By Martin Sinderman – Contributing Writer
Jan 31, 2020, 6:50am EST
Atlanta is one of the top four markets for sellers utilizing the iBuyer model, which offers a guaranteed sale price in exchange for a “no-hassle,” rapid transaction.
Traditional agents say the rise of the iBuyer model, which is largely driven by investors, is causing an ongoing shift in the residential real estate market, whose effects remain to be seen.
Companies like Opendoor, Offerpad, Zillow and Redfin, which arrived on the scene around 2014, pay sellers cash for homes, based upon internal models, in transactions that frequently close in a matter of days. The iBuyer companies then fix up the purchased homes and resell them on the open market. They make money from service fees charged to sellers, plus the difference between what they paid for a house and what they sell it for.
In Atlanta, iBuyers accounted for 4.4% of the homes sold during the third quarter of 2019, ranking third among 18 U.S. markets where iBuyers were most active, after Raleigh (6.8%) and Phoenix (5.1%), according to a Redfin analysis of the public data on home purchases and sales made by Opendoor, Zillow, Offerpad, and RedfinNow.
The markets where iBuyers were doing the most business in Q3 2019 were those where the typical home was priced at or below the national median ($313,200 in October), Redin found. Focusing on this price segment allowed iBuyers to purchase more homes with the same amount of money, it said. And because affordable homes tend to sell more quickly than more expensive homes, iBuyers can move their housing inventory and buy additional homes more quickly, according to the analysis.
“iBuyers are concentrating their efforts in southern markets where both home sales and prices are poised for strong growth,” Daryl Fairweather, Redfin chief economist, said in the analysis results announcement. “We think that iBuyers are likely to accelerate home sales in these markets.”
Nearly 10% of Opendoor and Offerpad sales came from institutional investors in 2018, according to ATTOM Data Solutions. These institutional investors may be turning to iBuyers as a source of inventory as other sources of inventory such as foreclosures have largely dried up in recent years, the property data company said. Institutional investor purchases represented just 2.3% of all U.S. home sales as of Nov. 29, 2018, down from 2.9% in 2017 and down from a peak of 7.4% in 2012, according to the ATTOM analysis.
Opendoor launched in metro Atlanta in June 2017 and has already served over 7,500 buyers and sellers, said Jay Cherry, Opendoor Atlanta General Manager.
“Atlanta has the growth potential, economic fundamentals, demographics and housing stock that make it an extremely strong market for iBuying,” Cherry said.
“Atlanta is an attractive market for iBuyers because homes are relatively affordable, and many neighborhoods were developed over the past few decades,” he said. “The iBuyer business model relies on accurate home value estimates. A few percentage points off means the difference between making and losing money on a home. It’s much easier for an algorithm to assess a home in a neighborhood that has many homes of the same age and model, rather than an older home with distinct features.”
Atlanta homeowners have responded to the iBuyer concept, Cherry said. “What Opendoor, and iBuying as a category, are able to offer is a vastly more convenient experience that gives the customer control of their timeline, which is why it’s taken off in Atlanta,” he said.
Kelly Rosen, a Realtor with Solid Source Realty Inc., a residential real estate organization based in Roswell, said she runs into iBuyers quite frequently and that “iBuying has probably impacted sellers in a positive way.”
“Because inventory in our market is so tight, with not enough affordable houses out there, iBuyers serve a purpose — they allow people who want to downsize or upsize the ability to quickly sell their house without listing it, bypassing the market,” said Rosen.
“These companies snap up the houses, and then relist and generally sell them pretty quickly, because they are typically the more affordable homes,” she notes.
Providing a vehicle by which a seller can unload a home quickly, and then be able to respond promptly to buying opportunities is good business for iBuyers in today’s market, according to Rosen. “Data shows that a seller, at least most of the time, winds up giving up some equity to these buyers,” she notes.
Convenience comes with a price, said Torrence Ford, broker/owner of Atlanta’s RE/MAX Premier Real Estate Brokerage.
“Statistics show that sellers get as much as 16 or 17% more on their houses in the open market” than they get from iBuyers, Ford said.
“Even though they [i.e., the iBuyers] will guarantee you an offer, their offer price is usually a number that, when they inspect your home, will get lowered by as much as $15,000,” Ford said. Customers dissatisfied with this can switch to a more traditional listing contract with one of the agents of the iBuyer, he notes. “So what the program is doing is almost a bait-and-switch to get sellers to give an iBuyer agent a listing.”
An iBuyer acquiring a house and turning into a seller “changes the entire process for homebuyers,” Rosen said.
“Normally, when you work with a buyer and a traditional seller, there is a negotiating process,” Rosen said. “But when you have a buyer that wants to buy a house from an iBuyer like OpenDoor or Zillow, for example, it becomes a pure numbers game.”
The rise of the iBuyer has caused some agents to put more emphasis on client education, services, and providing a personal touch.
“The iBuyers are telling the general public that they can save sellers a lot of time and stress that comes with putting a house on the open market,” said Ford, “but the truth of the matter is that they are going to take that house, buy it at a discount, do their own renovation and then resell it.”
With the rise of the iBuyer in today’s market, “We are in a little bit of a shift,” adds Rosen, “and time will tell if someone like me who prides themselves on relationships and providing superior services gets cut out because of iBuyers.”
Rosen said that as home resellers, iBuyers “often, when they put a house on the market, they will not negotiate at all — you either pay their price, or they will keep it on the market, depending on how long it has already been there.”
“Their agent’s attitude is typically ‘take it or leave it,’” according to Rosen. “They don’t understand the personal investment and emotions involved in the homebuying process, which makes our jobs [working with a buyer] much more difficult.”
Ford agrees, noting that once the homeowner understands the pluses and minuses of the iBuyer transaction, “then is where you show them that you understand that this has been their family home for 30 years — and how you can help them to renovate their home.”
Ford has worked with Potomac, Md.-based Curbio Inc., which has been active in Atlanta for about nine months. “They will partner with a seller and renovate to today’s standards for no money up front, and will get paid when the house sells,” Ford said. “Companies like that are one of the things that have enabled me to stay competitive with the iBuyer.”