Eliminating the Realtor? Exploring the iBuyer Model

First there was the iMac.  Then came the iPod.  And the iPhone, iPad, and so on. The “i” prefix has come to stand for technology and forward-thinking products. So it’s only right that real estate, one of the oldest industries, follow the lead of Apple.

The newest entrant into the real estate business is the “iBuyer”, a term that borrows Apple’s naming convention and refers to companies who facilitate the selling of your home in a short, streamlined process.  Brands such as Zillow, OpenDoor, OfferPad, and Knock are all banking on this type of service being the future of real estate transactions.

Generally speaking, the process works like this: you provide information about your property to the company; the company runs the numbers and gives you a take-it-or-leave-it price; assuming you accept, the company buys your home, does some simple renovations, and sells it for a profit.

What does it mean for sellers?  In a word: liquidity.  Of all the wealth mediums, real estate has typically been viewed as one of the least liquid.  Even if you were able to get your home market-ready quickly and find a buyer right away, you are most likely 30-60 days away from closing escrow and receiving the funds.  With the iBuyer model, sellers can sell their home and receive funds in as little as a few days.  Nice, right?

This would be a good time to remember that there is no such thing as a free lunch.  Just like a cash advance service, there is a price for accessing money faster than traditional means allow.

For sellers who utilize the iBuyer product, that means paying a fee of around 7-10% of the purchase price, AND accepting a below-market price for your property.  Not as sweet as it originally sounded, eh?

It's not all doom and gloom.  There are sellers out there who would genuinely benefit from the iBuyer model.  Have you fallen in love with another house and want to jump on the opportunity as fast as possible?  iBuyer.  Did you land your dream job in another town and have only a few days to make the move?  iBuyer.  Have you been hit with one of life's surprises and need lots of cash in a hurry?  iBuyer.

So not only does the iBuyer purchase your home at a below-market price, but they also charge fees far in excess of typically brokerage fees.  But they offer convenience and easy access to capital, and that's enough for some people to sign on.

Even if they're a little leery of paying higher fees, there are some people who are turned off by the real estate transaction process and want to simplify the experience as much as possible.  This is another demographic that the iBuyer model will appeal to.

Time will tell if the iBuyer model can thrive in any market, but for now they are focusing on areas with more predictable pricing and lower median home values.  For these reasons, Santa Barbara is more insulated from the trend, but we still need to be aware of how customers weigh the iBuyer model against the traditional brokerage model.  

Have you bought or sold a home using an iBuyer?  Do you think this model will prevail?  Leave your comments below! We’d love to hear your perspective…