Part II in this two-part series looks at the State of iBuying Now, How iBuyers Are Funded, Where iBuyers Do Business, What iBuyer Offers Look Like and the Future of iBuying.
The State of iBuying Now
The latest Realtor Confidence Survey by the National Association of REALTORS® (NAR) indicated that 2% of sellers who sold to an iBuyer during November/December 2021 worked with a realtor. 2% doesn’t sound like a lot but 2% of 6.12M existing home sales translates into about 122,000 existing home sales last year.
Last month, CoreLogic indicated that iBuyer’s “purchase activity doubled compared to 2019 levels.” This real estate data company indicated iBuyers had just 1M sales but acknowledged that the sector is growing.
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A December 2021 report on iBuyers by Zillow found that sales to iBuyers represented 1.9% of the market in Q3 2021. iBuying in 2021 was called a “transformative and record-breaking year for iBuyers” by iBuyer expert Mike delPrete. Determining the iBuyer market share at 1.3%, delPrete said, “iBuyers are one of the leading disruptive models in real estate. Their ability to grow, in all types of markets, is an important signal as to what degree the traditional real estate transaction can be disrupted.”
The bottom line…iBuying is growing rapidly and not disappearing. Counting out this market sector would be a mistake.
How iBuyers Are Funded
Opendoor, Offerpad and Redfin, the big three, are all publicly traded companies. Opendoor’s market cap stands at about $6.6B. Offerpad’s market cap is about $901M. Redfin’s market cap is approximately $3.5B. All of them continue to raise significant funds from investors.
On top of money from Wall Street and investors, iBuyers earn money from service fees, home price appreciation on the properties they buy plus they sell ancillary services (title and mortgage) to their buyers of flipped homes.
Where iBuyers Do Business
When iBuyers started, they concentrated on affordable Sunbelt cities with high population gains such as Las Vegas and Phoenix. Since 2017, CoreLogic indicated that five states represent 75% of iBuyer purchases. Those states include:
- Texas at 20%
- Arizona at 20%
- Georgia at 13%
- Florida at 12%
- North Carolina at 13%
Since 2021, iBuying in California has overtaken North Carolina’s numbers.
Metros representing 76% of iBuyer purchases include:
- Phoenix at 20%
- Atlanta at 14%
- Dallas at 10%
- Charlotte at 6%
- Las Vegas at 6%
- Houston at 5%
- Orlando at 4%
- Tampa at 4%
- Raleigh at 4%
- San Antonio at 3%
Now, iBuyers are targeting more expensive markets such as Los Angeles.
What iBuyer Offers Look Like
In the beginning, iBuyers concentrated on mid-priced homes in tract developments that were built during the end of the 20th century. Homes that looked alike, as many do in the Phoenix market, were easier to price, renovate and resell quickly.
A December 2021 report released by Zavvie indicated that the average iBuyer’s purchase price jumped +47% between the end of 2020 and Q3 2021. This +47% increase meant that consumers were still getting above market value for their properties. This Zavvie report also indicated that iBuyers’ service fees average 4.88% in Q3 2021.
The Future of iBuying
Despite the big three iBuying companies being publicly traded companies with large market caps, none of these iBuyers have turned a profit.
The key to profitability, according to delPrete, is scale. DelPrete said, “These companies need to be buying 3,000, 4,000, 5,000 houses a month.” On the other hand, scaling has its own problems as Zillow learned. Even the slightest market fluctuation can have a huge impact on iBuyers’ bottom lines.
Beyond profitability, Stefan Peterson, Zavvie’s co-founder and chief data officer, looks at how iBuyers affect both customer satisfaction and the agent community. Most people who sell to an iBuyer are highly satisfied with the iBuying process and most people selling to iBuyers are doing so with the help of an agent.
Peterson told Inman, “We’ve seen it’s become completely normalized for agents to request instant offers on behalf of their clients and represent their clients through the iBuyer process. And it’s great how the iBuyers have embraced this reality through various programs to work successfully with agents.”
Perhaps the bottom line for iBuying is that it’s all good?
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