In December, Inman announced its Person of the Year — the iBuyer. By promising seamless, hi-tech transactions for buyers and sellers with turnaround times as quick as three days, the article declared that iBuyers such as Opendoor, Offerpad, Knock and (now) Zillow Instant Offers are poised to bring “homeselling out of the dark ages.”
With Opendoor’s recent $325 million Series E funding round, $2 billion valuation and plans to quintuple its markets by 2020, alongside other bold expansion moves being made by competitors, it seems iBuyers have rightfully earned that title.
But what does that mean for traditional real estate agents? Should they be concerned about the substantial stream of cash and support of high-powered investors undergirding Opendoor’s growth right into their market?
The answer seems to be “no,” but only if agents play their cards right.
Can iBuyers maintain profitability?
Houston-based real estate agent George Huntoon said he’s not particularly concerned about Opendoor or any other iBuyer’s possible expansion into his home turf. In Huntoon’s eyes, iBuyers are technology-driven Wall Street-backed versions of “We Buy Ugly Houses HomeVestors,” who also promise sellers instant offers and quick transaction times.
In Houston, he says, there are plenty of investors already on the ground, hunting down potential sellers and making fast-moving deals.
“[Investors] are really hungry, and I can’t imagine where [a seller] is going to say, ‘I saw this commercial for Opendoor or another iBuyer, and I’m going to connect with someone on an interface where I have no idea who they are,’ when they can connect with a local agent, put the home on the MLS and get multiple bids there,” Huntoon said.
With that said, he thinks iBuyers may pose a more significant threat to the swarm of investors in the area rather than the traditional real estate agent who’s working with sellers who value garnering the highest sales price over selling their home at breakneck speed at below market value.
Beyond the Houston market, Huntoon said he’s just not sure how Opendoor can reach 50 markets and remain profitable, especially for homes that need costly repairs and require extra maintenance.
“Anyone can make a profit if they try hard enough,” he said. “But I’m just not sure how they can expand and remain sustainable.”
iBuyers are just one piece of the disruption pie
Meanwhile, Fathom Realty West Sound district director Rich Jacobson speaks about iBuyers with a little more urgency — and excitement.
“Our industry is becoming increasingly more consumer-centric, which is a good thing,” Jacobson wrote on a Coast to Coast Facebook thread. “There is a portion of the market where companies like OpenDoor make sense, satisfies what the consumer wants, and helps them achieve their goals.”
“There are plenty of other folks out there that want something else and will afford us the opportunity to demonstrate our value proposition,” he added. “The key to relevancy in the days ahead is being in tune with what your clients want and need and delivering superior satisfaction.”
iBuyers haven’t come knocking on Seattle’s door just yet, but Jacobson is confident Opendoor will make the Emerald City another target market over the coming years, especially since its an opportunity to operate in Zillow’s backyard.
But, Jacobson sees iBuyers as part of a greater disruption hitting the real estate industry mainly in the form of what he calls “modern discount brokerages,” a term he borrowed from Saul Klein.
Agents and brokers, he says, should be focused on the challenge of staying relevant amid the new models modern discount brokerages (e.g., Redfin, Homie, Trelora and Purplebricks) are offering.
“I think that’s the bigger question,” Jacobson said. “How do we respond, how do we stay relevant, how do we stay profitable and competitive in the face of these disruptors?”
He then recalled a recent presentation where Zillow chief business officer Greg Schwartz said in the coming days, only three market segments will remain: the luxury market, which will be mostly unchanged thanks to its niche clientele, and the discount market which will comprise of the growing number of tech-driven, VC funded models, and lastly, the those left in the middle (traditional brick-and-mortar brokerages).
“The wake-up call is for those who are left in the middle. I believe the writing is on the wall, and, in my opinion, many of the traditional brick-and-mortar brokerages are going to go by the wayside,” he said.
“I don’t think the majority of traditional brokerages are going to be able to survive without significant changes to the way they do business.
To survive, Jacobson believes brick-and-mortar brokerages will have to adapt and adopt more cost-effective strategies, such as a virtual model much like eXp Realty, or companies like his brokerage, Fathom, which offers a low transactional fee, as opposed to a cap or split.
“Virtual brokerages and transactional fee brokerages significantly reduce the normal costs of overhead associated with traditional brick-and-mortar operations, which allows the savings to be passed on to the agents and brokers, enabling them to remain competitive and profitable” he noted.
Using iBuyer business models to your advantage
Unlike Huntoon and Jacobson, Kenny Klaus and Jeff Sibbach, two real estate agents and team leads who serve the Phoenix area have had plenty of experience with iBuyers. Opendoor, Zillow Instant Offers and Offerpad, have all chosen the desert oasis as a testing ground for their companies.
As of April 2018, Opendoor and Offerpad have snapped up about 4 percent of available inventory, according to a recent iBuyer report by real estate strategist and tech entrepreneur Mike DelPrete. Altogether, DelPrete calculated, there have been over 7,600 iBuyer transactions in Phoenix since January 2017.
Often times, Klaus said, sellers are curious, yet weary, about iBuyers — for them, it’s strange to sell their home to an investor they’ve never met.
But instead of pushing clients away from Opendoor, Offerpad or Zillow Instant Offers, he takes the time to explain how each platform operates and presents them as a viable option.
In his initial meeting with a client, Klaus lays out a side-by-side comparison of what they could garner if they do a “traditional” transaction versus a transaction with an iBuyer. From there, he’ll help the seller decide the best course of action.
“Our role is to guide the client through the process and look at each of the offers and decide if [an iBuyer] is in your best interest and if it fits your goals,” he said. “In some cases, the iBuyer offer is strong enough, and the convenience with picking closing dates and not having to show the house has been a real value.”
“We have to figure out the opportunity to parallel [iBuyers] and leverage the relationships and confidence our clients have in us,” Klaus added while noting he’s completed 50 sales with Opendoor over the past year.
Jeff Sibbach, of The Sibbach Team in Scottsdale, Arizona, said he underestimated the impact of iBuyers when they first came to the Phoenix market. But, he quickly realized that consumers were quickly drawn in by Opendoor, Offerpad and Zillow Instant Offer’s business models.
Instead of ignoring the shift in the marketplace, Sibbach decided to do what Klaus did, and approximately 20 sales this year have included iBuyers.
“Agents need to understand how it can help you make more money and how it can help you do a better job with your clients and even help you market more,” he said.
Going forward, Sibbach said agents need to use the growing influence of iBuyers as motivation to work harder, listen to consumer needs and and create an experience that gives them what they really want — an easier, quicker transaction.
“Real estate agents have failed to create the easy button for consumers, and that’s what [iBuyers] are fulfilling,” he said. “There’s a large population of consumers that are more concerned about having a great experience that they’re willing to give up a little bit of equity for the ease.”
“It’s about changing our offering to utilize their offering, but understanding how it’s going to change how homes are bought and sold and our value to the consumer. It’s causing us to get better.”