What role do iBuyers play in a volatile real estate market?
In September, Las Vegas-based real estate agent Sean Gotcher posted a TikTok implying that an anonymous iBuyer – an “instant buyer” that relies on technology and algorithms to facilitate fast real estate transactions – could manipulate the housing market by artificially increasing prices. . To date, the video has garnered 3.4 million views and has sparked a wave of public anxiety, although these fears are largely unfounded: an outlier property with an inflated price would be dismissed as a bogus ‘comp’ or a comparable sale. When assessing the value of a new home on the market, appraisers, lenders, agents, brokers and even real estate lawyers act as checks and balances on each other, helping to avoid the doomsday scenario of manufacturing price increases.
Although Gotcher didn’t name names, his video propelled companies like Zillow, Redfin and Opendoor to the spotlight. The reality is that with less than one percent of total US home sales last year, iBuyers would need a lot more time, money, and market share to be able to manipulate home prices. accommodations in the manner suggested by Gotcher. Case in point: Zillow recently announced that it would end its iBuyer service, Zillow Offers, as supply chain issues, labor shortages and slowing home prices resulted in unsustainable losses. While the popularity of Gotcher’s TikTok does not correlate with its accuracy, the comment thread reveals greater concern about how entities like Zillow and Redfin could hypothetically mine data for nefarious purposes.
For their part, Zillow and Redfin have been quick to respond to public concerns. Redfin said its iBuyer program, RedfinNow, only sold 292 homes in the second quarter of 2021, or 0.01% of all homes sold. âIntentionally overpaying homes would be a terrible business model,â the company told Dwell. In addition, during the same period, 99% of homes sold by Redfin were sold through its traditional listing service.
Likewise, a written statement from Zillow explained that the company’s buy and sell program was based on a business model designed to generate profit margins from convenience fees (typically around 5%) to sellers. âBecause our margins are so slim, it’s essential that we price a home accurately. If we overpay, we’ll lose money on the resale. If we bid too low, homeowners will not use us “, we can read. The imminent closure of Zillow Offer reveals the fragility of the model.
Agents and brokers across the United States generally echo corporate defenses. The facts are that right now, real estate tech giants have no financial advantage in tarnishing their reputations or angering regulators.
Greg Forest, senior global real estate advisor at Sotheby’s International Realty in Palm Beach, Florida, says iBuyers face extremely thin margins and much higher risk of capital exposure. âBy buying homes online, with minimal scrutiny of inspections, appraisals and other issues that tend to arise in a real estate transaction, iBuyers often expose themselves to the responsibility of a small fluctuation. of the market making drastic waves in their profits â, explains ForÃªt.
He says iBuyers essentially wholesale properties, but unlike traditional investors who target distressed properties, iBuyers seek out those in lower-income neighborhoods. âThey’re looking for newer or renovated homes that are ready to sell for the best price,â says Forest. “Their whole model is based on buying the property at the seller’s net price.” That would pretty much be the seller’s product after paying a real estate agent‘s commission, if he had used one. Buyers buy at this price and sell quickly at the “retail” price, pocketing the difference. âBecause iBuyers don’t own the property long enough or move into the property, I don’t see them changing the demographics of the neighborhood,â says Forest.
Brady Miller, CEO of real estate brokerage firm Trelora, acknowledges that because iBuyers take over homes before they are put on the market, their presence can reduce the inventory available to individual buyers. However, says Miller, “since iBuyers don’t own homes for the long term, they typically buy homes that require minimal renovation before reselling them,” allowing traditional agents to match their customers with offers that an algorithm just won’t catch.
Warner Quiroga, president and owner of Prestige Home Buyers, a real estate investment company in Long Island, New York, says, âI still think a lot of homeowners would rather sell their homes to someone they meet and establish with. relationships, like instead of just clicking a few buttons online and selling their home. After all, it is the biggest transaction of their life, in most cases. “
Besides the above reasons, healthy public skepticism about web data collection looks set to keep traditional brokers employed for years to come. While iBuyers would love to gain the edge over each other, none can afford to question the very premise that technology-based decision making is trustworthy, and none can replace experience. physical or emotional of an in-person home visit.
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