So-called iBuyer Real Estate Firms Pitch Programs To Buy Your House
Forrest Stewart was ready to sell his East Dallas condo, but he dreaded the hassle. "I was going to have to move all my things out and do repairs, and I really didn't want to go through that," Stewart said.
That's when Stewart heard about a home sales company that will let you move into a new house before you sell the old one. Called Knock, the residential sales program expanded to the Dallas-Fort Worth area late last year. Knock is among several new concept residential sales firms operating in North Texas that pitch programs of buying customers' houses or their new ones during the transition.
"I had never heard of this, and it sounded too good to be true," Stewart said. "Everybody thought I was being scammed. "But I was able to look for a house and move into one then sell mine," he said. "That was very appealing." Knock bought his new house in Garland, and Stewart moved in, then Knock coordinated the repairs on the condo. When the condo sold, Stewart closed the new home buy from Knock. "It was a lot less stressful than the first time I bought," he said.
Knock, Offerpad, Opendoor, Zillow Offers and others are pitching the programs to buy your house while helping you hunt for another. They admit that you might get higher sales prices going the traditional route, but the appeal is quick sale convenience. "This was something consumers were asking for," Josh Swift of Zillow said. "This is not a fad for us but a fundamental change in how consumers are going to interact with Zillow."
Zillow entered the homebuying business 15 months ago, Swift said at a recent meeting of the National Association of Real Estate Editors in Austin. In the first quarter, the company purchased almost 900 houses and sold 400.
"That growth was 80% quarter over quarter in acquisitions," Swift said.
Dod Fraser of Opendoor said his company typically purchases houses priced from $100,000 to $500,000. "The focus for us is on what homes we can buy that are the ones we can price accurately," Fraser said. "Our buy box covers about 70% of the U.S. — it is a significant majority of the homes that are out there."
Backed with billions in startup capital and computer models that value the real estate, these so-called ibuyer real estate firms still represent just a fraction of the industry. Fraser estimates it's only about a half percent of the current home sales market.
The homebuying companies sometimes encounter unexpected risks in quickly buying and reselling the properties. "In Dallas we got in there and there were a lot of cracked foundation issues," Fraser said. "That meaningfully changes the cost of getting that home back on the market." He said about half of Opendoor's prospects ultimately agree to sell their houses to the firm, paying a 7% fee for the service. "We work very hard to explain why this is a fair value for your house and why this is a fair fee," Fraser said. "Our goal is to give you a fair offer on your home."
Darrin Shamo of Offerpad said its approach had a lot of skeptics at first. "When you introduce a new concept, there is immediate distrust and denial," Shamo said. "There are misconceptions about the model. "This is a very new thing for the consumer." Shamo said his firm's homebuying and reselling model is a low-margin, high-volume business. Offerpad buys the property, does repairs and then resells as quickly as it can. "On average, it take us about 13 days to turn a home start to finish in a renovation process," he said. "What we provide is that certainty, control and convenience you currently can't find in the standard process."
The companies make money with service fees and sales commissions, plus any upside from selling a spruced-up house. They know the program won't appeal to all home sellers. "There are a significant number of sellers that want to go test the market and see if they can maximize their dollar by selling traditionally," Swift said. "Forty-five percent of sellers that come through our funnel actually go on to sell their homes traditionally. "For those sellers that value convenience and certainty and control they get with a cash offer, we present them with that," he said. "They may have been able to optimize on the retail side, but what they really valued was to be able to get a cash offer..."
