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Power buyers’ impact on the real estate industry

Demand for homeownership hit historical highs across the country in 2021—with multiple offers, offers over asking price and bidding wars becoming the norm. According to the zavvie Seller Preferences Report, a study that examines all the selling solutions available to homeowners throughout the United States, many consumers have turned to “Power Buyer” companies that essentially increase their buying power through services like cash offers, bridge financing and trade-in programs.  

“Power Buyers give consumers the same firepower as the next generation of real estate disruptors, including iBuyers and institutional investors,” says global real estate tech strategist Mike DelPrete, who is credited with coining the term Power Buyer.

“Buyers can buy with cash. And a ‘buy before you sell’ transaction fundamentally collapses two separate transactions into one, simplifying the entire process for buyers and sellers. I don’t think it will revolutionize real estate overnight, but it is a compelling proposition to a growing number of buyers and sellers. I expect it to grow over the coming years, regardless of market conditions.” says DelPrete.

Explosive Growth of Power Buyers

In fact, utilization of Power Buyer services increased dramatically in the third quarter of 2021 — as much as tenfold compared to the fourth quarter of 2020 — the study noted. Cash offer services that give buyers the ability to make offers as good as cash (because they are backed by the Power Buyer and have no financing contingency) created a massive advantage for homeowners needing to buy in order to sell.

The study pointed out that a buyer in the Denver market “using a traditional mortgage and having a loan contingency with their offer” had to submit offers on seven houses before getting an offer accepted.” When homebuyers utilized a cash offer program, however, they typically averaged only 1.1 offers before successfully purchasing a home.

Power Buyer companies are transaction-focused like iBuyers (a transaction model in which companies purchase homes directly from sellers) but target buyers instead, says

DelPrete. “Yes I did end up coining the term, and basically because I needed something to call these companies. Lumping them all in as ‘cash buyers’ or ‘bridge loans’ did a disservice to the entire model, which is really about empowering buyers. They’re all working on building complete product ecosystems (including cash offers and buy before you sell) that streamline the real estate transaction from the buyer’s point of view (compared to the sellers POV for iBuyers).”

Power Buyer and cash offer options are in high demand from real estate brokers and their clients across the country in smaller markets where national iBuyers aren’t yet located. Non-retail institutional buyers are purchasing houses as rental properties in those areas and local investors are working with sellers whose homes need renovation.

Power buyers’ top services

  • Buy Before You Sell: home sellers can secure their next home without a financing contingency before listing and selling their current home.
  • Sale Leaseback: homeowners can unlock equity by selling their home to the Power Buyer and temporarily lease it back. This gives them the opportunity to purchase their next home without a loan contingency. (The equity can also be used for other purposes.)
  • Cash Offers: homebuyers can make offers backed by the Power Buyer and avoid a financing contingency.

iBuyers Rebound in Q3

The zavvie report also revealed that iBuyers bought a record number of houses in the third quarter of 2021, “doubling their acquisitions” from previous quarters and bringing their national market share to 1.8%. “Paraphrasing Mark Twain, the reports of the death of iBuying by some has been greatly exaggerated,” says Stefan Peterson, zavvie Chief Data Officer and co-founder. “The fact is: iBuyer purchases increased by 46% from Q2 to Q3, a breakthrough quarter for iBuyer purchase volume.”

The median purchase price for iBuyers increased 47%, from $280,000 in the fourth quarter of 2020 to $413,000 in the third quarter of 2021. Median Power Buyers’ transaction prices rose to $480,000, which, according to the study, shows that those programs are “better suited for sellers at higher price points.”

As a result, iBuyer and Power Buyers firms such as Opendoor, RedfinNow, Offerpad, Knock and Ribbon expanded their services by launching in more than 30 major metropolitan areas and states. The study attributes Zillow’s recent announcement that it would discontinue iBuying operations to “internal factors specific to Zillow” and not a “lack of consumer demand” among iBuyers.

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