iBuyer News
An iBuyer is a real estate purchaser, generally a company, that makes offers on (often unlisted) properties and generally closes on them quickly by paying cash to the seller. The quick sale and lower fees is what entices a seller to accept an iBuyer’s offer. Then the iBuyer turns around and sells the home on the open market sometimes after making minor improvements to increase the value and make a profit. At least that’s the goal. Two of the larger iBuyers that most people recognize were Zillow and Redfin, both with popular websites but also global companies intending to function as real estate brokerages.
Zillow announced early in 2022 they were exiting this flipping business after losing $880M on the venture in 2021 alone. It also resulted in severing ties with about one-quarter of its employees. They admitted publicly their AVM (automated valuation model) wasn’t accurate enough to make this venture successful.
Redfin was recently quoted in an online Fortune article that it plans to shut down its homebuying and flipping business and will lay off about 13% of its workforce. “We notice immediately when fewer people are on our website. We’re sitting on $350 million worth of homes for sale that we bought with our own money, or worse bought with borrowed money. We don’t have hope as a strategy. We immediately started marking down things,” Redfin CEO Glenn Kelman recently told Fortune. By the end of January 2023, Redfin expects to reduce its portfolio of homes down to $85 million. And by the end of the second quarter of 2023, all of its homes should be sold off.
On one hand, iBuyers are getting pinched by housing busts in markets like Phoenix and Las Vegas. On the other hand, iBuyers are also helping to accelerate housing busts in those markets as the economy struggles along. Redfin CEO Kelman agrees that iBuyers are helping to drive prices down as they shed their inventory, often taking major losses.
The good news here in the Bay Area is that there is very little iBuyer activity. The market has remained competitive for buyers, to some degree, and inventory remains low. iBuyers generally don’t make offers that are competitive enough to snatch up properties here. I’ve had listings where we’ve received offers from such entities and they usually come in $200,000 to $400,000 below what the seller ultimately achieves. Their model simply doesn’t work here mostly because the “national view” of companies like Redfin and Zillow, acting almost exclusively off their algorithmic approach is amiss of the added local intelligence needed for a successful and reasonable transaction for a seller. Local knowledge and boots on the ground is key in this business.
