[REN #718] Will Instant Offer iBuyers Replace House Flippers?

Image of a Desert Home for Real Estate News for Investors Podcast Episode #718

Zillow’s Zestimate is now competing with another new price-setting strategy that is giving sellers a more “real world” sales price. This new strategy involves iBuyers and what they would pay for a home. Sellers request an instant offer and can use that as a bargaining chip in their negotiations with a listing agent, challenging them to sell the home for a higher price. Or, they may decide to go with the iBuyer.

Real estate strategist Mike Delprete claims that the iBuyer offer is the new Zestimate. (1) He wrote about it in an opinion piece for Inman. He says Zillow has been a market leader for quite some time, offering consumers a good starting point in their effort to sell their homes. But now iBuyer offers from websites like Opendoor and Offerpad threaten to unseat Zillow. Delprete says in the blog, “What’s more accurate than an actual offer on your home?”

Zillow hasn’t stayed on the sidelines of this new trend, however. It began its own iBuyer program last April called “Zillow Offers.” It did some test marketing in Las Vegas and Phoenix, and has rapidly expanded since then. If you look at Zillow’s press release page, you see monthly announcements about new markets for Zillow Offers. Zillow’s latest instant offer addition is Riverside, California.

Riverside is the first California market for Zillow Offers, and Zillow’s eighth one overall. Zillow’s Jeremy Wacksman says of the iBuying concept, “Today, everyone expects an on-demand experience for all parts of their lives, and from the early success of Zillow Offers over the last year, this expectation is now a reality in real estate.” (2)

Delprete calls the instant offer “Zestimate 2.0.” He says it’s a “natural starting point” because it’s easy, provides value, and doesn’t require a commitment. And, he says, a huge number of people are requesting these offers. The iBuyer market is extremely active in Phoenix. Delprete says some 25 to 30 percent of sellers are requesting an instant offer before they list their homes.

As a business strategy, he lists three reasons why the iBuying model is so appealing.

  1. The offers are done online and are quick and easy.
  2. They attract people at the start of their real estate plans.
  3. And, they satisfy a consumer need.

Those three things add up to a powerful new trend in real estate. As reported by Housingwire, (3) Zillow is still a newbie when it comes to instant offers. Opendoor reportedly bought more than 10,000 homes to renovate and sell last year, while Zillow bought less than 1,000. But, while Opendoor and Offerpad have attracted the support of investors, Zillow says it has the ability to borrow $1 billion to support its instant offer program. It revealed in a quarterly report that it has a five-year plan to dominate the iBuying sector with the purchase of 5,000 properties a month.

While Delprete says that the instant offer has replaced the Zestimate, CEO Rich Barton said in an interview that at some point, there won’t be a big difference between the Zestimate and a cash offer. He said, “Ideally, I would like to have the Zestimate be a live offer on every home in the country.” So, a seller wouldn’t need to request an offer. He or she could simply look up their address on Zillow, and see what Zillow would pay for their home.

If you’re wondering how an iBuyer differs from a home flipper, Inman explains that while most home flippers will buy a home that needs major renovations, an iBuyer will only buy homes that need minor repairs. Opendoor’s Tyler Hixson told Inman, “We’re not coming in and knocking out walls. We’re essentially coming in and doing the deferred maintenance, minor renovations, interior paint, carpet, and landscaping.” In other words, they may need a little sprucing up but are livable. Another difference, according to Delprete, is that iBuyers will offer sellers about 98% of the home’s value while flippers might offer 70%.

iBuyers are changing the real estate industry, and that’s been a concern for agents and brokers. Some feel that iBuyers could replace the traditional agent, but it isn’t as simple as that. Inman writes that agents will need to adapt, offering more service to customers, providing instant offers as an option. Instant offers typically cost a seller more in fees so sellers may prefer to take the traditional approach. Agents may also earn a commission from iBuyers. Offerpad reportedly pays agents a typical 3% commission.

The industry is evolving rapidly in many ways, and we need to stay on top of it – which we’ll be doing daily on the Real Estate News podcast.

Links:

(1) Inman Article

(2) Zillow Article

(3) HousingWire Article

(4) Inman Article 2

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