Real estate: ‘iBuyers’ want to pay cash for your house
A passel of startups want to “revolutionize real estate the way Uber changed transit and Amazon changed shopping,” said Jeff Collins in The Orange County Register. They are called iBuyers, and they are gaining momentum with online, all-cash offers—often driven by pricing algorithms—that let sellers avoid the hassle and frustration of brokers, open houses, and time wasted as their home sits on the market. The biggest, Opendoor, has already sold 10,000 homes; at least a half-dozen other companies are entering the market. Though so far iBuyers operate in just a few regions, clustered in the Southwest and Southeast, one analyst predicts their share of the home market could grow to 10 percent by 2022. The iBuyers resell the houses they buy, although “their business relies less on appreciation and more on fees—ranging from 6 to 12 percent—to make a profit.” For one Menifee, Calif., house, fees for “closing costs and repairs that included new carpet, kitchen cabinets, landscaping, and interior paint” took $49,000 out of a $414,000 purchase. Still, the immediate, all-cash sale was an attractive deal for a family that wanted to relocate quickly.
Traditional realtors are vulnerable to the iBuyers because they are already under fire over their fees, said Kenneth Harney in The Washington Post. A “far-reaching lawsuit” brought by the firm that took on Big Tobacco is now taking aim at the standard 6 percent commission. Sellers have to pay the buyer’s half of the commission, leading some to ask, “Why am I required to pay the fee of the buyer’s agent?” So there’s already pressure on the real estate industry to “dismantle the compensation system as it now exists.”
The scary new player in the industry is the home-listing service Zillow, said Patrick Clark in Bloomberg Businessweek. Last May, it started an “instant offers” business that makes a “no-fuss, all-cash offer” based on the assessment of a real estate expert who inspects the home. Zillow is “better known for operating apps and websites that help buyers find homes,” and agents still rely on it. But now it’s starting to look more like a disrupter than a partner to real estate agents. Zillow is hoping to grow from last year’s $1.33 billion in revenue to a “whopping $22 billion” in three to five years, said Jeff Andrews in Curbed.com—of which $20 billion will come from “buying and selling homes.” The ultimate hope is that it will be able to offer home sellers a quick sale with “a minor discount on the house’s full, open-market value,” while giving buyers a one-stop online shop for every part of the process, from financing to hiring movers. If iBuyers can deliver on that, they may have a path to becoming “truly dominant.” ■