BUYER’S MARKET
Increasing purchase offers, iBuyers hope to draw customers to a suite of others services.
When iBuying first rolled out — a model in which homeowners can sell their homes to real estate companies with the click of a mouse — people wondered about the cost.
When the iBuyers came to Houston in 2018, they were charging fees of as much as 10 percent, compared with the traditional 6 percent commission split between the buyer’s and seller’s agents. At the time, that was the cost of convenience.
But now, iBuyers appear to be moderating their fees. Opendoor said in its most recent earnings call that it now offers a flat fee of 5 percent. Zillow Offers’ website also says its average fee is 5 percent.
“Over time, we’ve seen the customers really focus and care about the net cash that they receive in the offer,” Andrew Low Ah Kee, Opendoor’s president, said to investors. “And we’re trying to keep things simple for a consumer, which is why we’re setting fees at or below what you would see in the traditional market.”
What’s more, the offers seem to be competitive, according to an analysis by Mike Delprete, scholar-in-residence at the University of Colorado Boulder’s real estate technology program. He has compared the prices paid for homes to the values assigned them by an algorithm developed by real estate data company ATTOM Data.
By that calculation, iBuyers had been paying slightly below market value for homes going into the pandemic — Opendoor and Zillow paid 98.6 percent of a home’s value in a median deal.
Now, they’re paying well above what the algorithm believes homes are worth — Opendoor paid a median of 107.7 percent of a home’s value in the second quarter. (That being said, ATTOM’s algorithm frequently pegs home values below their purchase prices — homes generally sell for an average 109 to 112 percent of their market value in the second quarter, by the company’s calculation.)
How are iBuyers affording such sweet deals? For one, the housing market is so hot that home values are appreciating in the short amount of time it takes for a company to buy a house, make needed repairs and resell it. According to Delprete’s calculation, Opendoor resold homes for a median 9.2 percent more than what it paid for them in May.
But another trend, which will outlast this stretch of rapid price appreciation, is bundling. Earnings calls show companies using iBuying as a way to attract customers to their other products.
On an earnings call, Zillow’s chief executive, Rich Barton, made the case that all of the company’s businesses — its iBuying platform as well as its premier agent, mortgage and closing services — are interrelated.
“They’re all just part of one transaction,” he said. “Instead of optimizing for gross profit dollars generated by one particular service, we are increasingly finding ourselves thinking about the total enterprise gross profit pool that is produced when we offer multiple services to our customers.”
Eric Wu, Opendoor’s chief executive, said most homeowners are looking to buy a new home upon selling their current one, and that Opendoor was hoping to provide customers an agent and mortgage, title and escrow services for their next purchase.
“As we look ahead, we believe that … developing the most accurate pricing engine and building the lowest-cost platform is our foundation to become the clear digital one-stop-shop for all homebuyers and sellers,” he said.