iBuyers — companies that use the internet to make all-cash offers on people’s homes, buy them, renovate them, and re-sell them on the open market — are expanding quickly and having a transformative impact on the real estate industry. But they are enemies of both traditional brokerages and of homebuyers, according to investment experts.
Matt Harris, a partner at Bain Capital, said Friday at the Inman Connect New York 2019 real estate conference that iBuying is one of the most significant financial trends happening now in real estate. But he also indicated it should have a disruptive impact on existing practices.
“Most of these companies are decidedly foes of that brokerage economics,” Harris said.
Harris did not mention any alleged “foes” by name during his discussion Friday morning, though presumably he was alluding to companies such as Opendoor, the largest and oldest of the dedicated iBuyers, and also-significant rivals such as Offerpad and Zillow Offers.
The idea that iBuyers are a threat to traditional brokerages isn’t new.
But Harris’ comments are significant because they cut against claims from most iBuying companies, which have said they don’t want to tear down existing real estate models. Instead, the big iBuyers have repeatedly insisted that they are happy to work with real estate agents, taking referrals from them and issuing referrals to them — even as they also offer to work directly with sellers without an agent.
Harris did, however, say that there are some companies taking a different approach. He mentioned Ribbon, which helps buyers make cash offers (and in which Bain has invested), and added that in the case of Zillow, which uses the real estate agent customers of its separate Premier Agent advertising program to represent it in its home re-sales, “it remains to be seen if they’re friend or foe.”
Merritt Hummer, a principal at Bain who spoke with Harris and during a second Inman Connect session Friday, also painted iBuyers as antagonists to consumers themselves.
She explained that in the past, a would-be homebuyer was competing against neighbors and other locals while bidding on properties. But today, Hummer said, homebuyers are increasingly “competing with Zillow and Opendoor” and other institutional investors.
“That’s just created a much more competitive dynamic for homebuyers,” she added.
Claire Fauquier, a principal at Corigin Ventures who spoke at Inman Connect with Hummer, said that her company has also avoided investing in iBuyers because there appears to be “a ton of balance sheet risk as the conditions change.”
Where exactly the iBuying industry goes remains to be seen, but Hummer said that there are alternative models out there. And so far, Bain Capital’s strategy has been to put money in companies, such as Ribbon, that “shift power back to the homebuyer.”