An unwieldy process – heavy on paperwork and dependent on constant communication – homebuying may be poised for a change. That change may be coming from iBuyers.
Companies that quickly buy and sell homes, iBuyers have piqued national attention for their disruptive take on home selling. While a subject of lesser focus, homebuying is also succumbing to novel methods in the fledgling iBuyer industry, populated by Zillow, Opendoor, Offerpad and even Keller Williams.
“The common denominator in many of these companies' vision is to make homebuying as simple as buying a product on Amazon,” says Rob Barber, CEO of data firm Attom Data Solutions.
Yet, despite constant geographical expansion, the model is still in its infancy, seemingly centered at creating a desirable customer experience rather than huge profits.
Opendoor says it buys and sells 3,000 homes a month.
Offerpad’s tally is in the hundreds, says Cortney Read, the company's director of communications and outreach.
Zillow volunteered more data – it sold 414 homes in the first quarter of 2019, most of them purchased in the previous period, for $128.5 million in revenue.
This amount exceeds the acquisition, renovation and holding costs by mere $300,000. Per property, while aiming for a 2% gain, Zillow’s profit is less than $1,000, according to a letter to shareholders.
“Our goal is not to profit off of the mark-up on the house,” says Zillow President Jeremy Wacksman. “The goal is to properly assess what the house is worth and what it will take to sell the house.”
For that, iBuyers utilize data and analytics. But the Zestimate, Zillow’s assessment tool of home values, is separate from the iBuying branch, avoiding a chance to manipulate prices for profit, the company says.
While buying and selling in bulk could boost iBuyers' bottom line, the market echelon they occupy is already saturated in demand.
“IBuyers and Keller Williams as well function in a price point that is mostly for first-time buyers, maybe second step-up buyers,” says Gayln Ziegler, director of operations for Keller Offers, part of Keller Williams, which is beta-testing the model.
Some see this as a potential drawback to both iBuyers and individual homebuyers. But Wacksman considers it an advantage for home shoppers.
“We think one of the really great promises of Zillow Offers is that it is going to create more equity in the market,” Wacksman says, adding that the appeal of iBuyers' cash offers may spur sellers, who would otherwise hold off on parting with their home.
IBuyers quickly list purchased houses, adding inventory to the market, Wacksman says. Unless, of course, they sell to investors – according to Attom Data, Offerpad and Opendoor sold one in 10 houses to investors in 2018, a share that has risen by 3% every year since 2016.
But here is what a homebuyer may expect from an iBuyer today:
- Minimum renovation standards.
- Easy, digital access to homes and services.
- Adherence to tradition in representation and cost outlays.
After acquiring a home, iBuyers carry out renovations, the type that any seller would do.
“We are mostly focused on buying homes that don't have major, timely renovation work needed,” Wacksman says.
Hence, with each Zillow Offers home, Wacksman says, buyers should expect a quality standard, devoid of any major complications such as faulty plumbing or a craggy foundation.
Offerpad implements what Read describes as comprehensive repairs exceeding competitors’ practices.
“We spend more money on the home to get it in buyer-ready condition,” she says. “We go beyond just doing paint and carpet. We would do light fixtures, we would do appliances, we would do light renovation work, countertops, cabinets, landscaping.”
Because an iBuyer already invests in sprucing up a residence, a potential buyer’s chance to negotiate further repairs – although not nil – is slim. But Wacksman envisions a future when any renovations would heed a committed buyer’s druthers in a collaboration that would save time and resources.
In Opendoor’s case, a displeased buyer has a 30-day window to return the purchased residence and obtain his money back less a 3% fee.
While most homebuyers search for houses online, touring the ones they like requires coordination with the owners and, in some cases, at least a day’s notice to visit. IBuyers erase that drudgery.
Houses owned by Opendoor, Offerpad and Zillow Offers are vacant and accessible through the companies’ apps at clients’ preferred time.
“We hear over and over that buyers love looking at homes before work, on their lunch break, on their way to pick up the kids from school,” says an Opendoor spokesperson of the rationale behind the feature.
That sort of convenience also extends to a pivotal moment in the real estate transaction – making an offer. Offerpad allows buyers to digitally submit an offer that asks for little more than contact information and price. While a non-binding initiation of a more stringent procedure, this presents a major departure from the trove of paperwork needed to traditionally tender an offer.
The opportunity may appeal to buyers without agents, but most engage with an iBuyer through their real estate agent, shaping a process that bears many similarities to a regular transaction.
“We have a long history working together with agents,” says the Opendoor spokesperson. “Our goals are aligned – we want people to feel empowered to move when they are ready, not just when they have to.”
Under One Roof
Exemplifying iBuyers’ ideology of reliability and speed is the consolidation of various transactional steps. Securing a mortgage is a big one, which often trips buyers. Hence, iBuyers have rolled out their own loan services to streamline the process.
Keller Williams, Opendoor and Offerpad announced their expansion into mortgages in 2017. Zillow joined them last year.
“(It is) a key piece of the on-demand experience we put in motion with Zillow Offers and aims to transform real estate transactions by making it seamless to get financed and get into your new home, conveniently and on your own timeline,” said Greg Schwartz, president of media and marketplace for Zillow Offers, in a press release.
The company is also planning title and escrow branches, Wacksman says.
The concept of coalescing such services is not new – leading brokerages already do it. IBuyers see it as a growth opportunity, but it may be hard to realize, says Steve Murray, president and owner of residential real estate research firm REAL Trends. Large brokerages persuade only 30% of customers to use their mortgage extension, he says.
“If the iBuyers can get to that level or above, then they will be very, very successful and it will generate significant profit for them,” Murray says.
Operating in a slew of markets, iBuyers follow local customs on what closing costs they assume as sellers, including agents’ commission.
In that regard, purchasing a home from an iBuyer diverges little from a traditional transaction. Moreover, as in any instance, there are universal matters to consider.
Making sure the price reflects the house’s fair value is one, says Karan Kaul, researcher with the Urban Institute.
Attom Data’s Barber advises: “Approach (an iBuyer) the same way you would approach buying a home in general from anybody. ... I would simply look for the home features and the neighborhood features ... and if it turned out that the home is being sold by an iBuyer ... I don’t know if that would necessarily matter to me at all."
Are these must-haves on your list?
One of the first steps you take when deciding you want a new home is determining what you need in order to be happy there. The list of your must-haves can get long, and you reasonably can’t expect to find a house that perfectly matches all your criteria. “Someone has a list of 10 things – if they can find a house that has seven or eight of those, they’re doing pretty good,” says Jeff Plotkin, a Texas-licensed Realtor, attorney, certified public accountant and vice president of Habitat Hunters Inc. in Austin, Texas. Deciding what needs win out in your next home search can be tough, but there are a few key features and amenities many buyers seem unwilling to live without.Right in your price range
Right in your price range
Being able to afford your new home is a given, but buyers are often faced with having to choose between stretching their budget to have the master suite they want or having more reasonable monthly mortgage payments. Price often wins out in the end – you’re less likely to enjoy that master suite if you’re eating soup and foregoing vacations for the next five to 10 years to pay it off. In the 2018 National Association of Realtors Home Buyer and Seller Generational Trends report, home affordability was one of the three most important factors for respondents who recently purchased a home – behind only quality of the neighborhood and a location's convenience to work.In your preferred location
In your preferred location
Homebuyers care a lot about being able to get from point A to point B – as well as points C, D and E. Your future neighborhood can dictate what school your kids go to, how long it takes to get to work and how easy it is to stop at the grocery store when you forgot an ingredient for dinner. Plotkin says buyers put a lot of stress on where the house is, rather than what’s in the house itself. They’re looking for “proximity to schools, shopping, entertainment, public transportation,” he says.Interior over curb appeal
Interior over curb appeal
A handsome exterior keeps potential buyers from quickly driving away, but insight from new construction marketing site HomLuv.com reveals that it’s the interior that most often serves as the deal-maker. HomLuv’s website allows homebuyers to begin their search for a new home from the room they care about most, whether that’s the kitchen, living room or master bathroom. The one part of the house people don’t seem too worried about? Outside. In the roughly two months since HomLuv launched, “no one has chosen to look at exteriors first,” says Mark Law, vice president of product management for BDX, a home builder marketing company and parent company of HomLuv.The right number of bedrooms
The right number of bedrooms
While the interior of the home allows more wiggle room to compromise on your needs, there are some details that buyers must have. The right number of bedrooms would be the big one. Family expansion is often a primary reason homeowners start looking for a new house, so leaving out that extra room would defeat the entire purpose of the sale. According to the NAR report, 85 percent of homes purchased by respondents in 2017 had three bedrooms or more.Window treatments for reference
Window treatments for reference
Staging matters in a home. As much as we think we can picture how a vacant house will look with our own furnishings and decor, at the end of the day we need some suggestions. Law says builders will include big picture windows in bedrooms or over the tub in a master bathroom to let in natural light, but if the photos show the space without curtains or blinds, house hunters will inevitably see a design flaw. “They’ll say, ‘I’m not an exhibitionist,’” he explains. To avoid turning homebuyers off, window treatments should be included in listing photos and for home tours.Move-in ready
The condition of the home you shop for often goes hand in hand with your budget and the neighborhood you hope to live in. If your budget is at the lower end of the price range in the hottest community in town, you’ll likely find yourself buying a house that needs a little love. If your budget doesn’t restrict it, chances are you’ll have your pick of properties that have been turned by real estate investors. “The [buyer] demand is for 100 percent move-in ready condition,” says Bobby Montagne, CEO of Walnut Street Finance, a private money lender focused on home flipping in markets in Virginia, North Carolina and the District of Columbia metro area.Possible to picture your vision
Possible to picture your vision
Even if you’re one of the detractors who prefers a fixer-upper, it’s still necessary to be able to envision how the space will look once you’ve added your personal touches. Based on reactions from HomLuv users, details as small as the cabinet color in a photo can change the way a person thinks about a house. Law says he’s found preferences differ from region to region – darker cabinets may see more love in the South, while in California the preference is for white kitchen cabinets. “You could offer a free puppy and free pots and pans with the house, but if the cabinets are dark they still don’t want it,” he says.Warranty available
For newly built homes and those that have been recently flipped with significant work, you want to know that the professionals involved stand by their work. New construction homes often come with a warranty from the builder or the option to get a third-party warranty, and you should ask the investors involved with a flip for the same level of protection. “A good builder [or] a good flipper does not have a problem with that,” Montagne says. If an issue arises within the life of the warranty related to the workmanship, you can rest easy knowing you’re covered financially for the repairs.Potential for value growth
Potential for value growth
Your home isn’t just where you’ll live – it’s also an investment. There are a few easy decisions you can make that reduce the chances of losing out on potential growth in value over time, whether that means buying in a neighborhood where home values are steadily growing, finding a home in a desirable school district or avoiding living next to a strip mall. “When you’re buying a house, you’re not only buying it for yourself, you’re buying it for resale,” Plotkin says. “So most people are not going to want to back up to commercial [property] or a busy road.”Read More