After three successful home sales, Daniel Edwin and his wife were getting ready to sell again, but this time, the Atlanta couple knew they didn’t want to go the traditional route.
Worried about the stress of home repairs, an endless stream of showings, and the possibility of buyer financing falling through, the Edwins made the choice to list their home with an “iBuying” or “instant buying” firm. The result was a valid offer within 24 hours and an easy sale.
“We decided to try an iBuyer, and after researching all our options, we decided to go with Opendoor, which gave us a competitive offer we were happy with,” Edwin told The Epoch Times. “I even checked with a local Realtor who was shocked when I shared the Opendoor number and saw how competitive it was.”
While iBuying transactions can often result in lower offers than those from direct listings on the open market, Edwin said they had no regrets using this growing alternative sales platform.
“This avoided the hassle of disrupting my working schedule, playing the bidding war game, and worrying about appraisal gaps,” he noted. “My favorite part was the flexibility of checkout. I wouldn’t have changed one thing about the experience.”
Lexi Taylor also opted for an iBuyer when she sold her Houston home.
“I was having a home built and was under a contingency contract that required that I sell my home within three months of my contract date,” she told The Epoch Times.
Because her home needed some “TLC,” she was worried she wouldn’t have enough time to make the repairs and sell it on time. Taylor chose Offerpad, which offered her a competitive bid and bought her home “as is.”
“They also offered me flexible closing arrangements that allowed me to remain in the home until my new home was completed.”
iBuying is a relatively new concept, with firms such as Opendoor, Offerpad, RedfinNow, and others sprouting up within the last 10 years. Simply explained, an investment firm presents a home seller with an offer–usually within 24 hours–circumventing the traditional home-selling activities like preliminary repairs, staging, showings, and back-and-forth negotiations with prospective buyers.
The iBuyer firms, in turn, may make some repairs to the homes and then sell them on the open market. While real estate giant Zillow recently announced the closure of its iBuying operation, Zillow Offers, after just two years and multimillion-dollar losses, competitors such as Opendoor and Offerpad are seeing their business and profits skyrocket.
Opendoor’s third-quarter revenue of $2.3 billion is up 91 percent from its second quarter, with almost 6,000 homes sold. Its projections for the fourth quarter are $3.1 billion to $3.2 billion. Offerpad’s third-quarter report indicates a 190 percent revenue increase to $540.3 million, with 1,673 homes sold.
According to the website iProperty Management, a data resource for property investors, landlords, and tenants, the iBuying market share increased more than 230 percent in the first six months of 2021. Still, iBuyers control only about 1 percent of the national metropolitan real estate market.
A November iProperty Management report indicates that just over 9 percent of iBuyer sales are purchased by institutional investors such as rental firms, and the median iBuyer purchase price is $284,500. Conversely, the iBuyer’s purchase price is 24 percent lower than the national median home price of $375,639.
While iProperty Management shows Phoenix among the top iBuying locations, North Carolina actually was home to the top three iBuyer markets in early 2021, with market shares averaging 2.7 percent. Raleigh took the top spot, followed closely by Charlotte and Durham.
‘Speed, Simplicity, and Certainty’
Founded in 2014 in San Francisco, Opendoor bills itself as the leading digital platform for residential real estate. With more than 2,500 employees, Opendoor operates in 44 markets, predominately in the South and West. Since its inception, Opendoor has handled over 100,000 real estate transactions.
“Basically, we created Opendoor to help people avoid the pitfalls and problems that often occur with real estate transactions,” Kerry Melcher, Opendoor’s head of real estate, told The Epoch Times. “Our goal is to offer speed, simplicity, and certainty so home sellers know that the sale is really going to happen. We take the guesswork out of the equation.”
Even amid the current seller’s market nationwide, Melcher indicates that business is booming.
“Our offers are very competitive with the open market—we’re not a home flipper, so we don’t underbuy and oversell,” she said.
As with traditional real estate, sellers will pay about 5 percent in commission fees, which is often less than a real estate agent’s typical commission fee of 6 percent. Some homeowners will also face additional fees for needed home repairs, and those funds will be subtracted from the offer price.
“All of our sellers go through a virtual assessment via video, so we don’t normally use home inspectors,” Melcher said.
Opendoor typically doesn’t get involved with the luxury market, although it has purchased homes as high as $1.4 million in the Los Angeles area.
On the buying end, potential homeowners can use the company’s website or app to search, tour, and make offers online.
“They negotiate directly with Opendoor so we can streamline the process,” Melcher said. “We do recommend they hire a home inspector and we offer a title and mortgage division. The closing is digital as well.”
Offerpad is a similar iBuying firm, founded in 2015 in Chandler, Arizona. Like Opendoor, it operates primarily in the South and West and is currently in 21 markets. Offerpad typically deals with homes built after 1960 with a value of less than $1 million and lot sizes of an acre or less. For home sellers, the company’s service fees range from 4 to 7 percent. Homebuyers also have the ease of searching, touring, and presenting offers online.
Offerpad’s mission is to present a new level of freedom in home selling that lets people know exactly what price they’ll receive, when the sale will close, and when they’ll move.
“Selling to Offerpad means no disruptions in normal routine–there are no home showings and no open houses,” Laura Collins, Offerpad’s director of public relations, told The Epoch Times. “Sellers can have their cash offer in just 24 hours, and they can plan to close their sale in as little as two weeks or push it out months. We also offer a free local move.”
Weighing the possibility of receiving a higher offer on the open market, many home sellers using Offerpad like the control and convenience that instant buying offers.
“This also lets them save money on in-between move accommodations or mortgage payments for two homes at once,” Collins said.
While Opendoor and Offerpad both plan to expand into more markets in 2022, the National Association of Realtors (NAR) has few worries about iBuying taking over the real estate industry.
“There is always room for competition in America’s real estate market, which should ultimately only deliver better options and services to consumers,” NAR President Leslie Rouda Smith told The Epoch Times.
“Real estate transactions are unique because they are rooted in a Code of Ethics and built on the foundation of cooperation among competitors. These ideals have served consumers for more than 100 years, and we’re confident the values of cooperation, accuracy, and transparency will continue to define our industry as we move forward.”