Last spring, Duarte residents Marsha and Todd Johnson decided they were ready to exit the California dream.
They wanted to cash in on the meteoric rise in the value of their home and start retirement as they long planned, in Washington state, to be near family and the beach. But the couple, in their 50s and 60s, didn’t want prospective buyers traipsing through their house in the middle of a pandemic and dreaded the hassle of making repairs and managing offers, even with the assistance of a real estate agent.
So instead, they tapped an algorithm for help: On the website of a San Francisco company named Opendoor they filled out some “basic paperwork” and then completed a 15-minute video inspection through a smartphone. A few days later, a firm offer came through, and they sold their home to Opendoor.
“The process was pretty pain-free,” said Marsha Johnson, who worked for Los Angeles County social services before moving out of state. “We got the money pretty quick.”
A new way of selling homes is taking root on laptops and smartphones across the country.
Companies including Opendoor, Offerpad and Redfin are using algorithms backed by reams of data to value houses and buy them fast, in cash, and with much of the transaction online. The companies then do minor repairs and resell the homes, earning money on price appreciation and fees they charge.
Operating somewhat as industrial-scale flippers, the so-called ibuyers — instant buyers — have expanded rapidly in recent years, primed for growth by a worldwide flood of capital chasing yield in the U.S. housing market.
People can also buy homes directly from the companies, touring houses at their leisure by downloading a smartphone app to unlock the front door.
For those who have already endured the more traditional, time-consuming way, a quick and easy home transaction may seem too good to be true. Already, cracks are showing in the ibuying business model — still in its infancy — and industry experts aren’t sure how these new players are affecting the housing market more broadly.
“That’s what I find really interesting. What happens when you have a corporate middleman involved in the real estate transaction process?” said Mike DelPrete, an independent real estate analyst and scholar in residence at the University of Colorado in Boulder. “What happens when Wall Street and billions of dollars come in?”
The answer has significant bearing for the country but particularly for California, where home prices are among the highest in the nation, middle-class families have had increasing difficulty affording homes, and many renters are struggling to make ends meet.
In recent weeks, Zillow, the second-largest ibuyer, made a …….