iBuying – the tech-enabled process of making an instant offer on a home – started to grow in popularity in the late 2010s. iBuyers inserted themselves into the middle of the home buying and selling process, attempting to alleviate some of the pain points in the transaction. Rather than sell directly to another homeowner, an iBuyer will give the seller an instant offer after running some quick, online calculations on the market value of the home. One key component to iBuyers is that they claim they aren’t trying to significantly undercut sellers. Instead, they attempt to offer the seller fair market value for homes, as they focus on the broader financial benefits of being able to control a lot of the financial transactions.
From there, the seller’s hands are wiped clean of having to deal with the back and forth negotiations with buyers. The benefits to the sellers could include not having to deal with fixing up the house after an inspection, being able to move immediately if there’s a new job across the country that the seller needs to get to and a lot of the other challenges that come up in the closing process.
The top players in the space are Opendoor, Offerpad and Redin, with Zillow Offers also being a top player up until late-2021 when the company shocked the market and killed its iBuying program after suffering major losses. But as Zillow stepped away from the tumultuous business, other companies, like Rocket and Offerpad, have announced they’re only getting started in the space.
The uncertainty of the business model stems from the fact that iBuyers have struggled to make any profit in the business, with iBuyers constantly reporting losses during their quarterly earnings and even getting to the point that many had to halt iBuying during the height of the COVID-19 pandemic. But this lack of profit hasn’t stopped investors from funneling money into iBuyers. Offerpad made a mark in the space in its 2Q21 earnings, announcing it turned a profit of $9.2 million, an impressive feat compared to its rival Opendoor, which has never reported a quarterly profit. The news has started to shift the sentiments toward iBuying to possibly becoming a more sustainable business operation.
After a few years of brokerages going public, including Compass, Opendoor and Redfin, real estate companies are now keeping matters private.