Two “instant buy” companies, also called iBuyers, recently opened in central Indiana to provide homeowners with an unconventional way to buy or sell homes.
In recent weeks, San Francisco-based Opendoor and Phoenix-based Offerpad announced that they are offering their online real estate services to homeowners in central Indiana. These iBuyer companies, as well as other companies such as Zillow and Redfin that have added iBuying services, present their online platforms as a convenient, fast, reliable and easy alternative to the traditional home selling experience. However, local real estate agents are unsure if this approach will undermine the market or simply increase it.
“To be honest, we’re not much different from other industries that are seeing an influx of high-tech businesses,” said Carl Berron, outgoing CEO of the Indiana Realtors Association. “I think this is a sign of health in the market. I don’t think we could say that this is a threat; it’s just a new version of the way real estate is sold. “
IBuyers are more than just a modern version of We Buy Homes signs on the side of the highway. IBuyers allows homeowners to request cash offers for their homes, which are usually available within 24 hours.
Rather than benchmarking the market like a traditional real estate agent, iBuyers uses proprietary software to collect data about a home for sale – its location, features, nearby sales and other metrics – to determine the price.
Matthew Brawne, vice president of strategic initiatives at Offerpad, likened the service to successful tech startups that have become household names.
“Several years ago, Uber and Lyft transformed the transportation industry. What we are seeing in real estate is like this, ”he said. “As people move towards lighter lifestyles and try to get rid of stress, I think the iBuying environment will make a difference in the same way that Uber and Lyft did.”
In addition to these fast pay offers, iBuyers allow homeowners to dictate a closing date while avoiding the hassle of locating their homes or working with uncertain buyer’s funding.
“I like to think of us as an iBuyer customer, as a headache cure for the home salesperson. There are many steps when you think about everything you need to do, ”said Jim Lesinski, regional general manager for Opendura in Indianapolis. “We take all these steps and combine them into one simple process.”
Despite these proposals, Burron does not expect the arrival of the iBuyers to revolutionize the local real estate industry.
“A long time ago, there were proposals for a one-stop shop,” he said. “But this industry is hard to hack.”
Typically, iBuyer suggests threading a tight needle. They need to be high enough to convince the homeowner to sell, yet low enough for the company to make a profit by the time the home is renovated and brought back to market.
In addition to the money they receive from the resale of the home, iBuyers also charge a service fee, which is subject to current market conditions.
Eric Miller, real estate agent for Danville-based Wright Realtors, conducted his own experiment in late July to better understand the Offerpad and Opendoor approaches. He has solicited bids from both companies for his Danville home, which he says is worth between $ 300,000 and $ 315,000.
Both companies returned with offers below Miller’s estimate: Offerpad offered $ 275,775 and Opendoor offered $ 297,800. They also had a 5% transaction fee, which Miller said is comparable, if not slightly less, to the commission that homeowners could pay an agent to help sell their home.
Since he was not actually selling his house, Miller said he did not make an appointment with any of the companies. However, he said he believed iBuyers’ repair needs could be more extensive and eat up up to 8% of a seller’s profits. While a traditional inspection may reveal necessary repairs, Miller said iBuyers’ renovation costs can start to rise as they require aesthetic upgrades such as new types of flooring or cabinet fixtures.
“In fact, there is no rhyme or reason in this. They are looking for different things, ”Miller said.
Lesinsky was unable to give an estimate of how much average home renovations could deduct from a homeowner’s income.
“It really depends on the state of your home. We don’t do household chores; the flippers of the house are looking forward to a large number of repairs. We are doing the renovations that the typical buyer expects to see in the area, ”he said.
However, Miller discourages homeowners from avoiding iBuyers. In addition to flexibility, he says, each offers different incentives that may better suit one person’s situation than another’s.
Various iBuyer companies promise 24/7 cash offers, flexible closing dates of up to 90 days, and other incentives such as free local moves or zero commission on canceled transactions. That’s why Miller suggested exploring your options with iBuyer, but keeping a real estate agent on hand.
“It’s always important to get the opinion of both,” he said. “This is a new concept and in some cases these companies are paying big bucks.”
Home buyers and sellers who choose to use the iBuyer are not alone in benefiting from their entry into the Central Indiana market.
“We offer a very aggressive partnership with existing real estate agents who bring us homes,” Bron said.
If a homeowner wants to sell without going through the listing process, Offerpad will partner with agents to give them a 3% commission on the sale. Lesinsky said all of Opendoor’s operations are sold to buyers represented by agents.
“Some agents see an opportunity to partner with us because we are expanding their value proposition,” he said.
This can add valuable income streams to firms or individuals who decide to partner. Bron said the Offerpad model is usually best suited for homes worth $ 500,000 or less, but the company will consider all types of homes.
“Outside the gate, we are happy to see any house,” he said.
Miller did receive an unsolicited offer to either join brokerage Offerpad or direct sellers to the iBuyer that better matches their model. While he did not fully research all of the incentives offered by these companies other than commissions, he said he was not interested.
“As a rule, they always strive for this because they will need agents to deal with them,” Miller said. “It just brings more money to Offerpad, which allows them to be more competitive.”
Offerpad’s market entry also includes the opening of a local office. Offerpad is currently conducting temporary operations at 3815 River Crossing Parkway on the north side of Indianapolis. Bron said he toured extensively in Carmel, including the Clay Terrace and further south.
While the company has yet to choose a permanent location, Bron said Offerpad is looking for around 3,000 square feet to house its first five employees, who will act as general manager and executives for acquisitions, refurbishment and placement.
Lesinsky said Opendoor has yet to decide whether to open a local office.
Fear of the unknown
As with anything new, there are some who are worried about iBuyers entering the market. Miller suspects that some potential homebuyers may be hurt by the attractiveness of this quick-cash offering.
“The biggest problem is that there are more buyers coming into the market for cash, which is why home buyers are not getting a loan, which is the majority of people,” Miller said. “Ultimately it will certainly affect the price.”
But Lesinsky said the cash infusion could be of great help to private homeowners and that it fulfills Opendour’s mission.
“I think the biggest benefit we bring to any market in which we operate is providing liquidity to the market,” he said. “We help sellers act on their terms. This is the mission of the company. We help sellers move. ”
Real estate agents are also very worried, Miller said, as they feel threatened by iBuyers buyers who might get them out of the deal.
It is unknown how much market share iBuyers will acquire or what impact their behavior will have on the industry as a whole, but Berron predicted they will stay here for a long time.
“Over time, we will see who is right and who is wrong, and I assume that they are both right about something,” he said. “There is a place for them. We are changing demographics and consumer preferences. “
At the moment, Bron says, iBuyers’ influence is limited, as they only account for 1% of the market.
“We’re part of the ecosystem,” Bron said. “I would not say that we necessarily have the opportunity to make a significant impact. Anyway, we give people the opportunity to move faster and faster and help them sell a house and get to the next house faster. “
Berron said he is confident there will always be a place for the traditional approach to home sales.
“This is a really exciting time for the industry because a lot of smart people are betting using different models,” he said. “If you think about it, there is a kind of limit to the appeal of this. It will appeal to certain consumers in certain circumstances. It won’t take over the market, but it won’t go anywhere either. ” •