iBuyer Warning. Read Before Selling Your Home to Opendoor, Zillow, Etc.
Over the past few years, the iBuyer model surged and faded, with companies like Opendoor and Zillow leading the way. iBuyers acted as intermediaries, providing quick purchases for sellers and reselling to buyers or amassing their real estate portfolio and turning those homes into rentals. However, this seemingly ideal solution has faced some recent challenges.
The model thrived when housing prices were rising, allowing for profitable transactions. But when the market started shifting, iBuyers like Opendoor and Zillow ran into some difficulties. They were accused of driving up prices during the boom and faced a backlash during the new market. While some expected praise for making housing more affordable, that was not the case at all. As a matter of fact, there is more negative sentiment overall about iBuyers than there is any praise. This and significant profit loss led to Zillow and Redfin shuttering their iBuyer operations in 2021 and 2022, respectively.
Although the iBuyer model is not new to Portland anymore, we can still reflect on what is reported by customers who have used iBuyers in other areas. Here are some examples of feedback:
Bait and Switch: The Changing iBuyer Offer
One thing that’s been a common problem is the fluctuation of iBuyer offers before closing. Sellers have reported instances where the initial iBuyer offer drops significantly, leaving them in a difficult position. A property investor on BiggerPockets.com, a real estate investment advice forum, shared his experience with Zillow Offers. Although the company delivered an initial offer in two days as promised, after sending over an inspector, they followed up with a second offer that was tens of thousands of dollars less than the first. This experience was common among Zillow Offers customers, and similar complaints exist about Opendoor on the Better Business Bureau’s website. As you can imagine, this sudden change of position can lead to financial strain and the need to reassess the feasibility of the transaction.
The High Cost of Convenience to Sellers
While iBuyers offer convenience, sellers must carefully evaluate the costs associated with their services. These costs often include service fees, which tend to be higher than traditional real estate commission fees. Those of us in the industry have encountered cases where iBuyers charge as much as 10% total in fees and repairs.
On top of that, iBuyers have been known to make lower-than-market-value offers, aiming to reduce their own risks and maximize their profits. This will likely worsen as iBuyers like Zillow cease their iBuyer operations due to massive losses. Case studies can serve as examples, demonstrating situations where sellers have lost money by choosing an iBuyer over alternative methods.
Time Is Money: The Closing Process with iBuyers
Contrary to the promise of a fast transaction, iBuyer deals may take longer to close than anticipated. Most iBuyers will still want to conduct an inspection of some kind and may request repairs (or significantly reduce their initial offer price). Delays in the closing process can lead to complications and potential issues for sellers. The offers might be instant, but they are subject to change and the closing can sometimes take a long time.
A Matter of Trust: iBuyer Representation and Reviews
Home Sellers need to understand that iBuyers are not required to represent the best interests of sellers. How is that important? Unlike traditional Realtors, iBuyers may not have a fiduciary duty to their clients as licensed agents do. Home sellers are basically left to fend for themselves without competent advocacy, without anyone in their corner to guide them through the process. How do you think they stack up against iBuyers, who have armies of attorneys, contract negotiators, etc., trained to get the best deal for THEMSELVES, not the seller? IBuyers will typically only privately buy your home if they can turn around and sell it on the public real estate market for more money.
One thing to note is that some iBuyers have been accused of hiding negative reviews to maintain a positive image. In fact, the nation’s most widely used review site was reported to have financial ties with OpenDoor, which further muddies the waters regarding transparency. You can read more about that in our article here. Sellers must exercise caution and conduct their due diligence to ensure transparency and trustworthiness when dealing with iBuyers.
Impact on the Housing Market
Let’s consider what iBuying has done to the Housing Market. The rapid rise of iBuyers had significant implications for local real estate markets. Buyers relying on traditional market transactions might experience challenges in finding affordable options due to rising prices caused by iBuyer activity in some areas.
iBuyers VS. House Flippers
You may think iBuyers are a virtual version of house flippers, but this is not the case. iBuyers look for properties that need minimal repairs and can be sold “as is” for a quick profit. Their general mode of operation (buy low, sell high) is the same as house flippers, but the key difference is that iBuyers want to get away with doing as little to the house they bought as possible.
House flippers, while known for some shady repair techniques here and there, usually add value to the homes they buy. Typically, they buy a home that needs significant work and fix it up to fit modern sensibilities. The homes house flippers look for would never pass iBuyer standards.
iBuyers are looking for plain, standard homes that are easy to sell and have a baseline marketability. A single-family home with three bedrooms and a garage is a sure-fire iBuyer property, while a duplex or luxury building is likely not going to reach the same market. iBuyers want quick turnarounds, low investments, and the highest return on their initial investment as possible without shopping around.
Not only does this produce a very predatory selling environment where they try and pay as little as possible for properties, but with slim margins constantly eating away at their profits, iBuyers are incredibly susceptible to market changes.
iBuyers Losing Popularity in 2024
With the housing market in flux, it’s no surprise iBuyers are also experiencing some fluctuations in popularity going into 2024. Some of the top players like Zillow and Redfin closed their doors due to loses in 2021 and 2022. While OpenDoor is still in operation, the overall seller experience with iBuyers is catching up to the business model. As we’ve noted in our feedback examples, sellers were less than satisfied with their offers through an iBuyer site, and ran into offer issues and closing delays in the long run.
Since 2022, iBuyers have seen a significant tank in popularity. Not only did some of the biggest names face closures, but also both OpenDoor and Offerpad, top players in the iBuyer business, reported net losses of $1.4B and $148.6M, respectively. With these kinds of losses, it’s hard to say that iBuyers are succeeding in their business niche. On top of this, OpenDoor faced a $62M fine by the Federal Trade Commission due to misleading their customers, saying they paid more than market value for homes, which was patently false.
Where does this leave iBuyers in 2024? While these companies still exist, their popularity is steadily declining, especially with the housing crisis. Low inventory, paired with people wanting to take advantage of record-high prices, all come together to put iBuyers in a risky position.
The Public Real Estate Market Is Your Best Bet to Sell a Home
If you ran an auction and had one person come, would you get a good price for the item you were selling? What if you had a hundred people come to the auction? What if it was ten thousand? How about a hundred thousand people at the auction? This is what a top real estate agent does for you; we reach thousands upon thousands of potential buyers for every home.
We do a lot more than simply listing the home on our local MLS (though, of course, we do that too) to reach the highest amount of buyers with the best possible presentation of your home. Selling your home and presenting and promoting it well on the open real estate market will always be the best way to get the highest price for your home. Talk with our top 1% seller’s team today (top 5% in the U.S. and top 250 in the nation). We charge less than average commission, and pay more to market your home so it sells faster and for more. Call us at 503-714-1111 to discover how we will market your home in the best possible light and reach the highest number of potential home buyers for your property. We’d love to connect today!
