Is Opendoor, Offerpad, and Zillow out of the Home Buyer Game?

It was just a few months back when iBuyer companies such as Zillow had control of the real estate market.  It was estimated, Zillow alone was making offers on homes every five minutes.

What is an iBuyer?

An iBuyer is a company that works directly with consumers providing instant cash offers to purchase their homes outright. iBuyers are known to purchase their properties in “as-is” condition without requesting any upgrades, repairs, warranties, closing costs or concessions, or any commissions. iBuyers brought about the possibility where homeowners can successfully sell their home without the use of a broker or real estate agent, which helps save money them money and time while avoiding some very common challenges and costs that might be incurred while using the traditional method.

Demand for their services was so high that the listing giant which historically made fortunes off agent advertising was considered first in instant homebuying back in 2018. The entire business model was shifted a year later as a fight against the growing opportunity that iBuying would be an existing threat to the business. 

Barely a year later and in the throes of massive economic chaos sparked by the famous Coronavirus pandemic, some top iBuying companies including Zillow, Opendoor, Offerpad, and Redfin announced a break on iBuying. This is an industry that generated nearly $9 billion last year in sales.

“While almost every city and businesses across the country are shutting down, no one can say for sure what exactly a fair price would look like at the moment.” A statement by Redfin CEO Glenn Kelman said last month announcing his company’s withdrawal from homebuying during the lockdown.

While some experts in the industry believe this is a pause on iBuying, others say it could be a possible nail in the coffin for a risky model that’s loaded companies with thousands of properties on their balance sheet in addition to capital costs.

Generally speaking, homes are sold to iBuyers at a discount from sellers who would like to sell fast and get their hands off the property. They buy these properties from sellers who want a certainty of a sale and after some minor renovation is done, they look further to flip the homes for profit. Some of these iBuying companies like Opendoor have merely relied on outside funding to carry out transactions. It’s so not clear as to whether these guides are going to survive this period.

Patrick

Professional Home Buyers Atlanta Blog

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