Zillow – Spurred on by the pandemic, more homeowners are selling to iBuyers — and avoiding hordes of strangers traipsing around their house
In America’s housing market, it’s good to be an iBuyer.
A new report from Zillow
analyzed sales activity among four of the largest instant buyers (or iBuyers) in the country: Zillow Offers, Opendoor
Not only are these companies seeing record levels of interest in their business model, but many homeowners are opting to sell directly to an iBuyer before even putting their home on the open market.
During the second quarter of 2021, the four iBuyers purchased just over 15,000 homes from homeowners, breaking the previous record of roughly 10,400 homes set in the third quarter of 2019 just before the COVID-19 pandemic’s onset. For the first time, iBuyers accounted for 1% of all home purchases nationwide.
All told, the homes sold to iBuyers were worth nearly $5.3 billion, per Zillow’s analysis. Notably, nearly 84% of the homes sold to the iBuyers Zillow studied had never been listed on the open market, meaning the homeowners chose to work directly with an iBuyer rather than testing the waters.
The iBuying model seemed tailor-made for a pandemic.
It’s a significant turnaround from the beginning of 2020, when iBuyers had to shut down operations as the number of COVID cases in the U.S. skyrocketed. At the time, analysts viewed the pandemic as a major test of the iBuying model.
On one hand, it can be costly for the companies involved, since they typically purchase homes around the market’s median price and need to turnaround the property at a higher price point to generate their profit.
But the iBuying model seemed tailor-made for a pandemic in which homeowners became skittish about the prospect of open houses and having strangers in their homes, and wanted to unload their property as quickly and efficiently as possible.
That was before the real-estate market exploded as the pandemic combined with generational shifts to prompt a massive surge in demand from home buyers. Home prices have hit record highs, and properties often see dozens of offers, leaving homeowners in the driver’s seat. Yet it appears that the iBuyers are keeping pace.
The iBuyer boom this year has been prominent in certain markets.
“The iBuyers — led by Opendoor, Zillow, and Offerpad — are paying record-high [prices], above market values for the homes they’re purchasing from homeowners,” independent real-estate and technology strategist Mike DelPrete wrote in a report in August. “But they’re also reselling them for more money than ever before.”
Some companies, like Opendoor, have shifted to paying more for the homes they purchase, DelPrete noted. But iBuyers are managing to still sell the homes for a higher price than they spent, with the median price appreciation for these transactions being a record 8.1%.
The iBuyer boom this year has been especially prominent in certain markets. In four cities — Atlanta, Phoenix, Charlotte and Raleigh — iBuyers now have a market share of 5% or greater. In general, the iBuying industry remains concentrated mostly in the Southeast and Southwest, no doubt drawn by the relative affordability and popularityof these markets.
But this year, iBuyers have begun to expand toward and into the Northeast, including in pricier markets like Washington, D.C. and Boston. If they have the same success in these parts of the country, it could prove that the iBuying model is as disruptive as its proponents have long said it would be.