be done to get the home ready for the necessary showings, open houses, and tours. It wasn’t going to be very expensive, but it would still require scheduling contractors, getting bids, and finding time for repairs. John has to work his schedule around the people stuck in his house – often with only an hour’s notice.
He also had to be sure to take his dog, Scrapper, with him because, as his realtor explained, the pet needed to be off the premises during the showing. Naturally, this would be really difficult if he was at work while a notice of a showing came in.
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On top of that, he needed to start looking for his potential new home. But viewing listings, setting up tours with real estate agents, and going door-to-door required even more time that she really didn’t have.
In addition, John did not have the cash reserves to buy a second home until he sold his home. This put him in a difficult spot when it came to getting the property he wanted. He could not build a new house unless he had the money from the sale of his existing house.
Suddenly, the exciting idea of buying a new home seemed like more work than her new job. Finally, out of desperation, John decides that he simply has to wait until he has more time in his daily life to pursue his dream of buying a new home.
About two months later, John was talking to Monica at work. She was enjoying her happiness in shopping for new items for her recently bought house. John tells her about his experience and how frustrating it was. He asked her how she found the time and energy to get all the pieces in the right places.
Monica tells him that she hasn’t experienced any of those issues or, as she describes them, “old fashioned” problems in selling her home. He explained to her that he had used an iBuyer. She went to their website, and entered her home information. Within 48 hours, they had an offer and an explanation of their fees. The offer was more than he expected. He liked it, so he accepted it.
IBuyer has scheduled a convenient time for an affiliated Realtor to walk through your home to verify its condition. Once that meeting was over, he asked her when she wanted to close the transaction and receive her money. They also gave her the option of getting all the cash, or using her house as a “trade-in” on another house if she wished, to make her financing easier.
Monica chose to receive her benefit payment, but she wanted to live in her old home until she chose her new home. IBuyer was fine with this. So, it took another six weeks for Monica to find her new home.
Once she was able to give iBuyer a moving out date, her sale was finalized, and she made arrangements for her move. This saved her the hassle of figuring out where to live between closing on the old house and closing on the new one. She found the whole process easy and relaxed, and told John she did it all from the comfort of her couch.
You can definitely see the profit for the seller.
iBuying: A Brief History
I have been watching this industry with interest for a few years now. It’s a natural result of the type of buying and selling that we’ve always done as real estate investors.
The classic formula that we’ve all learned and become familiar with in our industry is:
- Purchase
- Add value
- sell or keep
- Repeat
If you look at it objectively, iBuyers are doing the same, except on a larger scale.
This same simple formula was largely automated in 1989 by the company HomeVesters and their brand We Buy Ugly Houses. They followed the same process defined by those four steps and mechanized the transaction of offers and purchases.
In 2006, Zillow came along and launched “Zestimate”. It gave—for the first time—homeowners direct and immediate access to information about their home’s value. With a few clicks of a keyboard, both buyers and sellers suddenly had a plethora of meaningful data at their fingertips to help them make decisions.
Neither the seller nor the buyer were now dependent on a real estate agent to provide an appraisal. There was no need to hunker down at computers in county offices, looking at screen after screen of previous sales in a neighborhood to define a property value for a potential offer. This change turned out to be the great equalizer for both sellers and buyers.
Time moves fast in the digital world
Fast forward to 2014: Opendoor launched its full-service platform, which offers sellers a variety of features.
For home sellers, the “hassles” involved in selling were many times greater. iBuyers like Opendoor target those barriers directly. By reducing seller hassles and simplifying the process, Opendoor increases seller willingness to use its platform for the sales process.
Here is a partial list of benefits Opendoor provides to sellers:
- immediate sale
- all cash offer
- hassle free sale
- short escrow
- close fast
- Not waiting for the buyer to qualify
- No risk of unqualified buyer
- no staging
- no open house
- Not showing any consecutive appointments or last minute notices of shows
- There’s no need to always keep the house basic
- Sale as-is with no repairs (iBuyer makes any repairs after seller has moved)
- no external assessment
- No need to list property
- no sign in front of house
- complete privacy
substance disruptor
Since its inception in 2014, Opendoor has offered to buy and sell homes. In 2016, they added a “trade-in” option.
Sellers immediately grasped this option as it is the exact buying model they are accustomed to when buying cars. Bring your old car, and trade it in towards the purchase of your new car. Because they were familiar with the process, home sellers were comfortable trusting it.
Since launching just five years ago, Opendoor has already bought and sold over 50,000 homes. It currently operates in 23 cities, with more cities planned. But here’s the real kicker, it’s on track to buy $5 billion worth of homes this year alone. Those are some deep pockets indeed.
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But wait…. there’s more
Today, Opendoor isn’t the only player in the iBuying arena. Currently, in the SFR (single family residence) sector, established iBuyer players include:
- open door
- Knock
- offerpad
- Zillow Offers
- redfin now
- realsure
These brands have also formed cooperative relationships with each other under the funneling, lead-generating website banner of iBuyer.com. This website takes seller information and then connects them directly to the iBuyer portal (or portals) operating in their specific region.
Are there multifamily iBuyers?
With this tsunami of change sweeping the real estate industry, it has become clear that no segment of the asset class will be left untouched by the iBuyer phenomenon. This includes multifamily housing.
There are already many iBuyers in the multifamily playing field. Due to the direct success of the core class of SFR-expert iBuyers, these start-ups have very quickly gained traction and venture capital.
By far, the most established multifamily iBuyers are:
And this is not where the matter ends.
What about vacant land?
Yes, there are already iBuyers for the vacant land.
- WeBuyLandOnline.com
- pacific land buyers
- EasyLandSell
iBuyer Trajectory is changing the current paradigm of real estate transactions. Its effects will continue to create disruption and change throughout our industry.
Consider that Amazon changed retail forever
In 1994, a company with the non-sequential name of a river in South America opened an online bookstore, Amazon. And that was the only product they sold: books.
Since that time, Amazon has become the dominant retailer on the Internet. In the process, the long-existing brick and mortar retail industry shrank dramatically. “Main Street” stores closed, as more and more retail moved exclusively to the Internet. The remaining brick and mortar retailers have had to become more creative or have been swayed by customers’ desire for convenience, ease and less hassle.
Amazon’s entry into retail changed the world of retailing forever. It is important for us to look at this fact with clarity and non-compromising vision.
Today, Amazon sells over 606 million products, owns Whole Foods, Ring, Zappos, Alexa, PillPack, Goodreads, IMDB, Audible and many other companies. Oh, and it still sells books.
Where does this leave us as real estate investors?
I believe that the disruption brought about by Amazon in the retail sector can serve as an object lesson for us as real estate investors. After all, hindsight is 20/20 hindsight, and wisdom creates opportunities to make bold choices to create positive and effective change.
As much as retailers wanted to believe, during the first decade of Amazon’s foray into retail, that Amazon and online shopping were just a fad, it didn’t go away. Instead, it grew. So to be honest, iBuyer is not a fad.
They are not going away. And they’re already on the rise.
Preparing for and dealing with the reality of the ascent of iBuying requires, first, not being in denial, and second, coming up with a long-term game plan for moving forward.
So, how do we effectively use the new disruption of iBuying as an opportunity to make our real estate investment businesses stronger, more effective, more profitable, more flexible, and more responsive to what sellers are looking for? ?
Let’s discuss in the comment section.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
