Breaking Down iBuyers

Breaking down iBuyers and their impact on the real estate market... Are they serving for their clients, or for someone else? Learn more!
POSTED ON:
March 24, 2022
UPDATED ON:
March 31, 2022
Category:
Buying/Selling

what is an iBuyer?

Zillow, Opendoor, Offerpad, etc. all go under the header of iBuyer. An iBuyer is a platform which is technology first, real estate second. These companies thrive on the development of online systems that depersonalize the real estate transaction and make it simply about dollar and cents. In many aspects, that is all a buyer or seller should care about, right? Well, let’s face it, we all want to have a nice affordable home at a great price. We all want the most for the sale of our home, with ease of transfer and no risk of litigation.

We want the sale to go smooth and easy. We don’t like being displaced, so Open Houses are a nuisance and community cohesiveness can be important. So, with all that in mind, let’s sell to the iBuyer!

iBuyers valuations

Only 1.5% of all sales are completed by the top 3 iBuyer platforms, Zillow, Opendoor, and Offerpad. There are of course many other platforms, like Homeward - offering services in 20 markets. But what about the new kid on the block, KNOCK? They recently raised nearly $220 million in it’s IPO (Initial Public Offering). This was only half of what they expected to raise, which is why they then immediately fired 46% of their staff. They then, with their drastically reduced staff, acquired $70 million in equity allowing them to attract $150 million in new debt (loans). You see, these company raise capital to buy homes and they do this as their stock holders demand a return on their investment. They are wildly overvalued, but hey, losses are write off too, right?

Annual Losses 2021 2020
Opendoor $ 662m $ 253m
Zillow $ 528m $ 162m

Let’s not get off target here. Investors purchased in Q3 2021 made up 18.2% of all sales. iBuyers in Q3 purchases 28,000 and 15,000 in Q2, nearly doubling their purchases. These purchases of all NOO (Non Owner Occupied or Investment) properties are either resold or generally held as rentals, taking those properties out of the market for home owners.

I have nothing against buying and holding for profit, I encourage it. However, these numbers are real and the small amount of iBuyer homes taken off the market are done so by cheating the seller with hidden fees, different wording, and no competitive bids.

Again - iBuyers are IT firms first and real estate companies second. They do not have the limitations, regulations, or a fiduciary responsibility to the client. Let’s face it, their client is the stock holder in which their only goal is to make money, and lots of it.

In Phoenix, iBuyers represented 11% of all sales in 2021 - all while pulling the wool over the eyes of the seller. For example: Zillow charges a service fee of 7%, not a commission. They also charge an estimated renovation fee, among many others. This adds up to 10% to 12% of the sale amount of the home. Your local real estate professional averages 5.08% commission fee, which is shared with the other agent.

But wait, local real estate agents have their own websites etc. to compete, right? Now that’s an interesting one. iBuyers have partnered with the most unlikely companies. Realtor.com you would think is for Realtors, especially since Realtor is trademarked and you have to be a member of the association to call yourself a Realtor.

Well, Realtor.com is partnered with Opendoor, EasyKnock, HomeGo, WeBuyHomes.com and more. Agents do have their very good and accurate apps and websites. Just ask your local agent for access and they will not only give it to you free, but I’m confident they will be a very reliable resource for further information, like values, local inspectors and other trades a home buyer or owner may need. Note: All information on an agent's tools is accurate and up to date. No iBuyer platform can or ever has said that about their systems.

Lennar Homes is partnered with Opendoor to sell their homes. Now don’t get these facts wrong. I am in favor of competition and free markets, but truth must come from somewhere.

It is widely known in the real estate industry that the value estimate of Zillow’s Zestimates are way off. Actually, so far off that the huge losses Zillow posted Q3 2021 was due to the Phoenix purchase of over 7,000 properties causing them to lose an estimated $600 million. So let them lose money, my buddy said.

Sales of home in the Phoenix area have been hurt due to these overvalued purchases. Not to mention that this is only one market. Look above at the loses posted by just two of the main iBuyers. A healthy market is transparent. The values are based on the comparable sales of like properties. Your local professional real estate agent knows these previous sales and the current value of your home. They represent you legally and with knowledge of the industry and the local markets. They have a fiduciary responsibility to protect you and get the most they can for your property when selling.

defining fiduciary relationships

Fiduciary relationships often concern money, but the word fiduciary does not, in and of itself, suggest financial matters. Rather, fiduciary applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person's help or advice in some matter. The realtor-client relationship is a fiduciary one, for example, because the client trusts the realtor to act in the best interest of the client at all times. Fiduciary can also be used as a noun for the person who acts in a fiduciary capacity, and fiducially can be called upon if you are in need of an adverb. The words are all faithful to their origin: Latin fīdere, which means "to trust."

Let’s not forget the financial aspects, if I haven’t covered them enough. Your local professional real estate agent on average charges and shares with the buyers agent a 5% commission. iBuyer platforms do not charge a commission, but their associated charges of Service Fee, Renovation fee, caring cost etc., add up to 10% and MORE. It simply makes financial sense to have a local professional real estate agent represent you. Also, the fees earned local, stay local, supporting your community while iBuyer monies go to their stock holders, if they actually retain any profit due to being an IT platform, well before they are a real estate professional.

There is more to discuss, and I have spoken to several who have purchased from iBuyer platforms and they love it. But, did you look at the contract and after learning just a bit from this, doesn’t it make you wonder if iBuyer platforms are any good at all for the market? Just a thought. Let me know your thoughts and contact us today!

what is an iBuyer?

Zillow, Opendoor, Offerpad, etc. all go under the header of iBuyer. An iBuyer is a platform which is technology first, real estate second. These companies thrive on the development of online systems that depersonalize the real estate transaction and make it simply about dollar and cents. In many aspects, that is all a buyer or seller should care about, right? Well, let’s face it, we all want to have a nice affordable home at a great price. We all want the most for the sale of our home, with ease of transfer and no risk of litigation.

We want the sale to go smooth and easy. We don’t like being displaced, so Open Houses are a nuisance and community cohesiveness can be important. So, with all that in mind, let’s sell to the iBuyer!

iBuyers valuations

Only 1.5% of all sales are completed by the top 3 iBuyer platforms, Zillow, Opendoor, and Offerpad. There are of course many other platforms, like Homeward - offering services in 20 markets. But what about the new kid on the block, KNOCK? They recently raised nearly $220 million in it’s IPO (Initial Public Offering). This was only half of what they expected to raise, which is why they then immediately fired 46% of their staff. They then, with their drastically reduced staff, acquired $70 million in equity allowing them to attract $150 million in new debt (loans). You see, these company raise capital to buy homes and they do this as their stock holders demand a return on their investment. They are wildly overvalued, but hey, losses are write off too, right?

Annual Losses 2021 2020
Opendoor $ 662m $ 253m
Zillow $ 528m $ 162m

Let’s not get off target here. Investors purchased in Q3 2021 made up 18.2% of all sales. iBuyers in Q3 purchases 28,000 and 15,000 in Q2, nearly doubling their purchases. These purchases of all NOO (Non Owner Occupied or Investment) properties are either resold or generally held as rentals, taking those properties out of the market for home owners.

I have nothing against buying and holding for profit, I encourage it. However, these numbers are real and the small amount of iBuyer homes taken off the market are done so by cheating the seller with hidden fees, different wording, and no competitive bids.

Again - iBuyers are IT firms first and real estate companies second. They do not have the limitations, regulations, or a fiduciary responsibility to the client. Let’s face it, their client is the stock holder in which their only goal is to make money, and lots of it.

In Phoenix, iBuyers represented 11% of all sales in 2021 - all while pulling the wool over the eyes of the seller. For example: Zillow charges a service fee of 7%, not a commission. They also charge an estimated renovation fee, among many others. This adds up to 10% to 12% of the sale amount of the home. Your local real estate professional averages 5.08% commission fee, which is shared with the other agent.

But wait, local real estate agents have their own websites etc. to compete, right? Now that’s an interesting one. iBuyers have partnered with the most unlikely companies. Realtor.com you would think is for Realtors, especially since Realtor is trademarked and you have to be a member of the association to call yourself a Realtor.

Well, Realtor.com is partnered with Opendoor, EasyKnock, HomeGo, WeBuyHomes.com and more. Agents do have their very good and accurate apps and websites. Just ask your local agent for access and they will not only give it to you free, but I’m confident they will be a very reliable resource for further information, like values, local inspectors and other trades a home buyer or owner may need. Note: All information on an agent's tools is accurate and up to date. No iBuyer platform can or ever has said that about their systems.

Lennar Homes is partnered with Opendoor to sell their homes. Now don’t get these facts wrong. I am in favor of competition and free markets, but truth must come from somewhere.

It is widely known in the real estate industry that the value estimate of Zillow’s Zestimates are way off. Actually, so far off that the huge losses Zillow posted Q3 2021 was due to the Phoenix purchase of over 7,000 properties causing them to lose an estimated $600 million. So let them lose money, my buddy said.

Sales of home in the Phoenix area have been hurt due to these overvalued purchases. Not to mention that this is only one market. Look above at the loses posted by just two of the main iBuyers. A healthy market is transparent. The values are based on the comparable sales of like properties. Your local professional real estate agent knows these previous sales and the current value of your home. They represent you legally and with knowledge of the industry and the local markets. They have a fiduciary responsibility to protect you and get the most they can for your property when selling.

defining fiduciary relationships

Fiduciary relationships often concern money, but the word fiduciary does not, in and of itself, suggest financial matters. Rather, fiduciary applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person's help or advice in some matter. The realtor-client relationship is a fiduciary one, for example, because the client trusts the realtor to act in the best interest of the client at all times. Fiduciary can also be used as a noun for the person who acts in a fiduciary capacity, and fiducially can be called upon if you are in need of an adverb. The words are all faithful to their origin: Latin fīdere, which means "to trust."

Let’s not forget the financial aspects, if I haven’t covered them enough. Your local professional real estate agent on average charges and shares with the buyers agent a 5% commission. iBuyer platforms do not charge a commission, but their associated charges of Service Fee, Renovation fee, caring cost etc., add up to 10% and MORE. It simply makes financial sense to have a local professional real estate agent represent you. Also, the fees earned local, stay local, supporting your community while iBuyer monies go to their stock holders, if they actually retain any profit due to being an IT platform, well before they are a real estate professional.

There is more to discuss, and I have spoken to several who have purchased from iBuyer platforms and they love it. But, did you look at the contract and after learning just a bit from this, doesn’t it make you wonder if iBuyer platforms are any good at all for the market? Just a thought. Let me know your thoughts and contact us today!

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