After pandemic break, iBuyers bounce back in frenetic housing market – Orange County Register
By Jeff Ostrowski | Bankrate.com
Defying predictions that the iBuying concept would not work in an intense seller’s market, this new generation of buyers has accelerated property acquisitions to record levels.
“IBuyers,” short for “instant buyers,” mainly stopped buying homes in mid-2020 as COVID-19 injected uncertainty into the housing market. Now the iBuyers are back in force. They woo home sellers by making aggressive offers and reducing fees.
As a result, the three biggest iBuyers – Opendoor, Offerpad and Zillow Offers – hit new highs for buying activity in the second quarter of 2021, according to research by Mike DelPrete, researcher-in-residence at the University. from Colorado.
Read more: What is an iBuyer? These companies will buy your house faster, but at what cost?
“For anyone concerned that the iBuyer model may not be popular in a seller’s market, the evidence shows that it is resonating more than ever with consumers, and market conditions are actually fueling its growth,” says DelPrete.
DelPrete himself was among the skeptics. With many homes attracting multiple bids, the idea was that sellers would have no trouble finding buyers – and the iBuyer pitch would fall flat.
IBuyers pay aggressive prices
Part of the reason iBuyers are finding so many takers: They pay a premium (like home sellers need more good news in an age of really low inventory and record prices).
The top four iBuyers – Opendoor, Offerpad, Zillow Offers and RedfinNow – made offers that averaged 104.1% of market value in the first half of the year, according to a study by Zavvie, a technology company. real estate brokerage firms to help sellers compare. iBuyers offers. This is up from 97.6% of market value last year.
Read more: Real estate agents have little to fear from iBuyers, according to real estate leader
“IBuyers are now paying well above market prices for homes to buy more,” says DelPrete. “Why? I think a big part of it is that Opendoor is a public company and needs to demonstrate strong revenue growth.”
How iBuying works
IBuyers are positioned as a quick way to sell. Homeowners skip the hassle of painting and staging their home. Vendors do not need to clean and empty for exhibits. IBuyers make a cash offer and the seller can choose a closing date. IBuyers then beautify the homes and quickly bring them to market for sale.
While businesses pay top dollar for homes, they were charged a fee of up to 12% of the sale price. The average commission for a traditional real estate sale, on the other hand, is 5%.
However, iBuyers have reduced the fees so that they are more competitive with traditional transactions. According to Zavvie, the average service charge for iBuyers fell from 7.2% in 2020 to 5.1% in mid-2021.
The average concession billed for home repairs fell from 3.6% to 1.9%. In other words, the average success for selling to an iBuyer is now just 7%, down from almost 11% last year. These fee reductions help align iBuyers’ fees with traditional sales.
Soaring house prices have also worked in iBuyers’ favor. Many homeowners can’t close somewhere else until they recoup the equity in their current home, and iBuyers promise quick and predictable sales.
“With supply limited and demand so high, certainty becomes everything,” says Kerry Melcher, real estate manager at Opendoor.
The pitch seems to be working. Zillow Offers announced that it had purchased a record 3,805 homes in the second quarter of 2021. This was more than double its volume in the first quarter.
“I admit being very excited about the performance of Zillow Offers in such a dynamic seller market,” Zillow Group CEO Rich Barton told Wall Street analysts in early August.
The land brought in Texan home seller Kenneth Powell. When he decided to sell his family’s home in a Dallas suburb this spring, Powell considered listing the starting home with a real estate agent. After Powell learned he would get the same price and pay a similar fee by selling to an iBuyer, he chose this route.
Opendoor has vowed to close quickly – and without warning. “I know what a financing contingency is and what an inspection contingency is, and the whole box of worms that can open,” says Powell, a mortgage loan officer.
“Even with good pre-approvals and good pre-qualifications, there is always a risk that it will fail.”
Related: Zillow launches ‘iBuyer’ operation in Inland Empire
By selling to Opendoor, Powell says, he got the same amount he would have gotten in a traditional sale, but without the hassle of marketing the house and without the uncertainty of a collapsing deal.
“It was extremely convenient for us,” says Powell. “We didn’t have to list our house. We didn’t have to rent a storage unit for our stuff.
Should you sell to an iBuyer?
In today’s ultra-hot housing market, sellers are in the driver’s seat. While iBuyers has better deals than ever before, should you be selling to one of these companies? Some factors to consider:
– Where you live matters. IBuyers are not an option for all sellers. The companies have not been active in cities like New York, Chicago and Boston. They focused on the Sun Belt metropolitan areas like Atlanta, Charlotte, Phoenix, and San Antonio.
– The age of your home is important. IBuyers tend to avoid older homes, properties that require major renovations, and unique homes that are difficult to value. They are mainly looking for newer suburban homes.
—Compare offers from multiple iBuyers. In many markets, Opendoor, Offerpad, Zillow Offers and RedfinNow compete for your business. If so, ask them all for offers.
– Talk to a real estate agent. You will also want to get a proposal from a traditional agent. How much could your house sell for and how much would a real estate agent charge in commissions?