What is an iBuyer? Identifying iBuyers Around the US
If you’ve been paying attention to real estate news in the last year, you’ve probably come across the word “iBuyers” tucked into the headlines. Like so many other factors and trends in the real estate market, iBuyers have helped to transform the industry in recent years—for better and for worse. And although they’re making headlines now, some have been around for nearly a decade.
But what is an iBuyer? And how do iBuyers influence the real estate market?
What is an iBuyer?
iBuyers are also referred to as instant buyers because their business model revolves around offering homeowners quick cash for their properties, often without even seeing the home in person. In many cases, an iBuyer can make an offer within 24 hours of a submission.
The big selling proposition of any iBuyer is primarily speed. iBuyers work to streamline the selling process for homeowners by keeping the vast majority of the process online. With a few simple clicks, a homeowner can avoid hiring a real estate agent, eliminate the headaches of staging, and get rid of the back-and-forth stress of negotiations—all in exchange for a cash payment.
And although past research has shown iBuyers have a history of offering less than market value, a recent study by iPropertyManagement showed the average iBuyer offered 104% of market value in 2021. Not bad! That detail makes iBuyers especially attractive to homeowners trying to sell blighted property or inherited property, or who are unwilling or unable to renovate their home before putting it on the market.
How Do iBuyers Work?
As sophisticated corporations buying homes, iBuyers are powered by big data and complex algorithms that leverage a variety of details when making an offer. For example, many iBuyers’ algorithms consider factors such as:
Square footage
Year built
The number of bedrooms and bathrooms
Current industry insights (including insights that are unique to the company)
Data on home sales in your region
The latest market trends, especially in and around your neighborhood
Past sales prices for the home
But iBuyers may also have certain rigid criteria. In fact, many iBuyers require eligible homes to be:
Single-family residences (SFRs), condos, or townhouses
Between 0.5 and 1.5 acres
Built after 1930
Valued between $100,000 and $600,000
When all of this is done correctly and on a massive scale, iBuyers can stand to make quite a lot of money.
Essentially, they’re taking a gamble on your home with the belief that they can make more with the house than they give you. But there are numerous strategies they can use to turn a profit. They can:
Flip the house. By investing some sweat equity into the home, they can increase property value and resell the home for a profit.
Rent it out. By turning the home into an income property, they can gradually turn a profit.
Sit on the property. By waiting for the market to shift and home values to increase, they can then sell the home for a nice profit.
Add it to their portfolio of homes within the same neighborhood. The more homes they own in a central location, the more power they have over home prices in that region.
What Are The Biggest iBuyer Companies in the US?
One of the reasons iBuyers began creeping into headlines is because of Zillow and its Zillow Offers program. When Zillow Offers closed late last year after a disastrous quarter, some industry insiders thought it was the death knell for other iBuyers.
But many other iBuyers are still going strong. Today, the three biggest iBuyer companies in the US are:
Offerpad (they bought 15,181 homes and sold 5,988 homes in Q3 of 2021, according to NerdWallet)
Opendoor (bought 2,753 and sold 1,673 in Q3 of 2021)
Redfin Now
But there are numerous other options out there, including brands like Orchard, EasyKnock, Keller Offers, Ideal Agent, Rex, UpNest—the list goes on and on.
Each company has its own unique features and benefits, but they all offer the same general service: cash for homes.
Still, you should pay close attention to their processes and unique value propositions. iBuyers can vary significantly when it comes to fees, closing speed, locations served, and home criteria.
Where Are iBuyers Active?
iBuyers aren’t in every market—yet. Instead, the majority of iBuyers are currently focused on major metropolitan areas in key states. Even as two of the biggest options on the market, Opendoor and Offerpad are only available in 47 and 25 markets, respectively.
Regions that are more likely to see iBuyer activity are regions where the real estate market is currently hot or soon-to-become hot. That can vary depending on a variety of factors, including:
Past market performance
Current demand for housing
Predicted upcoming demand for housing
Current home prices and sales cycles
Regional economic growth and predictions
Strength of local schools and universities
That’s just good common sense in the real estate industry, and those factors are also what we use at New Local Realty to help predict ROI in Pittsburgh real estate transactions and when identifying which Pittsburgh neighborhoods are best for investors.
What’s the Problem With iBuyers?
While the iBuyers are generally beneficial to eager sellers, there are potential drawbacks for families aiming to buy homes in the future.
As we mentioned above, iBuyers are in business to make money. And the more property they hold, the more influence they have on housing prices and market trends across the US.
That’s bad news for families, especially as mortgage rates tick higher and inflated home prices put home ownership further and further out of reach. Without the ability to qualify for a mortgage, families are stuck with renting—and sometimes renting from iBuyers who, again, are acquiring greater and greater control over local real estate prices.
Where to Buy Homes in Pittsburgh
If you’re looking for an alternative to working with iBuyers, contact us at New Local Realty! We have a variety of tools and strategies to help you become a homeowner in the Pittsburgh market.
