“We just had a baby. It was going to take a lot to get us to move,” said Cosmos Onyeyiri. But, he said, a pie-in-the-sky offer of $600,000 or more would be motivating.
A few months later, that’s exactly what happened. The couple sold their home for $616,700 — without ever putting it on the market.
But it wasn’t a typical homebuyer who made them their dream offer. It was Zillow.
Known as iBuyers — Opendoor, RedfinNow and Offerpad are some of the biggest — these companies use technology and data about a home and its market to make a cash offer on a property. After buying the home directly from the homeowner, the iBuyer makes some minimal repairs and updates and then sells the home on the open market.
“IBuying is appealing to a surprisingly large amount of people,” said Mike DelPrete, an independent real estate technology strategist and scholar in residence at the University of Colorado Boulder. “The pitch is speed, certainty and convenience. You don’t have to worry about the uncertainty of the market and how long it will take to sell, getting the house ready to show, which agent to choose.”
While sellers typically pay more for the convenience of using an iBuyer, the fees in competitive markets have been lower than the fees that traditional sales agents charge, said DelPrete. And the companies have been known to pay above-market prices for homes.
But while iBuyers can be appealing to sellers, hopeful homebuyers who are already being priced out of real estate markets fear the corporate competition and how it might further push home prices higher.
How iBuyers work
While iBuying has grown significantly over the past few years, it accounts for only 1% of homes sold in the US, or roughly 60,000 sales annually, according to a report from Zillow. But in some fiercely competitive cities like Phoenix, Atlanta and Charlotte, the share is more than 5%.
The largest iBuyer in the US is Opendoor, which launched in Phoenix in 2014 and now operates in 44 cities. The company bought 8,494 homes last quarter and sold 3,481. Zillow was a distant second. It launched Zillow Offers in 2018 in Phoenix and Las Vegas and most recently operated in 25 cities across the country.
Zillow has said it is not going be able to sell many of the homes it owns for a profit. Part of the problem, Zillow said, was forecasting what it could sell the homes for in the future given that the rapid increases in home prices that occurred during the past year have started to slow. In Phoenix, the 250 listings Zillow had at the end of October were priced at a median of 6.2%, or $29,000 less than what they …….