After a momentous year for iBuyers, where do instant offer companies like Offerpad, Opendoor and RedfinNow go from here? All February, Inman will dig into iBuyers to determine what the new year has in store, where opportunities lie for real estate agents and what brokerages should expect. It’s iBuyer Month at Inman.
IBuyers and Power Buyers finished 2021 in a strong position even amidst a low-inventory, competitive market that just wouldn’t quit, real estate software tech company zavvie said in a new fourth-quarter report on the current state of iBuyers and Power Buyers.
Many sellers didn’t necessarily need iBuyers for much of 2021 with the market being as hot as it was and buyers often duking it out for the limited properties that were available. Even so, businesses operating in this market sector experienced a “breakout year,” as zavvie’s report said, with iBuyer business increasing five times what it had been the previous year.
IBuyers purchased over 71,000 homes over the course of 2021, which represented about 1.3 percent of the national market share, in contrast to the 14,000 they purchased in 2020 (the year in which the pandemic brought a halt to iBuying for several months).
“IBuyer skeptics would say, ‘Who needs an instant offer from a tech company if you can sell your house on the open market faster than you ever thought possible for more money than you expected?'” Stefan Peterson, zavvie co-founder and chief data officer who wrote the report, said in a statement. “Yet iBuyers had a breakout year.”
Home purchases made by iBuyers dipped slightly during the fourth quarter to about 20,000 homes, down from the nearly 30,000 home purchases they made in the third quarter. That figure still represented a strong showing considering that Zillow’s continued process of exiting from the iBuyer realm impacted iBuyer purchase numbers during this quarter, as did the normal seasonal slowdown of the market.
The fourth quarter of 2021 also saw iBuyers bring offers much closer to market value than previous quarters. By Q4 2021, iBuyer offers calmed down to 99.4 percent of market value compared to a peak they hit during Q2 of 104.1 percent of market value.
“Evidently the iBuyers’ algorithms — together with the humans who use them — are becoming very accurate at pricing acquisitions to the market,” Peterson wrote. “And, they may be finding they don’t need to pay above market to acquire properties.”
At the same time, iBuyer fees charged to sellers for repairs, or “seller concessions,” increased from 1.9 percent at the beginning of 2021 to 3.1 percent by the end of the fourth quarter. Perhaps because of their lower-priced offers more in line with market value combined with higher seller concessions, iBuyers’ acceptance rate on offers also declined to 3.8 percent during Q4, compared to a high of a 5.7 percent acceptance rate seen during the first half of the year.
Although iBuyers were less willing to pay more than market value for homes during the fourth quarter, they did increase their parameters for purchase price significantly over the course of the year. In Q4 2020, the median purchase price by iBuyers was $280,000, and by Q4 2021, that median purchase price had increased 41 percent to $395,000.
At the opposite end of the transaction, market conditions continued to be “perfect” through the end of 2021 for Power Buyers who could help buyers get a leg up on the competition, zavvie’s report stated.
In fact, zavvie’s data from the second quarter in the Denver area showed that buyers using traditional mortgages and a loan contingency with their offer typically had to make seven different offers before having one accepted, compared to Power Buyer-backed offers that only averaged 1.1 offers made before having one accepted.
The hot market allowed Power Buyers to benefit from “explosive growth and expansion,” zavvie’s report noted. Ribbon saw demand for cash offers increase 10 times over the course of the year; EasyKnock’s business more than doubled; Knock kicked into high gear its expansion by reaching 71 markets total; and Homeward and Flyhomes launched multi-state expansion plans.
As market conditions poised them for success, Power Buyers were also able to surpass iBuyers in terms of their buying power, with the median price for Power Buyer transactions hitting $485,000 during Q4 as iBuyer transaction prices only hit a median of $395,000.
Cash offer services helped fuel Power Buyer growth this year with a number of Power Buyers reporting that growth on their cash offer programs increased between two-fold and ten-fold from Q4 2020 to Q4 2021.
Overall, zavvie’s data showed that consumers seem to be quite satisfied with iBuyer and Power Buyer services when they use them — on a 10-point scale, both Power Buyer and iBuyer customers averaged a satisfaction rate of 9 for the full year.