SAN FRANCISCO — Why would homesellers choose to pay a high commission while running the risk of selling their home at a discount? Or to ask the question another way: Who would choose to use an “iBuyer?”

SAN FRANCISCO — Why would homesellers choose to pay a high commission while running the risk of selling their home at a discount?

Or to ask the question another way: Who would choose to use an “iBuyer?”

Jerry Coleman

IBuyers are investors that use automated valuation models (AVMs) and other technology to make quick offers on homes, close in days and then resell them. But they’re not home flippers masquerading as tech companies, a panel of iBuyers said at Inman Connect.

Home flippers “buy as low as you can, fix it up as much as you can and try to achieve top of the market,” said Jerry Coleman, CEO of iBuyer OfferPad. “Our goal is not that. We want to pay as much as we can for the home.”

Instead of buying at a steep discount, iBuyers charge a service fee ranging from 6 to 14 percent — which is ultimately supposed to net a homeowner considerably more than selling to a traditional investor.

IBuyers bringing ease, removing stress

iBuyer customers are people who place a premium on convenience and certainty, panelists said. There are more of them than you might think, and their numbers will only grow as iBuyers lower their costs over time, they added.

One man who sold to OfferPad needed to move quickly so he could receive cancer treatment, but his home was in “no shape to list,” Coleman said.

Eric Wu

“We were able to acquire that home and quickly allow him to relocate to a different city where his family was and receive care,” he said.

An early customer of Opendoor, meanwhile, was dead-set on leaving for a year-long trip to Europe as soon as possible.

“They just wanted to pack their bags and go,” said Opendoor CEO Eric Wu. “Every minute mattered to them.”

Like OfferPad did for the cancer patient, Opendoor helped the man act on a burning desire, snapping up his home and even selling the furniture on his behalf.

“I think it’s more about not feeling stress and removing the friction from the process,” Wu said.

Greg Schwartz

Zillow Group Chief Revenue Officer Greg Schwartz flagged two other factors that are motivating homeowners to sell to iBuyers.

“Folks are terrified strangers are going to walk into their homes, look into their closet, open their drawers,” he said. And they are anxious about “timing the sale of their home and the purchase of their next home.”

But won’t only a small minority of people be willing to pay what can be a steep premium to remove uncertainty from the homeselling equation?

Wu and Coleman seem to think otherwise, believing their business models hold the potential to attract a broad swath of homeowners.

“It’s across the board in terms of who we serve,” Coleman said.

Opendoor’s focus is on “building the best experience at the lowest possible cost,” and the more the company can succeed at this, the more homeowners will flock to it, Wu said.

The cost of convenience

Opendoor is currently charging a service fee of about 7 percent, down from 9 percent not long ago. It claims around 7,000 “happy customers,” and is on pace to buy about 400 homes this month, according to Wu.

The startup has raised more than $320 million in equity funding, as well as $400 million in debt to purchase properties.

It’s buying homes in Phoenix, Dallas-Forth Worth, Las Vegas and Atlanta, and is hiring in Tampa, Florida; Orlando, Florida; and Raleigh, North Carolina.

OfferPad, meanwhile, has closed 2,000 transactions to date and charges a fee that’s competitive with Opendoor’s, Coleman said.

“Our goal is to — as we achieve scale — bring those fees down,” he said.

OfferPad has raised $30 million in equity funding, as well as $230 million in debt to buy homes. OfferPad is operating in Phoenix; Las Vegas; Salt Lake City; Tampa, Florida; Orlando, Florida; and Los Angeles.

“The big question that we’re trying to answer,” Zillow Group’s Schwartz said, is just how much people will pay to eliminate the inconvenience and uncertainty of a home sale, regardless of whether the cost comes in the form of fees or a price discount.

Zillow Group is searching for the answer through Zillow Instant Offers, which is a marketplace for iBuyers.

Zillow Group has been testing the program in Las Vegas and Orlando, Florida and announced its expansion to Phoenix yesterday.

The program lets homeowners request quick offers from multiple investors that appear alongside a comparative market analysis (CMA) from a Zillow agent advertiser.

What does Zillow Instant Offers add to the equation?

While many Instant Offers users who have taken action have chosen to sell to investors, they still only amount to a “small minority.” Most have elected to list with real estate agents, he said.

OfferPad is participating in Zillow Instant Offers and the program has resulted in 20 to 25 acquisitions or homes under contract for OfferPad, Coleman said.

But Opendoor is not bidding on properties through Zillow Instant Offers.

Why?

Wu evaded the question when asked by Inman News publisher Brad Inman.

But Schwartz volunteered an answer: “They’re not on the platform because we’re not sure how we feel about them yet.”

“I don’t want to show him the funnel,” he added, referencing Zillow Instant Offers’ inner workings. “We’ve got to watch each other first.”

Knock appealing to the masses

Atlanta-based Knock puts a spin on the iBuyer model that could give it even more mass appeal.

Jamie Glenn

It will buy a home at market value, but only if it fails to sell the property to another buyer for the same price or more. Knock ends up purchasing about 20 percent of the homes it lists, according to Jamie Glenn, COO of Knock.

“The consumer feels like they’re getting the best value for the property, but they know they have an offer from Knock,” he said, adding that the startup is on track to “do about 350 home deals” this year.

Knock will also pay for needed repairs before listing a home and then deduct their cost from the seller proceeds in the event of a sale.

If a seller is on a tight deadline and Knock finds a buyer, it will also purchase the home and then transfer the home to the buyer, so the seller can vacate lickety-split.

Email Teke Wiggin.

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