The landscape of real estate today looks increasingly diversified as new, tech-driven companies are entering the market and offering additional services to home sellers and buyers. Now, there are multiple real estate tech players—some similar, some distinct—offering something that generally hadn’t been available in real estate before: a direct sale and simplified purchase.
These PropTech companies—referred to as iBuyers due to their specialties in near on-demand, tech-enabled home buying—are known for leveraging modern tech and connectivity to buy and sell homes. These companies have launched with significant public awareness over the past five years; as they grow in volume and their footprint in the industry widens, their offerings continue to mature beyond the novelty they introduced consumers to direct home buying for ease and convenience.
A testament to their success, even industry-leading organizations like Keller Williams are joining the movement. Consumers, investors, like-minded companies, and others are taking notice and starting to get involved in order to leverage the real estate tech impact that is taking shape nationwide.
Though this tends to be a big news topic to industry professionals and active home sellers and buyers, the reality is that iBuying companies are currently operating within a limited number of markets around the country and currently command a relatively small portion of market share within those areas of the country. Last year, iBuyers accounted for less than 1% of home transactions in the United States. The reason such a relatively small-impacting movement is getting so much attention, however, is because the real estate industry has never experienced this kind of shift before—the technological upgrade many industries have already received. Many anticipate that this express version of home selling will continue to increase significantly in popularity and value to consumers over the coming years.
It’s clear that most consumers are buying or selling where iBuying capabilities are not yet available. But maybe the topic is gaining disproportionate traction beyond the number of consumers they currently serve because it has the potential to scale and secure a more significant share of the national market. The demand for the iBuyer solution is growing rapidly. It's already changing the way homes are sold and purchased–even among traditional organizations.
All the major players in this niche currently share the same 20 metro areas in the United States where the iBuyer option is available today.
Of those markets, Phoenix has become known as the iBuyer hot spot. It is where iBuying began five years ago, and where consumers are most aware of this option. More than 5% of home transactions in 2018 were conducted by iBuyer companies there. Phoenix’s housing market could also be contributing to the greater iBuyer market share in the metro, as well as the type of buyer in the area, and many other factors. If time alone is the key element, we can expect other iBuyer markets to reach this level of popularity within the next few years - tremendous growth for this segment.
Consumers may wonder why these companies are all competing in the same markets while the majority of home sellers and buyers nationwide do not yet have them as an option. As the iBuyer niche is still being refined in many ways, these organizations tend to find that certain markets are best for their services and optimized capabilities.
The iBuyer solution provides value to consumers when they can make competitive home offers quickly and efficiently. Algorithms, numerous data points, as well as real estate expertise, determine a competitive offer. These home buyers issue competitive offers in as fast as 24 hours. When this technology was first developed, it was helpful that homes were in homogenous markets with little variety. Now that abilities in iBuying have expanded, the most successful businesses (now using local professional expertise to make home offers) are able to serve neighborhoods where homes are more diverse.
Still, we see that the iBuyer offering is most heavily available in the southern parts of the country. Generally, where companies offer the instant cash offer, there is a substantial volume of newer home inventory—places where homes are bought and sold frequently. These home-buying companies tend to operate on small margins so allocating resources in markets where they are likely to have high volume is imperative. A key factor in the property purchase price for these companies is the data surrounding recent real estate activity in the area. It accounts for similar homes in the same neighborhood, as that information can be used in making competitive offers.
Currently, most companies offering the iBuyer solution purchase single-family homes built after 1960 with common sizes and features that are on lots no larger than an acre. While the parameters may seem narrow, homes with these qualities represent the majority of homes people are buying and selling today. At least for now, the iBuyer solution is focused on the most common properties with the goal to become available to as many people as possible in their markets. As this model and the capabilities of these companies have become more sophisticated, some are beginning to expand their product offerings to provide more for the general population of real estate consumers.
With the iBuyer option expanding, and as participating companies continue to adapt and provide more of what consumers want, their footprints around the country will continue to grow. It’s only a matter of time before all home sellers and buyers have the option to use the innovative solutions from these real estate tech innovators, wherever they are, to enjoy more streamlined home sales and purchases that promise certainty and control.
Brian Bair, Offerpad founder, and chief executive officer is one of the most successful residential real estate agents in the United States. He’s spent the last decade helping solve his clients’ problems, by providing them with a concierge approach to real estate. In 2017, Brian was awarded the Most Innovative Real Estate Agent of the Year by Inman, and REAL Trends The Thousand, as advertised in The Wall Street Journal named him the second highest-performing real estate agent in 2014 and 2017. He has been credited for selling the most existing homes in the United States since 2010, and he attributes his success to simplifying the process for owners and buyers. Brian previously served as co-founder and managing partner of Lexington Financial, LLC and Bridgeport Financial Services LLC.
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