iBuyers struggle as housing market booms

iBuying companies are seeing less business amid a booming real estate market, with homes selling in record time frames and at ever-growing prices.

Many iBuyers paused their business operations in March amid fears the COVID-19 pandemic would stifle the housing market. But that proved to be the wrong assumption, and when iBuyers reopened, they saw a big drop in business activity.

iBuyers make instant cash offers to sellers who wish to bypass the traditional MLS marketing route, often for assurance and a quicker sale. However, homeowners tend to pay higher fees for the convenience.

Unfortunately for them, it’s a business model that’s proving to be less attractive to home sellers amid the housing boom. With prices constantly on the rise, and homes spending less time than ever on the market before being sold, it’s clear that most sellers can afford the short wait in order to reap higher rewards.

Zavvie, a technology firm that connects agents with iBuyer, bridge, and open market programs that they can offer to their clients, said iBuyers have collectively purchased homes at an average of 95.5% of market value across all markets, down from 98.6% last year. The decrease is “probably reflecting perceived higher risk in the marketplace immediately following the shutdown,” it said in a report.

iBuyer purchasing volumes are now substantially lower than they were before COVID-19, down 82%, the report found. “Unlike the real estate market as a whole, the iBuyers haven’t yet bounced back,” Zavvie said.

While there are fewer offers, the rate at which those offers have been accepted in the third quarter has been slightly higher than it was in 2019 - 4.7% compared to 4.2% last year, the report said.

“This suggests that for some sellers, the iBuyer benefits of speed, certainty, convenience - and perhaps above all safety - are compelling enough to justify a lower offer amount and higher service fees, even in a strong seller’s market,” the report noted.

iBuyers have responded by expanding the parameters of the type of homes they’ll buy, beyond just median-priced single-family homes. Now, they’re happy to make offers on condos and more expensive and older homes.

More iBuying companies also are reporting a growth in demand for “buy before you sell” bridge solutions. Companies like EasyKnock, Homeward, Knock, or Ribbon offer such programs, while Opendoor also has launched a “Home Reserve” program and Zillow Offers has begun a bridge partnership with a new-home builder. These “bridge” programs offer homeowners an opportunity to buy a home before they list. Zavvie’s report shows that consumer acceptance of bridge offers is about four times that of instant offers.