As homes continue to fly off the market for five to six figures above sellers’ asking price, real estate startup zavvie said homebuyers are increasingly turning toward Power Buyers — platforms that offer cash-backed offers and buy-before-you-sell solutions — to help them effectively win against well-funded institutional and individual competitors.
“Consumers gained a huge advantage when working with a Power Buyer versus using a traditional mortgage with a loan contingency,” read zavvie’s Seller Preferences Report, which was published on Tuesday. “What 2021 tells us is that [Power Buying and iBuying] are here to stay and that Power Buying … could eventually become the norm in residential real estate.”
Zavvie, which serves as a marketplace for Power Buyers and iBuyers, said Power Buyers exponentially helped homebuyers and sellers-turned-buyers win listings with homebuyers using cash backing, on average, successfully purchasing a home on their first try. Meanwhile, buyers who relied on a traditional mortgage and loan contingency made an average of seven offers before successfully purchasing a home.
As a result of their effectiveness, market leaders EasyKnock, Homeward, Knock, Ribbon and Flyhomes have experienced up to 10x growth in offers from 2020 to 2021.
“Ribbon said demand for its Cash Offers increased 10x in 2021 [and] EasyKnock, a nationwide operator, more than doubled its business over the year,” the report read. “Knock expansion exploded from three markets at the end of 2019 to 71 markets in 2021, Homeward kicked off a 20-state expansion plan, and Flyhomes launched a national expansion of ‘Flyhomes for Agents’ by rapidly rolling out in several states.”
As Power Buyers exploded in popularity, so did iBuyers, who primarily focus on providing all-cash offers to homesellers searching for a quick and easy transaction.
In 2021, iBuyers collectively purchased 71,000 homes — a 407 percent annual increase from 2020 (14,000 homes) when the coronavirus pandemic temporarily brought the real estate market to a grinding halt. Roughly 28 percent of those sales happened during the final quarter of the year, with iBuyers offering 100 percent of a home’s market value resulting in a median purchase price of $398,000.
Opendoor, Offerpad and RedfinNow have continued to blaze forward despite Zillow’s abrupt exit from the iBuyer market, the report said. All three platforms have expanded their purchasing requirements (i.e. location, age, housing type, etc.) over the past year, which resulted in a 15 percent expansion of iBuyers’ homebuying pool (47 percent).
“Taking a step back [from Zillow’s exit] and considering Opendoor, Offerpad, and RedfinNow, we believe it’s time to think differently about the iBuyers,” the report read. “They have achieved very legitimate national scale in a few years, despite the headwinds of an unprecedented sellers’ market, their offer amounts and fees are in line with the open market, and consumers love what they do, based on consistently strong satisfaction scores.”
“For these reasons and others, it’s time to stop questioning whether iBuying is good or bad, and start asking if an instant offer is a good option for your next home sale,” it added.
Zavvie said consumers’ satisfaction scores for Power Buyers and iBuyers increased one point from Q3 (8 out of 10) to Q4 (9 out of 10) as a result of quick closing timelines (22 days), relatively low service fees (0 to 5 percent), and the potential for a cost positive outcome for sellers-turned-buyers using Power Buyers.
“Interestingly, many sellers perceive the Power Buyer solutions as actually cost neutral or cost positive because when they purchase their new house, they won’t have a loan contingency, and therefore will pay less than other buyers because their offer will be stronger,” the report explained. “When they sell their current house, they will have already moved out, so their house will be more accessible and fully staged, making it more attractive to buyers and increasing its sale price.”
Looking forward, zavvie said it expects both segments to experience robust growth in 2022 with brokerages getting in on the action with their own Power Buyer or iBuyer programs.
“Even as skeptics asked, ‘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 ever expected?’ iBuyers registered a breakout year in 2021,” the report read. “The numbers should silence doubters.”
It added, “It’s why modern brokerages and agents need to offer their clients all the latest selling and buying options.”