If you read the New York Times or other national news outlets, you may be aware of a new real estate model spreading throughout the nation by companies known as “iBuyers,” which now include large, established real estate firms Zillow and Redfin.

 

The model is taking the real estate industry at large by storm, as it solves some major pain points for both homesellers and homebuyers by offering certainty, simplicity and speed to residential real estate transactions.

 

They do this by offering homesellers an all-cash offer for their home. If sellers accept the offer, they can choose a close date in as soon as 10 days or as far out as 60 days. This eliminates the need to fix up, market or show the house.

 

Unlike the age-old home flippers, these companies do not aim to buy homes at a steep discount, fixing them up to sell them for tons more. Instead, they use sophisticated pricing algorithms with on-the-ground estimators, to offer at or near market price for homes and charge a fee of from 6 to 12 percent of the sale price for the service.

 

These companies then do minor home sale prep (painting, cleaning, etc.) and then put them back on the market as quickly as possible.

 

As a company focused on big industry trends, we want to introduce the model to you and give you a take on how it might influence the Bay Area when and if it arrives.

 

While companies are doing it in over 20 markets across the country, the practice has yet to reach the Bay Area, and likely won’t for a few years, as the model requires relatively homogenous housing stock at lower price points.

 

However, the companies pioneering this new model are pouring millions of dollars and significant tech power into refining it. Opendoor, which pioneered the model when it launched in Phoenix in 2014, has raised $1.5 billion to fuel its growth. Zillow has jumped in in a major way -- it now buys and sells homes in over 15 markets.

 

While the model may not enter the East Bay for years, its lapping at our shores. Opendoor and Zillow Offers is live in Sacramento. In early November, Opendoor had over 50 homes listed for sale in the metro. Both companies now operate in Portland, Oregon, a fairly comparable market to our Inner East Bay.

 

Odds are the model is coming; it’s just a matter of when.

 

San Francisco-based Opendoor pioneered the model when it launched in Phoenix in 2014. By using sophisticated pricing algorithms and a financing model, the company aimed to streamline the complicated, stressful practice of homeselling.

 

Today, Zillow and Opendoor operate in much the same way. These are not the only firms using the model, but are the largest right now -- there are many startups and a handful of established brokerage companies using the model, too.

 

IBuyers allow homesellers to go to their website, input some information about their home and request an all-cash offer on their home. They evaluate the information the seller puts in and then make an all-cash offer in as soon as 24 hours. If sellers accept the offer, the iBuyer then follows up with an in-person evaluation and modifies its offer up or down accordingly.

 

If sellers accept the revision, they can choose their close date, often anywhere from 10 to 60 days. The iBuyers buy the home with the goal of doing minor refreshing -- such as painting or carpet cleaning -- and then relist it. It charges sellers a convenience fee of from 6 to 12 percent for the service.

 

The seller pain points solved here included allowing sellers to avoid prepping their home for sale, such as painting, prepping for open house, the disruption of showings and the uncertainty of when and for how much the home would sell. Many sellers are moving for a reason and have big life events to focus on -- such as buying another home, moving and packing up their life and more.

 

As the model progresses, companies are coming up with new twists, such as ways to use finance to help buyers make all-cash offers and for sellers looking to buy to sync both transactions.

 

IBuyers short-circuit the open market by offering sellers a guaranteed, hassle-free, all-cash offer. This can be the right decision for some sellers, but the open market, while it comes with extra work, can bring a higher price.

 

Also, sellers should be aware that it’s not always easy to compare the net they would receive from an iBuyer versus one they would receive if listed traditionally with a brokerage and agent. In addition, they forego professional representation with these services. When selling what is most likely your most valuable asset, the personalized, expert services of a real estate agent can make sense for both your finances and peace of mind.

 

Red Oak will keep its hands on the pulse of East Bay iBuyer development and share our insights with you. In the meantime, reach out to us if you have any questions.