Price Differentials: Are iBuyers the Relocation Management Businesses of the 1970s?
The costs of iBuyers and relocation management are eerily similar. Here’s an analysis.
I reviewed an analysis of iBuyer activity researched and published by Collateral Analytics published on August 7, 2019. In it, the Ph.D. researchers looked at up to four markets where iBuyers have been relatively active for some time. They examined the fees paid by sellers who took advantage of such programs.
They also examined price differentials between the market as a whole and homes acquired by iBuyer companies. They found that not only are the iBuyers charging convenience fees of between “6 to 9.5%,” but the prices they are paying indicate an average discount of “2 to 6.5%.” Thus, the authors state that the actual cost for the convenience of using an iBuyer is 13 to 15% of the purchase price. Compare that to normal selling times and costs, and they are somewhat comparable. Brokerage companies’ commission costs, closing costs, carrying costs (beyond the few days of the iBuyer purchase) and fix-up costs likely average between 9 to 11% given the average time on market for homes in the iBuyer target range.
A Similar Business Model
It brings to mind my experience in the relocation management business in the late 1970s. Our region was buying 80 to 100 homes a month in six states, then reselling them and charging a corporate client for the costs of buying and selling. Of course, there was a management fee on top of the cost of sales. Back then, our property group was tasked with keeping the total portfolio costs under 12% for all the costs of buying and reselling those homes being purchased from relocating employees. I don’t know what it is in 2019 and 1977-1979 was a long time ago.
However, the data suggests that the costs of both are eerily similar. And this initial research indicates that the iBuyers of today are about as capable as the relocation property managers of yesterday.
Lastly, this research shows the real cost of the iBuyer programs to sellers for the convenience of quickly liquidating their homes. The premium looks like it is in the range of 2 to 3% of a home’s value. The question is: Do homeowners understand this and can most of them figure it out?