iBuyers are becoming an important source of inventory for rental giants looking for single-family homes. Foreclosures have essentially dried up since the housing recovery, and larger landlords like Invitation Homes and American Homes 4 Rent are turning to iBuyers to fill the gap.
The iBuyer market began in 2014 and the big players are Opendoor, Offerpad, and Knock. Redfin, Zillow, and Coldwell Banker have also gotten into the business. They use automated valuation tools to provide instant cash offers to sellers. When sellers accept the offer, the home is purchased and immediately relisted.
iBuyers Filling an Inventory Gap
According to an analysis by ATTOM Data Solutions, almost 1 in 10 homes of the homes sold by Opendoor and Offerpad so far this year, were bought by institutional investors. That represents a big increase from two years ago. The ATTOM analysis shows that just 3.9% of iBuyers homes were bought by institutional investors in 2016. In 2017, the percentage rose to 6.6%. And this year, it hit 9.6%.
But it isn’t just the big landlords buying up these properties. ATTOM’s Daren Blomquist says that, “Tight inventory is a common challenge facing both individual and institutional single family rental investors across the country.” He says, “Industry innovators are rising to meet this challenge through a variety of inventory-inducing channels, including off-market, build-to-rent, and iBuyer initiatives.”
Blomquist says it’s “not a perfect marriage, but it may be becoming a better fit because single-family operators are hungry for more inventory.” He also believes that rental demand will remain strong as potential homebuyers postpone their plans because of the current market slowdown. (1)
Signs of a Housing Market Slowdown
You see signs of a slowdown as rising home prices slow their pace, and realtors make more price cuts for already-listed homes. The Wall Street Journal reports that the market weakness has spread from some of the hottest high-priced markets to many markets across the country.
Metros like Tampa, Las Vegas, Phoenix, and Philadelphia that haven’t fully recovered from the downturn are among those with slower sales and more price cuts. According to the Journal, and data from Zillow, “The share of Las Vegas-area listings with price cuts rose sharply to 23% in October from 11% a year earlier.” (2)
The market is shifting to a more neutral market that doesn’t favor sellers or buyers. According to Curbed.com, iBuyers are providing a security blanket during this transition as sellers push to get their homes sold, and buyers, including investors, scramble for a shrinking number of for-sale homes.
iBuyers Offer Fast, No Hassle Transactions
The iBuyer experience is supposed to be fast and effortless for the seller with flexible closing dates, but sellers are not saving a bundle of money for the service. The Redfin Now website shows zero agent fees for an instant cash offer compared to a fee of 4 to 6% for a traditional sale. But it also charges a Redfin Now fee of 7.2%.
The iBuyer model is still evolving however and will likely play a more predominant role in the future as the technology develops. The blog Propmodo says of iBuyers, “These companies represent a massive shift in the way people choose to buy and sell what is likely the biggest purchase of their lifetime.” (3)
The use of iBuyers by institutional investors could represent a big step in this transition. Although they are not as cheap as foreclosures, iBuyer homes are providing a source of badly-needed inventory to big landlords. Curbed calls it a “temporary marriage of convenience.” For now, they provide another inventory option, if you’re having a tough time finding what you want by other means.
(3) Propmodo Article