Inman’s 2017 Person of the Year is the iBuyer, who isn’t human, but represents a phenomenon sparking the most revolutionary change in how homes are sold since the advent of the MLS.
The moniker “iBuyer” refers to a group of institutional investors leveraging technology companies to purchase homes instantly from sellers who desire convenience and speed, and who may willingly take a price discount in exchange for a quick sale — in some cases as short as 72 hours.
In 2017, iBuyers came onto the scene in a big way as companies like Opendoor and OfferPad expanded into new cities with an infusion of fresh capital. Opendoor, as an example, has raised $720 million in debt and equity financingto date and is now operating in six housing markets.
Then in May of this year, Zillow announced its controversial Instant Offers test program, which allows homesellers to receive offers from iBuyers alongside CMAs (comparative market analyses) from participating Premier Agents.
In our instant economy, speed and certainty have never been more important to many consumers, from social feedback loops to package delivery to car services. But the real estate sales process has remained arcane and seemingly immune to this trend — until iBuyers came along.
The internet has changed the experience for homebuyers who have more information and control over the process than ever before. But homesellers have been stuck in a long and treacherous road of uncertainty with multiple open houses, staging costs, closing nightmares and a loosey-goosey result on price and timing of the sale.
These models are disruptive and it is yet to be seen whether they will get real traction and how they might change the role of the traditional agent and broker.
We are particularly intrigued by the benefit some homesellers seem to be experiencing already. Here is a random testimonial found on a Zillow review about Opendoor.
This is the first home I sold. I have friends that are real estate agents so I started with process with one of them. The agent did his research and he said based on his analysis he thinks this, that, and the other will happen. To help the house sell the agent wanted me to put in X amount of dollars. I found Open Door [sic] on Facebook and clicked on the link to check it out. I put in my information and got a quote within 24 hours (I think they say it can take up to three days). Much to my surprise the offer was close to what the agent projected, but the Open Door quote came with a guaranteed sell. I chose to sell in 14 days.
I kept waiting for something to go wrong and for the most part it did not. We had two problems at the end of the sell; both caused by me. My Open Door contact was able to resolve both issues quickly and we would have made the original closing date if I would have been ready. We closed in fifteen days because I needed the extra day. I went to closing and signed all of the documents still waiting for something to go wrong. A few hours later the proceeds were in my account.
I never had to fix anything. I had no showings. My sell was guaranteed, and we closed when I wanted to close. I cannot imagine selling a home any other way.
Investors have always purchased real estate, but underlying the new trend is the scale of Wall Street’s eagerness to buy single-family rentals. This new wave of investors — often private equity — are jumping into the single-family home rental market in a much more aggressive way.
The big picture shows Wall Street attempting to hedge their stock and bond portfolios with real estate investments.
And also unique is that these investors have teamed up with Silicon Valley technology companies to make the process faster and easier, while enabling them to capture a piece of the real estate commission along the way. Historically, the real estate process for investing in single-family homes has been too messy for institutional investors.
New technology and business processes have followed this trend, including innovative ways of showing houses absent a human being, as well as open houses that run almost 24/7. The new iBuyer tech companies are also innovating around smart contracts, digital mortgages, instant offers and authentication of buyers and sellers. All of these innovations help streamline the home selling process.
We expect these breakthroughs to spread across all types of home sales in the coming years.
While change doesn’t happen overnight and iBuying will not work in some markets, we expect the iBuyers to capture greater market share and change how homeselling is done for everyone. We’re only at the beginning of the iBuyer movement, and already, everyone from homesellers to buyers to investors are seeing profound positive effects.
Note: Last year’s Inman person of the Year was the Everyday Realtor.