Venture capitalists and banks are stuffing real estate startups with so much cash it almost looks like force-feeding at times. These startups are using the money to flip homes or make non-traditional types of loans to buyers.
IBuyers such as Opendoor, Zillow Offers and Offerpad are the best known cases. They use technology to quickly buy and resell homes, which allows them to provide on-demand offers and a quick and certain closing to homeowners. But they also generally cost more than using a real estate agent.
Other creatures of the real estate capital mudslide are companies that make proxy home purchases for buyers, such as Knock. These firms will buy a home on your behalf, move you into it, sell your old home and then sell your new home to you. And the list goes on: new rent-to-own startups that will buy the home a renter wants to rent; investors that will give you cash in exchange for an ownership stake in your home; and landlords that will buy your home from you and then lease it to you for as long as you like.
Last week, we asked readers to share how alternative financing was affecting their market. A fairly low volume of responses, including some that basically answered “not at all,” may reflect the fact that these companies remain in their infancy. But a couple readers in markets where these business models have matured somewhat described noticeable impacts that could offer a glimpse of what may be in store for many other agents in the not-too-distant future.
In one particularly interesting response, a reader described the tendency for transaction data to overstate what iBuyers are truly paying for homes. The reason is that sales prices don’t capture the high repair cost credits that iBuyers tend to negotiate, the reader said.
Where alternative financing has had an impact, here’s what readers had to say:
- ZOO (Zillow, Opendoor and Offerpad) iBuyers are approximately 5 percent of the market in Phoenix, it is a seller’s market with a low residential inventory. Sellers have a choice to get top dollar with a traditional agent or a wholesale cash offer with an iBuyer. Pawn shops, payday loans, and iBuyers are a great resource if you need fast cash and high “ATM” fees.
- I have seen a tremendous impact in the Atlanta, Georgia, market. New iBuyers are entering the market rapidly. There are other players besides other brokerages. Orchard, Pecan RE to compete against Opendoor, Offerpad, Zillow. When creating showing appointments, there can be as many as 20 percent iBuyer listings. These homes many times are “purchased” by a higher dollar amount on the closing statement than the world sees and sold for less. This is because seller concessions at the time of sale to the iBuyer are not transparent. The margin is not clear. This in turn impacts comparable sold properties. It is definitely impacting the market place.
- IBuyers are definitely gaining a foothold, and I just closed my first deal with an online no commission lender — I expect more of these based on the rate my buyer got!
- More first-time buyers. It’s easier for them, even with student loans, to even think about taking on a mortgage.
Editor’s note: These responses were given anonymously and, therefore, are not attributed to anyone specifically. Responses were also edited for grammar and clarity. Inman doesn’t endorse any specific method and regulations may vary from state to state.