There are new business models that come along in every industry. They take advantage of technology and try to serve the consumer in a way that doesn’t seem to currently be met. For real estate, this is a time of great change, and new business models seem to be sprouting up all the time.
One of the greatest changes seems to be from iBuyers. While the concept is not new (think of a company that posts bandit signs and says we acquired unattractive homes), the use of technology and addressing “friction points” for consumers is where these new companies have made inroads.
There are several iBuyer companies, including Opendoor, Zillow Offers, and Offerpad that are all operating in the greater Houston real estate market. There are still others like Knock, RedfinNow, CataLIST (which is Realogy’s iBuying division), Keller Offers (Keller Williams’ iBuying division—more on that later) that have launched elsewhere in the country.
The iBuyer market started with these new start-up companies, but clearly some of the traditional brokerage firms saw it as an opportunity as well.
One of the most frequent questions we receive from members is something along the lines of “What are you doing to defend us against these new companies?” As a trade association, we treat our members as fairly and equitably as possible. HAR cannot legally endorse or oppose any real estate business models. Both Opendoor and Offerpad are HAR members, and Zillow Offers utilizes the services of an HAR member REALTOR® for all of their transactions. All three of these companies list the homes they are selling in the MLS.
Many people don’t like change, and it can be stressful, especially when it impacts your career. Change presents opportunity though. How do iBuyers operate? How are they changing the real estate market? How do they work with REALTORS®? All of these questions and more are answered below.
The answers to our questions were provided by executives with each of the companies.
What is an iBuyer?
Opendoor: An iBuyer is a company that uses technology to make an offer on your home instantly. iBuyers represent a dramatic shift in the way people are buying and selling homes, offering in many cases, a simpler, more convenient alternative to a traditional home sale.
How Does Your Specific Process Work?
Offerpad: Interested home sellers visit Offerpad.com or use our app to request an offer on their home. In doing so, they fill out a brief form that will give us details and images of the home, then we respond with a home offer in about 24 hours, depending upon the level of information about the home they choose to provide. If they choose to move forward with the purchase offer, we communicate with them in their preferred method to set up a visit at the home with a third-party home inspector and determine a tentative closing and moving date. The seller is able tell us when is best for them to close and move. They are also given the option of an extended stay after closing and a local move, each at no cost to them. Paperwork is all signed online for the simplest home sale possible. When people sell their home to Offerpad, they don’t have to worry about home showings and open houses, indeterminate dates, or piles of paperwork; our goal is to make home selling as simple as possible for those looking for a direct sale.
Zillow: A homeowner in a participating market submits their address and answers a series of questions about their home. They will get an initial, no-obligation offer from Zillow, and alongside it they’ll see an estimate of what their home would sell for on the open market with a local real estate agent. If the seller chooses Zillow’s offer, we’ll do an in-person evaluation of the home, close the purchase of it on the seller’s timeline, make appropriate repairs and updates – then re-sell the home using a local agent.
Opendoor: The homeowner or their agent can request an offer and have up to five days to consider it. If the homeowner accepts the offer, Opendoor would assess the condition and location of the property further and would either negotiate for repairs or request a credit so that Opendoor can take care of things after they own the property (homeowner’s choice). Finally, customers can choose their closing date, which is typically anywhere from 14 days to 60. Opendoor does all that is possible to keep the process seamless and friction-free from start to finish.
What are the requirements that the property must meet in order to receive an offer?
Opendoor: Depending on the market, Opendoor purchases homes ranging from $100,000 to $800,000 and that have been built after 1960. Other factors are also considered, but these are the primary requirements.
Zillow: There is not an exact set of requirements for every market, but generally we tend to purchase homes that are in or around the median price-point of a local market. Different markets will dictate different price points.
Additionally, Zillow Offers is designed to help every kind of home seller because we can tailor the service to them, regardless of whether or not they ultimately sell through Zillow Offers. If they don’t, Zillow will connect them with a local agent to help them sell traditionally.
Offerpad: Offerpad purchases single-family residential homes, as well as condos and townhomes. We typically buy homes built after 1960, valued at no more than $600,000, depending on the market. Lots sizes of homes should not exceed one acre. The homes that Offerpad buys represents the majority of homes built, purchased and sold in the markets where we do business. As a home buyer and seller, we aim to buy high-quality homes that our future buyers will also enjoy.
What do you view as the greatest advantage of using an iBuyer versus working with a traditional brokerage?
Zillow: Ultimately, it’s about giving consumers more choices and options. Selling to Zillow is just one option we are trying to provide to home owners. In fact, if a home seller decides to not sell to Zillow, we will connect them with a local agent to help them sell traditionally. We believe that ultimately, Zillow offers is giving consumers another choice.
For those that do decide to sell to Zillow, we believe Zillow Offers provides convenience, control and certainty. With the certainty of when the sale will be finalized, sellers can prepare for their next stage in life without worrying about finding a short-term rental or paying two mortgages, for example.
How can REALTORS® benefit from utilizing your company/client?
Opendoor: Opendoor empowers agents to better serve their clients with multiple options to buy and sell, whether it’s through our product or the service of an agent.
- Present a full range of options to help your client make the right decision;
- Unlock contingent buyers, and enable sellers who may not have the time, means or desire to list on the open market; and
- Deliver a great client experience.
Zillow: Zillow will pay full market rate commission to any agent representing a buyer of a home owned by Zillow. Additionally, we also believe that for many agents with a current listing agreement, Zillow Offers is another option for their client. It is a way their client can be sure their house will sell if for any reason circumstances with their client require that. And remember, for agents representing a seller to Zillow, they will negotiate their commission in the traditional way outside of the Zillow transaction. We do not insert ourselves between an agent and their client.
Offerpad: Offerpad loves working with real estate agents. Our primary goal is to provide consumers with more options for the best experience in real estate for them. We work with agents frequently, both with sellers hoping for a direct sale for cash, and buyers searching for homes with a trusted agent. They can help their clients use Offerpad by assisting them in their home offer request and in submitting and negotiating an offer when their client would like to buy from Offerpad. Our new partnership with Keller Offers will allow us even more opportunity to cooperate with real estate agents and their home sellers.
What do you think the biggest misconception is about iBuyers (or your company/client in particular)?
Offerpad: As Offerpad got started in the business, we were often compared to or referred to as a house flipper. Offerpad is not a flipper or a traditional real estate investor because we do not buy homes that require heavy renovations, we offer market value, and we don’t aim to earn profit by selling a home for much more than we purchased it for. Offerpad, like traditional agents and brokerages, earns money from a service fee. We operate on high volume and low margins, selling homes for about the same amount it costs us to buy and repair them.
Zillow: That we are not home flippers or traditional investor buyers. Traditional investors buy low, sell high – and invest a lot into the property to extract significant profit. Zillow Offers is more of a market maker – it’s a service to sellers who want more control and less hassle. Where we make our profit is in our service fee, not from a significant mark-up on the re-sale of the home.
Misconceptions about the strength of our offer. Zillow Offers makes fair market offers on homes, and then re-sells the home for fair market value. The reason for this is because we make our margin from the convenience fee or service fee we charge to a seller – not from marking up the price of a home.
Opendoor: A common misconception we see is this idea that Opendoor exists to upend the traditional home sale process and displace the role of real estate agents. Opendoor works with both buyer and seller agents, and we regularly refer prospective buyers to local agents at their request. Our mutual goal is to give consumers a more fluid and frictionless experience.
How does Offerpad’s partnership with Keller Williams work?
Offerpad: Keller Williams agents will have an opportunity to streamline the process for their sellers by providing an initial offer before the home goes to market. Agents will start the iBuying process by submitting the property’s address and the home’s key details through Keller Offers. The request will be evaluated and moved to Offerpad if it meets criteria as guided by Keller Offers. With a request in hand, Offerpad will quickly generate an offer by utilizing state-of-the-art in-house real estate experience and technology. The assured offer is then routed to the agent and thereby presented to the seller during the preliminary home sale discussion. If the seller elects the instant offer path, the Keller Williams agent will guide the seller through the Offerpad process, ensuring they receive the major benefits like flexible closing dates and a free local move.
How does Opendoor’s partnership with Redfin work?
Opendoor: With this partnership, home sellers will have the opportunity to compare listing their home on the open market with a full-service Redfin agent to receiving an instant offer from Opendoor and skipping the process of listing altogether. By presenting a complete set of selling options, Opendoor and Redfin are empowering homeowners to make the best decision based on their needs and situation. The partnership is currently live in the Phoenix and Atlanta markets, and the companies will evaluate sometime in the future expanding to additional markets.
How do you think the iBuyers and traditional companies will be able to work together, and do you think it will be successful?
Offerpad: It’s clear that the iBuyer offering is something consumers value. At Offerpad, our mission has always been to allow consumers to have more options than ever before, that can be custom fitted for their needs and lifestyle. iBuyers and traditional companies coming together allows consumers more options and surety, no matter which route they choose. Our partnership with Keller Williams, which has the largest agent count of any real estate franchise worldwide, will be successful because now agents will more easily see our solution as another tool. Like us, agents are interested in giving consumers the best options, our partnership allows them to have the best experiences of their choosing in real estate.
Opendoor: We’re all out to create the best possible customer experience and always looking for new ways to do this. As long as we keep the customer first, there is no reason why we can’t succeed.
Anything else you want to add that we didn’t cover that you think would be important for HAR members to know?
Zillow: We think of Zillow Offers as a market maker – specifically one that adds liquidity to a local market. If we can make it fundamentally easier for consumers to sell and buy, we believe we will see more transactions and open up more inventory, which is something we all want.