Don’t be misled

Myths about iBuyers

IBuyers are one of the few true innovations to hit the real estate industry in recent years.

An iBuyer (for “instant buyer”) is a company that uses technology to make an automated offer on a home. There’s some myths about them, but here’s what’s really going on with iBuyers.

1 Myth 1: iBuyers lowball homeowners

IBuyers don’t pay significantly less than the market price, says Mike DelPrete, a real estate tech strategist and scholar in residence at the University of Colorado Boulder.

IBuyers buy properties that are in good shape, usually make minor repairs and make much of their profit from fees they charge to sellers. (The eventual price an iBuyer pays is the accepted offer minus the renovation costs.)

2 Myth 2: iBuyers are the reason houses are expensive

Deliberately overpaying for homes would be a disastrous strategy. In fact, Zillow Offers, the company’s iBuying division, acknowledges that it unintentionally paid too much for houses, based on faulty forecasts of future prices. Zillow lost hundreds of millions of dollars in the third quarter of 2021 and shuttered Zillow Offers.

For iBuyers to push prices artificially high, they would need to control a big chunk of the market, and they seldom do.

According to DelPrete’s research, iBuyers accounted for 1.6% of U.S. homes bought in the third quarter of 2021, or around 28,000.

3 Myth 3: iBuyers sell lots of homes to landlords

There’s some truth to this belief, so it’s more exaggeration than myth. Most (not all) iBuyers sell a portion of their inventory to institutional investors that rent the homes out.

Take Zillow Offers. After it shut down, Bloomberg reported that Zillow planned to sell 7,000 houses to corporate investors such as real estate investment trusts, or REITs.

The evidence that Zillow drove up prices for anyone but Zillow is weak. Of the three biggest remaining iBuyers, Offerpad and Opendoor say they sell to investors and RedfinNow says it doesn’t.

4 A benefit: no living in limbo

Selling to an iBuyer appeals to homeowners who prize convenience, need to sell quickly, and want to be certain that the buyer will consummate the transaction and not flake out.

IBuyers are especially attractive to sellers who hate showing their homes to potential buyers.

Understanding what iBuyers do — and what situations they can address — adds to your toolbox, whether you’re selling or buying.