iBuyer

iBuyers are jumping back into the water: does that mean the market is safe?

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In March, the disruptive iBuyers announced that they were no longer buying homes in the midst of the pandemic. They said they were unable to pinpoint house values to the extent to make them comfortable in proceeding with their market model. And they said they were unable to insure the health and safety of their employees, partners and customers.

Some economists projected these companies would completely go out of business after losing such substantial momentum in the midst of the various shelter-in-place orders.

But now, just weeks later, the iBuyers say they’re back!

Offerpad, Redfin, Zillow, Opendoor and others have announced plans to resume operations after verifying health safety procedures. More of the processes will be handled remotely, and, as we are all doing, there will be more sanitizing, mask and glove wearing, and hand washing. They will likely offer digital methods for appraisals and for home viewing by potential buyers. Some will offer self-service listings.

One of the companies has discussed a safe, on-demand, and fully digital experience to buy and sell homes. They believe the experience is needed now more than ever.

As this blog has discussed previously, although these market disrupters have made it to markets in Georgia and North Carolina, we have not seen them announce operations in The Palmetto State. But my colleague, Martha McConnell, said she saw a Redfin “for sale” sign in her neighborhood in southeast Columbia last week.

So the iBuyers may be closer to us than we think!

What’s going on with iBuying during the COVID-19 chaos?

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This blog has discussed the spread of iBuyers, entities that make offers over the Internet to home sellers in certain residential markets. These sales take place with much less fuss and inconvenience than sales in the normal real estate market. What’s the catch? The sales price may be lower than the price that would have been obtained in the normal selling process. Sellers had to weigh convenience and price.

While we’ve seen the reach of the iBuyers (Opendoor, Offerpad, Zillow Offers and Redfin) spread to our neighboring states of Georgia and North Carolina, we have not yet seen the phenomenon reach into South Carolina.

I refer you to the April 3 article from Forbes that reports Opendoor, Offerpad, Zillow Offers and Redfin have all put their online buying on hold since the first COVID-19 shelter-in-place orders.

Interestingly, though, another company may be stepping up to fill this space. We’ve all seen the sign “We Buy Ugly Houses” posted on light poles, even in very small towns in South Carolina, for many years.

The Forbes article reports that the company behind those signs, HomeVestors, is transitioning to a virtual process and is continuing to buy houses across the nation. The article also reports that HomeVestors is opening new franchises to expand business further.

stay tuned - med WTS

This expansion may be good news to homeowners who are losing their jobs during this crisis and may need to sell their homes to remain financially solvent.

The article quotes the president of HomeVestors who said that nearly half of home sales traditionally occur between March and June, but the safety measures in place to prevent the spread of the virus may have significant impact on that market this year. HomeVestors is attempting to step into that market. The company hopes to provide some peace and continuity in this uncharted territory, according to the article.

iBuyers aren’t here yet, but they are close!

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iBuyers

I refer you to this article from The Title Report entitled “iBuyers gaining market share in some markets”.

While South Carolina has been safe from the iBuyer phenomenon so far, I wanted you to see this article because it shows us how close iBuyers actually are to us. The Raleigh, North Carolina, market led the nation in iBuyer market share for the third quarter, according to Redfin.

Nearly 8 percent of homes bought in Raleigh in that period were purchased by iBuyers.

This blog has discussed iBuyers previously. Opendoor, OfferPad, Redfin and Zillow continue to increase their footprints. They buy houses for prices determined by their respective algorithms in markets where they operate. The locations close to South Carolina, so far, are Atlanta, Charlotte, Raleigh-Durham, Jacksonville, Birmingham and Nashville. How far behind can we be?

Selling a home through an iBuyer can be much simpler than the market we currently occupy. The homeowner opens the iBuyer’s website, enters their address and some basic information about the house. Within a few days, the iBuyer will make an offer.

The seller doesn’t have to clean the house, stage the house, store excess furniture, board pets, leave home for open houses or any of the other indignities suffered under our current system. It’s a much easier process.

What’s the catch? The seller may be leaving money on the table. The offer will be less than the amount the homeowner could receive if all the gamers are property played on the open market.

If the offer is acceptable to the seller, he or she will schedule a time for a representative of the iBuyer to visit and assess the home. If maintenance issues are spotted, the seller may choose to complete the repairs or to allow the iBuyer to complete them at the seller’s expense. At that point, a final offer will be made.

The seller is allowed to select a closing date, typically within 60-90 days. The closing date is typically flexible and within the seller’s control. There is no worrying about the contingency of the buyer to sell a house or to obtain financing.

While real estate agents in normal closings might charge a total of 6 or 7 percent for commission, the iBuyer might charge a transaction fee of 7.5 percent. The iBuyer makes most of its money from these transaction fees, not from flipping prices. The homes are subsequently sold on the open market, so there will be a profit. But the iBuyer is not a normal home flipper. Substantial repairs are not made, and substantial profits are not made.

So the dichotomy for the seller seems to be convenience vs. price. If the amount the seller loses in price is worth it because of the convenience, then the seller is a prime candidate to do business with an iBuyer.

How are real estate agents adapting? They are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

We’ll pay attention as this phenomenon grows, and we’ll definitely report when it hits South Carolina.

“Curbed” article outlines the experience of iSellers

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iSeller may not be a “thing”, but iBuyer definitely is. I invite you to read the February 7 article by Jeff Andrews on curbed.com. This article outlines the experience of sellers who deal with Zillow, Opendoor and similar iBuyers. By extension, this article provides insight to real estate lawyers who want to remain in the real estate closing game after iBuyers make their way to South Carolina.

“iBuyer” is short for “instant buyer.” iBuyers buy houses for prices determined by their respective algorithms in the markets where they operate. The article contains a map showing those locations. South Carolina is not among those locations, but Atlanta, Charlotte, Raleigh-Durham, Jacksonville, Birmingham and Nashville are. How far behind can we be?

Selling a home through an iBuyer can be much simpler than the market we currently occupy. The homeowner opens the iBuyer’s website, enters their address and some basic information about the house. Within a few days, the iBuyer will make an offer.

The seller doesn’t have to clean the house, stage the house, store excess furniture, board pets, leave home for open houses, or any of the other indignities suffered under our current system. It’s a much easier process.

What’s the catch? The seller may be leaving money on the table. The offer will be less than the amount the homeowner could receive if all the games are properly played on the open market.

According to this article, if the offer is acceptable to the seller, he or she will schedule a time for a representative from the iBuyer to visit and asses the home. If maintenance issues are spotted, the seller may choose to complete the repairs or to allow the iBuyer to complete them at the seller’s expense.  At that point, a final offer will be made.

The seller is allowed to select a closing date, typically within 60-90 days. The closing date is typically flexible and within the seller’s control. There is no worrying about the contingency of the buyer to sell their house or obtain financing.

While the real estate agents in normal closings might charge a total of 6 or 7 percent for commission, the iBuyer might charge a transaction fee of 7.5 percent. According to this article, the iBuyer makes most of its money in these transaction fees. The houses are subsequently sold on the open market, so there will be a profit, but the iBuyer is not a home flipper. Substantial repairs are not made, and substantial profits are not made.

So the dichotomy for the seller seems to be convenience vs. price. If the amount the seller loses in price is worth it because of the convenience, then the seller is a prime candidate to do business with an iBuyer.

We’ll pay attention as this phenomenon grows, and we’ll definitely report when it hits South Carolina!

A glimpse into the future of residential real estate sales

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Here’s what may happen when iBuyer companies enter our market place

iBuyers

I read an interesting article from Forbes recently by John Wake entitled “The Surprising Way Real Estate Agents are Adapting to ‘iBuyers’ Buying Houses Directly From Sellers.” I invite you to read the article in its entirety here.

The article focuses on residential real estate sales in the Phoenix market which the author calls “ground zero for the iBuyer explosion.” What does he mean by that? Apparently, the largest iBuyer companies, Opendoor, OfferPad and Zillow Offers, either started their operations in Phoenix or concentrate their efforts there. He estimated five to six percent of houses that change hands in that market are sold to iBuyers.

The article focuses, as its title suggests, on how real estate agents are adapting to this disruption in their market. But I find the article instructive to South Carolinians on the topic of how these internet sales are orchestrated and how they might affect sellers in our market when this disruption migrates east to us.

The author says that a homeowner who seeks to sell a house via an internet company must first complete an online form. An offer is typically made within two or three days. If the homeowner accepts the offer, inspectors will be sent to the house and will come back with a list of repairs and estimated costs for the repairs that the buyer requests before the closing.

As in our current process, the seller can agree to make the repairs, to reduce the price of the house to cover the cost of the repairs, or to terminate the contract.

The author suggests that real estate agents commonly complain that iBuyers tend to offer less and to ask for more repairs than traditional buyers. In other words, the seller makes more money in traditional sales involving local real estate agents.

The flip side of that coin is, of course, that closing with one of the iBuyer companies is more convenient than the process in our marketplace. A seller doesn’t have to get the house ready to sell, stage it, keep it clean for showings, or leave home for showings and open houses. The closing date may be more flexible, and there probably will not be contingencies for appraisals and financing.

How are real estate agents in Phoenix adapting? According to Mr. Wake’s article, real estate agents are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the iBuyer offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

In short, real estate agents are attempting to become iBuyer experts in addition to traditional home sale experts.

Real estate lawyers, we need to be ready for this disruption when it hits us. We will want to be able to explain the changes in the market to our clients as well as to educate our real estate agents on how to stay in the game. Let’s keep our eyes and ears open! I’ll help!