Exploring the Future of the iBuying Market

Would you buy a home from an Algorithm?

The hassle and stress that comes with home buying is something that everyone interested in purchasing a property dreads. The long process of negotiations between buyers and sellers, months of escrow, and expensive closing costs demand a more simple and convenient process of home transactions. Consumers today expect a quick turnaround on all services- including purchasing a home. Enter ‘iBuyers” who are removing the hurdles around this process and making home valuations and sales a more automated process.

iBuyers are companies that apply technology and algorithms to make a fair market value on your home instantly. While the practice is hardly new, and only represent about 1%-6% of all home sales in the US, over the last year with the surge of those who looked to escape pandemic stricken cities in search of a more spacious lifestyle in the suburbs were turning to iBuyers to quickly purchase homes. How these services operate differs from company to company, but at a high level, they quickly evaluate certain characteristics of your home and make an offer. If you accept the offer, they take ownership over the home and all responsibilities associated with reselling it to another buyer.

Another issue they will face is the sheer volatility of the housing market as we turn a new corner of the post-pandemic real estate landscape. Only a year ago, the housing market was hot, and the volume of for-sale homes could not keep up with the demand, driving prices to a new high. iBuyers were rapidly bidding on these homes, sometimes paying above market value in hopes to then turn around and sell them for a greater profit. However, the housing market has now begun to cool off, prices are stabilizing, and now these companies are left with two options: hold the homes at above market value or sell them for a loss.

For some companies, the losses have made them reconsider their business model altogether. Zillow, until recently, ran the second-largest iBuying group in the United States. However, earlier this month the company announced that it would close all of its algorithmic buying divisions and lay off more than 25% of its workforce, while also selling off the remaining homes that were acquired. But other companies, such as RedfinNow and Opendoor, have had success in their strategies by buying homes slowly, renovating them for a quick profit, and selling them to a targeted market.

iBuying is not for everyone. If you need to make a quick sale and feel comfortable with the support of technology, don’t want to deal with the hassle of realtors that create bidding wars, and you don’t want to worry that your home is always in pristine shape for inconvenient showings, then iBuying could be a feasible option. If you want to sell a home with a personal touch and don’t mind the long process in exchange for the potential of a higher profit, then traditional methods may be best for you. Regardless, it remains to be seen how much of this new proptech strategy begins to take over the way that we buy and sell homes. Even if it disrupts the status quo, how many people will feel comfortable removing the human aspect of one of the most expensive and high-commitment things they will ever buy?