If you want a front-row seat to the ways iBuyers can disrupt a real estate market, Phoenix provides a pretty good case study. Both Opendoor and OfferPad chose the Phoenix MSA to launch their iBuying business, and Zillow Offers jumped in soon after. Phoenix now has at least 17 different companies offering cash to homeowners, all attracted to the homogeneous nature of Phoenix’s housing stock.
In 2019, iBuyers were responsible for 5% to 6% of the total number of houses sold in Phoenix — about 1,000 houses a month. But in some areas, the percentage was much higher. In the Pecan Creek neighborhood, for example, iBuyers purchased 13.7% of the homes for sale last year.
But Phoenix was just the start.
The crux of iBuying is the ability to accurately predict what homes are worth based on automated valuations, which require a fairly large number of houses of similar size and amenities. iBuyers are typically looking for houses built after 1960 with an average worth of $200,000 to $400,000, which is why cities in the south and southwest — ringed with suburban bedroom communities — are seeing the most iBuying activity. iBuyers are now concentrated in about 20 metro areas, with cities in Arizona, North Carolina, Georgia, Texas and Florida leading the pack.
Redfin (itself an iBuyer) started tracking iBuyers in 2019 and released its first quarterly report in December, which showed that Raleigh, North Carolina, had pulled ahead of Phoenix to become the top iBuyer market in the nation. In the third quarter of 2019, 6.8% of homes sold in Raleigh were bought by iBuyers, a big jump from 3.8% in 2018. Other top markets were Phoenix at 5.1%, Atlanta at 4.4% and Charlotte, N.C. at 4.3%.
2020 could be a breakout year for iBuyers in several growing markets. Houston saw the biggest increase in Redfin’s report, going from 0.1% of sales in 2018 to 3.8% in 2019, and Jacksonville, Fla. wasn’t far behind, jumping from 0% to 3% in a year. Denver is also hot, with The Denver Post reporting that in the first half of 2019 Opendoor had purchased more than 200 homes and sold more than 80 of those in the mile-high city. In Dallas, Zillow Offers bought almost 900 houses and sold 400 in just the first quarter last year.
iBuyers range from the biggest players — Zillow, Opendoor, Offerpad, Knock and Redfin — down to local individual operators. But unlike cash buyers of the past, today’s biggest iBuyers are armed with property and consumer data that lets them market directly to homeowners, potentially undercutting the traditional role of the real estate agent.
But real estate agents don’t have to sit idly by and watch their business being siphoned off. In fact, the presence of so many iBuyers gives agents an incredible opportunity if they’re prepared to capitalize on it.
Dan Noma, owner of Venture REI in Phoenix, recognized that the influx of iBuyers into his market could be disruptive, but focused on finding a way to leverage his team’s expertise.
“Just like every other agent, when iBuyers came in, I thought, ‘This is a threat, they’re going to take my job,’” Noma said. “But then I got to meet them and realized they just wanted to buy houses.”
“I explain it to other agents this way: if you’re from Phoenix and I had a buyer who had a billion dollars to spend, and they’re going to buy houses, rehab and then sell them, would you take that referral? Any agent would say yes. Well, you’ve got that buyer! Now everybody has access to the biggest buyers in the country.”
Noma has taken full advantage of the opportunity, deploying an iBuyer strategy that has seen Venture REI business skyrocket. Over the last two years, Noma’s team has closed about 3,500 transactions a year. And that’s just in the Phoenix area.
Many agents would want to keep that strategy a secret, but Noma took the opposite tack. Noma teamed up with Kenny Klaus, another Arizona top originator, to launch an online certification course that trains agents in iBuying and grants them the iReal Estate Pro Certification.
Noma’s iBuying strategy flips the script for agents. Instead of acting like cash offers don’t exist and trying to conduct business as usual, agents become the experts who bring the opportunity to homeowners, rather than letting iBuyers approach them first. Instead of contacting homeowners with a comparative market analysis, Noma’s Venture REI team contacts homeowners to let them know there are potential cash offers for the house, even if it’s not currently for sale.
If the homeowner is interested, they sign a two-day right to solicit so that the agent can contact the institutional investors on the consumer’s behalf. Then the agent is able to find out which iBuyers would make offers and what the terms are. Out of the 17 iBuyers in Phoenix, the agent might get five or six offers and be able to walk the homeowner through the pros and cons of each.
“The worst thing that happens is we get a consumer that ends up in our database. The best case is they list their house in retail. In between those two, maybe we facilitate a sale to an iBuyer. In any case, we are empowering agents to give a consumer the best experience possible,” Noma said.
Noma’s team sorts the cash offers by comparing the number of days to closing, or hidden fees, and shows the consumer the difference between a cash offer and a retail offer. Depending on what’s most important to a consumer — convenience or equity — agents can recommend the right path.
“We’ve eliminated the one-step listing process — it’s a two-step listing process,” Noma said. “We educate buyers right out of the gate, then come back 24 to 72 hours later with all the available options. That could include a refi, which they may not have even been thinking of. Then the agent becomes the advisor and it’s not just a transactional relationship.”
Noma said about 70% of the time, buyers are choosing to do a retail listing, but they still appreciate the transparency.
“In everything else we do as consumers — buying a car, ordering on Amazon — we are in full control. We are able to instantly look at options and make a decision, except in the real estate transaction. This is what the iBuyers bring — they are giving consumers much more certainty,” Noma said.
“iBuyers are marketing directly to consumers, so there is no reason for agents to hide from it. If they haven’t driven past an Opendoor billboard the same day I’m talking to them, it would be surprising. So, we are talking about the elephant in the room, and actually using it to empower them.”
Building relationships by providing this valuable knowledge can lead to even more business, Noma said, as the person who just sold their house — whether through a retail listing or to an iBuyer — is now in the market for a new house. Most often these consumers won’t be offering cash, and now that they will be competing with iBuyers for their dream house, an agent with iBuying expertise offers value in a whole new way.
“The way I think about iBuyers is — you have a buyer! You’re not just sitting around hoping for a buyer — these guys want to buy houses,” Noma said. “Once agents get that, they understand that there is a ton of opportunity in aligning themselves with these guys.”