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Strategy Saturday
SS53: What is an iBuyer?
December 19, 2021
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SS53: What is an iBuyer?

iBuying is a term used more and more today when describing how owners are choosing to sell their homes for price and also convenience. Charles discusses what an iBuyer is and how it affects residential real estate; agents, owners, buyers and investors.

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is an iBuyer. Now over the last couple of years, iBuyer or instant buyers have been popping up all over the place. An Iyer is a real estate company that will buy our home and make some cosmetic repairs and then sell it. They include open door, offer pad Zillow offers, and we buy Ugly houses. Now cash offers are not a new thing in residential real estate. Think of like wholesalers assigning contracts that they get from motivated sellers and assigning that contract now to flippers. But I Myers use artificial intelligence to set target prices for homes and let sellers receive an almost immediate offer on their property. Now, the process with an iBuyer or starts when a seller enters their properties and information on the iBuyer’s website, they’ll usually receive an immediate offer mainly based on neighborhood comps.

Charles:
If you’ve ever put your address into one of these websites, you’ll get like an estimate. They use that information and all that data, and they’re able to then provide this immediate offer. And then they schedule an appointment. The IBUs inspector, if that seller is interested in selling their house for that price. Now after the inspection, if everything checks out and the seller wants to move forward, the closing date is set and the seller receives payment at closing. Now, IBUs are working mainly in hot markets in our targeting newer homes. And this is different from wholesalers that are working pretty much in every market. The key with an iBuyer is to do minimal work. You know, usually cosmetic only work and sell the model works off the idea of a fast resell, no fast and easy flips. And in this model, they’re not gonna go through and change mechanicals.

Charles:
They’re not doing major CapEx items. They’re not changing roofs. They’re not gonna recite the house. They’re not putting new windows in. They’re not gonna pull new new. They’re not gonna re-pipe anything. It’s literally small cosmetic work and resale. Now they’re working in a lot of these hot markets because they’re riding off the resale inflation of that market. The increasing prices of that market. And it makes it easier for them to sell out a profit, even if they overpay, which typically they are now that benefits of selling to an iBuyer include cash buyers. So there’s no financing, no home showings. You pick the closing date and you can sell as is now drawbacks of working with an iBuyer are that you cannot negotiate the price. And there are usually fees that are charged during closing, and the offers are usually slightly below value.

Charles:
When you are looking at it after taking out all the fees. Now, an inmate article in November of 2020 stated how open door and Zillow were losing tens of thousands on each iBuyer purchase, mainly because of their staff and overhead. Now think of this. They’re not just in one market, they’re in many different markets mainly throughout the whole Sunbelt. And they are, they have to, you have this data. So people are going onto the website. They have to, you know, advertise to get people onto their website. Then they have to send someone out if that person agrees. So there’s a lot of staffing that’s in overhead. That’s required now in October of 2021 Zillow state, that they will be winding down their home home buying unit called Zillow offers while cutting 25% of their workforce. Now, what issues was Zillow having other than losing money on every deal was that they had management and operational issues.

Charles:
You know, many states in many markets you know, real estate investment is a business. It’s not something that passive and it takes boots on the ground to run it correctly. The next one was capital gain strategy. That was their strategy. They need to consistently predict the value of a home six months into the future. And that coupled with not really adding much value was really a recipe for disaster. Really successful home flippers. If you’ve if you’ve ever seen them or know them, they’re adding a lot of value to the homes before they’re selling it in most cases, very rare that they’re going in and just putting some paint on it. Usually they’re going in, they’re changing kitchens, they’re changing bathrooms. They’re moving walls. They’re putting in new mechanicals. Like a lot of money’s being invested to turn the property around.

Charles:
They just going in and putting on some eggshell, white and selling it. Now I feel that iBuyer and cash buyers are not going away, but this shows how owners are becoming more comfortable selling for cash at a lower price. Now, we need to see how this may change when there is a pullback and price, our dropping in or stagnant. Also, how will this impact real estate agents doubt real estate agents will disappear, but is still unknown. How this will affect agents, will less homes be sold through agents, will commissions be reduced? I mean, good agents provide a very personal service to their clients. And that is not something that’s easily replaceable by artificial intelligence or someone that just shows up at your house with a paper, with an offer and hoping to buy house. So I hope you enjoyed, please remember to rate review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes. Next next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar , LLC, exclusively.

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