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Real Estate

iBuyers: Did COVID-19 disrupt the disruptors?

Where they are and where they’re heading

Since the iBuying industry launched in 2014, billions of dollars have poured into companies created to disrupt the real estate industry and transform the way consumers buy and sell houses. These companies promise homeowners a hassle-free experience – one that’s simple, convenient and avoids the uncertainties often inherent in real estate transactions.

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Robyn A. Friedman
HW+ Columnist

But as COVID-19 put a damper on real estate markets throughout the nation, it also impacted iBuyers, which paused their purchasing operations to re-assess local housing market conditions and establish new safety protocols.

Now, iBuyers are back to purchasing homes again, albeit in fewer markets and at a slower pace than before, despite increased demand from homeowners anxious to sell but hesitant to allow strangers into their homes in the middle of a pandemic.           

The response to COVID-19     

Zillow Group, which launched its iBuying arm, Zillow Offers, in April 2018, was active in 24 markets prior to COVID-19. It paused its operations on March 23 due to housing market uncertainty and public health concerns.   

“Stay-at-home orders were coming out state by state and city by city, and they were not consistent on what activities were allowed,” said Jeremy Wacksman, president of Zillow, who oversees Zillow Offers. “And we were concerned for the health and safety of our employees and customers.”

On Aug. 4, Zillow announced that it had resumed buying homes in all 24 markets in which Zillow Offers operates.

Redfin also pulled back from making offers on homes through RedfinNow, on March 17, due to economic uncertainty at the outset of the coronavirus pandemic. It resumed buying homes on May 7 in three initial markets – Austin, Denver and the Inland Empire in California — and is now iBuying in 10 of the 13 markets it was active in previously. The firm has not yet resumed operations in Las Vegas, Colorado Springs or Ventura County, California.

Offerpad and Opendoor also suspended operations due to COVID-19. “The market was like nothing anybody had seen, so we needed to ensure that if we were going to continue buying homes during that time period that we were providing the most accurate and competitive pricing,” said Cortney Read, Offerpad’s chief of staff and communications.

Opendoor was in 21 markets pre-COVID-19; it’s currently buying homes again in seven and expects to be back in all markets by September.

Due to these pullbacks, the total number of national iBuyer purchases by Zillow, Offerpad, Opendoor and Redfin plummeted 90% in the second quarter of 2020, according to Mike DelPrete, a global real estate tech strategist and scholar-in-residence at the University of Colorado Boulder. And despite the fact that the iBuyers are back to purchasing homes, they are proceeding very cautiously.

“The markets are recovering faster than the iBuyers,” DelPrete said. In Phoenix, for example — the top market for iBuyers by volume – total iBuyer purchase market share declined to 1% in June 2020 from 5.1% in January 2020. “The overall market in Phoenix went down a little bit and rebounded quickly,” DelPrete said. “But iBuyers are going slow.”

Paying the bills

In addition to surviving an unprecedented public health crisis, iBuyers face an additional challenge, DelPrete said: achieving profitability.

“These are venture-funded companies that have raised hundreds of millions or billions of dollars, and they haven’t demonstrated a profit,” he said. “Is that feasible? Will they be able to keep raising money? What is the path to profitability?”

With low margins and high costs for agent fees, holding costs and home repairs, one way for iBuyers to increase revenues is by adding additional services. Zillow, for example, now offers customers title and escrow services. Its affiliate lender, Zillow Home Loans, also provides customers with a way to get pre-approved and secure financing for their home purchase.

Opendoor is also providing ancillary services to its customers, including Opendoor Home Loans for mortgages. In September 2019, Opendoor acquired OS National, a national title and escrow company that had previously been an Opendoor partner. The acquisition allowed Opendoor to integrate title, escrow and closings – and their related fee income — into its online buying and selling platform.  

The lines are blurring

When iBuyers launched operations, their pitch to potential customers was this: Don’t use an agent to sell your home. Why face uncertainty as to when it will sell and for how much? Just accept our offer, sell the house to us and you’re done – no open houses, no strangers traipsing through your home.

Now, however, as the lines between iBuyers and traditional brokers blur, iBuyers are providing brokerage services. In June, Offerpad unveiled its Real Estate Solutions Center, a guided experience for sellers that begins at Offerpad.com. Users are invited to share details of their current homes and upload recent photos. The home is then evaluated by the company’s real estate experts and Offerpad’s proprietary real estate platform. Within 24 hours, the user is presented with a cash offer, along with additional selling options, allowing sellers to either sell the home instantly or to partner with Offerpad to list it and potentially maximize his or her home’s value on the open market.

Realtor.com is also trying to meet the needs of any seller. The portal’s new Seller’s Marketplace, introduced in July, allows homeowners to compare selling options side by side and select the option that works best for their situation. Consumers can receive an instant offer from Opendoor, sell now and move later with EasyKnock, sell in any condition to HomeGo or WeBuyHouses.com or list on the open market with an agent.

“Seller’s Marketplace is a one-stop shop for home selling information, resources and connections,” said David Masters, director of product management for Realtor.com. “Rather than become an iBuyer ourselves, Realtor.com aims to be a trusted and unbiased source that points consumers in the right direction and enables them to make the right decisions for their home and their family.”

Zillow is capitalizing on the power of its real estate portal as well – by spending its advertising dollars to attract consumers in the hope they can be converted to customers. “A couple of years ago, if you were going to sell a house, most people would go to Zillow and get a Zestimate,” DelPrete said. “And once you did that, you were in Zillow’s ecosystem – they knew you and knew you were interested. iBuying is the new Zestimate. If you’re thinking of selling your home, why wouldn’t you get an instant offer on it? That’s the new starting point for the real estate journey.”

The future

Despite the pandemic and iBuyers’ struggle to achieve profitability, they remain in business. They’re tweaking their business models, investing in new ideas and trying to create additional ways to increase revenues.

But DelPrete likens the industry to survival of the fittest. “It may take months to fully play out,” he said. “But the agents, brokers, disruptors and real estate tech companies that have the strongest balance sheets, that can move fast, are agile and can respond to consumer needs as fast as possible – these are the ones that will survive.”           

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