COVID-19 is causing the iBuyers’ business model to stall
With COVID-19 spreading, the iBuying frenzy seems to be fading fast. Commerce is slowing and even closing in some locations, especially major cities, making it difficult for iBuyers to determine fair prices for homes. Zillow, Redfin, Opendoor and Offerpad have all withdrawn from the iBuying market for the time being.
The only company not putting on the brakes seems to be HomeVestors, the “We Buy Ugly Houses” company that was in the iBuying space before that term became cool. The companies recently occupying this space never made it to South Carolina, but we saw “We Buy Ugly Houses” signs on telephone poles throughout the state, even in the most rural areas.
Some economists are speculating that COVID-19 may put a nail in the coffin of the “institutional fix-and flip” business model of those companies recently entering the market. The model was considered risky in the best of times. In times of economic uncertainty, it becomes even riskier. Safely buying a home at 95% of the market value requires confidence that the market won’t drop substantially.
HomeVestors, on the other hand, is attempting to grow by selling franchises and advertising that it remains in the market that others are leaving.
Other economists and some of the companies themselves are arguing that iBuying is a viable alternative in a market where it’s difficult to show homes and hold open houses. At this point, the correct answer is anybody’s guess.
The retreat of Zillow, Redfin, Opendoor and Offerpad before they even reach South Carolina is good news to South Carolina closing attorneys and real estate agents who view the iBuying phenomenon as another disruption to our business model as well as another possible means of dilution of control over residential closings by attorneys.
It sounds as if, for now, truly ugly houses may be the only ones subject to iBuying in South Carolina. The disrupters have been disrupted by economic uncertainty.