Over the last 12 to 24 months, this new craze called Ibuying has become the newest shiny object in the real estate industry. I recently read a post on Forbes.com by Chase Marsh entitled “iBuyers: Is the Convenience Worth the Cost?.” At first glance, you might get the impression that this post would be redundant. However, Chase Marsh’s post focused on the cost to the individual homeowner (seller) who chooses to go the iBuying route. My concern runs deeper and focuses on two specific aspects of the industry.
What exactly is an iBuyer? An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. If you choose to accept the price, you can close in as little as a couple of days.
The first of my concerns, is volume. Mr. Marsh did an enviable job of outlining the premium that a homeowner risks absorbing should they choose to go this route. While the home equity for owners has steadily increased each year since 2013, the average homeowner only has 8% of equity in their home. Since iBuyers like Opendoor, for example, can charge a premium of up to 13.5%, this eliminates a significant amount of their target customer pool. Thus, creating a concern of enough inventory available (i.e. sellers willing to pay this premium in exchange for not having to list their home) to support the number of real estate and mortgage (Rocket Mortgage) firms jumping on the iBuying bandwagon. It’s difficult to tell exactly how much these companies are investing to explore the iBuying market, but if they faulter in the slightest, their traditional services will be the ones covering the loss. Meaning a seller will find it even more difficult to get a break on the standard 6% commission structure.
My second and major concern associated with the iBuying trend, is the potential control over the market that it will give large real estate firms. Right now, the industry is kept in balance because the market determines the value of a property, but the Buyer determines the price. However, as iBuying gains market share, an increasing number of homes will move from public influence, to private control.
This means larger firms who have the capital reserves to cover the massive holding costs will now be able to dictate inventory levels and prices at any given time. This ability to manipulate and control the market not only allows large firms to maximize profit at the expense of a free-flowing market, but will also have a major impact on the ability for new homebuyers to enter the market due to being priced out. The ripple effect on mortgage companies, title companies, and independent brokerages could be catastrophic to the point where the entire market could collapse, circa 2008.
With so many brokerages jumping into the iBuying pool, Buyers and Sellers (i.e. the people we as Agents have the fiduciary responsibility to protect) need to understand these ramifications, start fighting this new trend, and demand impactful regulations from Real Estate Commissions, before home ownership is the next piece of the American Dream to disappear due to corporate greed.
Todd Wilkinson is the Founder and Owner of FonHome Realty. FonHome is a customer-centric brokerage where our clients are in control and our experienced agents are respected for providing the positive and exciting experience the real estate transaction should be. Todd is an accomplished real estate investor with an undergraduate degree in Financial Economics and a Masters’ degree in Business Administration. Todd has held senior management and executive level positions with the world’s two largest retailers and a successful startup venture. Todd has served terms on the University of Arkansas Advisory Board and is actively involved with the St. Theresa School in Kenilworth. Todd opened his own brokerage after feeling underserved in his personal experiences with real estate transactions and wanted a firm whose mission was on serving the fiduciary responsibilities guaranteed to the Buyer and Seller. Contact Todd today for a free Comparable Market Analysis for your home or for advice on beginning your search for a new home at www.fonhomerealty.com.
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