Not long ago, the concept of a click-of-a-button home sale was merely a pipe dream. But over the past five or so years, a new breed of companies that use technology to make instant offers on homes at scale and close in days has moved us closer to that reality.
Going from the obscure periphery to the industry spotlight at a swift pace, this fast-growing category of real estate tech deemed the “iBuyers” (instant home buyers) have in a short time become venture capital darlings. Trailblazer Opendoor along with Redfin and Zillow who launched their own iBuyer offerings are some of the biggest players to watch in real estate.
A lot of curious PropTech onlookers are wondering—what’s next for this trend? And it appears we’ve hit another crucial milestone.
As the iBuyer arena gets more crowded, consumers are dizzy and need guidance to navigate the space. This environment paved the path for us at HomeLight to launch our Simple Sale platform, an online iBuyer marketplace and complementary service to our flagship agent-matching program. It’s a strategic response to the call for new and innovative solutions that improve the home-selling experience from every angle.
Let’s take a behind-the-scenes look at the various forces that came together to create the need for Simple Sale and why the evolving real estate landscape is ready for it now.
The emergence of the iBuyer
What moment defined the start of the iBuyer? You could point to Opendoor’s late 2014 launch in Phoenix that represented “next-gen home valuation” (i.e., we won’t just tell you what your house is worth, we’ll buy it from you).
Opendoor’s debut was followed by the entrance of several other startups and existing real estate companies with their own iBuyer offerings, including Redfin, Knock and eventually the big dog: Zillow with its 2017 Instant Offers rollout.
It wasn’t until June 2017, however, that the overarching moniker “iBuyer” developed. The first use of the term appears to have come out of an internal report from banking firm Evercore that explored Wall Street’s excitement over the model.
Then came the massive waves of venture capital.
In 2018, Opendoor raised $400 million from Japanese tech company Softbank’s Vision Fund, which valued the startup at over $2 billion. In quick 2019 succession, Knock raised its own $400 million led by Foundry Group, and the list goes on.
In terms of presence across the country, markets such as Atlanta, Phoenix, Las Vegas, Dallas and Tampa have all been hotbeds for iBuyers to set up shop as they plan for rapid expansion.
What we’re seeing unfold is the entrepreneur’s response to a genuine and longstanding consumer need: to liquidate a house and avoid an old-fashioned home-selling process that to date takes an average of 47 days to complete. This type of option is attractive to a host of sellers, whether they’re responding to a sudden life change or faced with the possibility of juggling two transactions at once.
Underscoring the trend is how today’s busy consumers put a premium on convenience in just about every aspect of life, including retail, transportation and even healthcare. So the time is right for a solution that soothes the home seller plight: get the home primped, prepped and staged, invite a bunch of strangers over to tramp through it, then cross your fingers and hope it sells on a wing and a prayer.
You’re thinking… Wait a minute: The option to sell your house for cash to an investor or home flipper has been around for decades. I’ve seen the “We’ll Buy Your Ugly House” ads plastered on every billboard on this side of the Mississippi.
So, why all the iBuyer hype?
The iBuyer business differs in a few nuanced but key ways from flippers, namely in that they:
- Purchase a large number of homes at a high-velocity pace, allowing them to make offers closer to fair market value and operate on thinner per-sale profit margins.
- Target newer homes (such as those built after 1960) in good condition, rather than tear-downs.
- Use automated valuation models to make smart bids on homes and sophisticated technology to streamline operations.
This stands in contrast to the traditional home-flipping model: buy gut jobs at a 70 percent discount, take a few weeks or even months to turn it around and collect a hefty profit. The new-age model is still operationally complex and fledgling but we think that it will really disrupt the way properties are transacted.
Consider how consumers no longer have to go to Frontier’s website and then check American to review details on each respective airline’s flight schedules, destinations and costs. Solutions like Expedia and Kayak source that information in one place so you can see that Frontier doesn’t even fly out on Wednesdays from your city, but JetBlue does and it will save you $100 compared to American.
If there were a single airline, Expedia would be moot. You’d just go to the airline’s site and see what was available. But there are 17 major carriers in the U.S. creating the need for innovation and aggregation tools to stoke competition in the market and improve the customer experience.
We think that this trend will incorporate (rather than cut out) the property agent. Note that 91 percent of sellers choose to list with the assistance of a real estate agent to command the highest price point for their house. An agent’s job is to help the homeowner whip the property into selling shape, price it strategically and find a buyer who’s willing to make an offer at the top of its value range—a tried-and-true method that’s stood the test of time. With that in mind, we created an agent-matching service to connect sellers with a network of over 100 pre-approved instant buyers.
Agents’ ability to maximize a home’s value and price is typically extremely attractive to sellers, whose top priority is generally fetching the highest sales price. But in the event that it’s not, a cash offer becomes an attractive option. Our platform is built to show the seller their best iBuyer offer against an estimation for what they could fetch on the open market with the help of an agent. The seller can make an informed decision from there.
We think that having easy access to a marketplace for iBuyers will democratize this new business model. Institutional investors like Invitation Homes that scoop up rentals and national flippers such as HomeVestors can participate alongside the smaller players, giving consumers more options.
We see this next phase in the iBuyer trend bridging the disconnect between the homeowner who needs to sell fast and the tools to help them weigh their selling options. Meanwhile, iBuyers need a reliable client acquisition channel to operate at high velocity and protect their tight margins from market fluctuations. We hope to be that channel. Creating a way for the property community to interact with iBuyers will only help both thrive in the uncertain future of the real estate industry.
