Admittedly, our previous statement of the i-Buyer market being a race to the bottom of the industry may have been an overstatement. The i-Buyer market has grown so quickly it now has tiers of different types. The national mainstream i-Byers represent fine upstanding traditional homes primarily in areas attractive with entry-level buyers. These buyers and sellers can rest easy their experience will be a professional one.
But as long as there are sleazebags who prey on others, we will still have the “We Buy House” types. They now hide behind the cover of the legitimized i-Buyer market. But just know this, when the “we buy types” celebrate their success, something really shitty has happened to someone else. So, that’s why they permanently own the bottom rung.
Sleazebags aside, the i-Buyer market does address a need. And, for many it makes perfect sense. But, there is a very dark cloud that hangs over the implementation of its approach. On any individual basis the i-Buyer experience seems harmless. But, if you look at it from the national collective perspective, the damage is kind of scary.
The i-Buyer business model is designed to take advantage of those who, for any number of reasons, have to yet build up equity in their homes. These companies are betting those with little equity won’t be as financially vigilante as they could be. For some, their home has unfortunately become a boat anchor and all they want is out. Convenience, at the expense of equity, will rule the day. Again, individually, no big deal. But.
Karl Marx called it; “the separation of the masses”. Today’s politicians call it; “income inequality”. Same thing, 150 years apart. But, Marx was simply noting that unchecked capitalism with its baked-in, “I win, you lose” attitude, will inevitably lead to a separation of the culture. Today’s politicians think the “inequality” is something they can fix. Well, good luck with that. And, the i-Buyer market is a perfect example of just how daunting that task will be.
A successful i-Buyer transaction transfers small amounts of consumer equity from the home owner to a third-party convenience company. More convenience, less home owner equity. Now, compound this practice over time and with millions of transactions and the data will clearly show an erosion in consumer equity. It’s math. Rooting for the i-Buyers success means you are also rooting for the erosion of homeowner equity. As Marx noted long ago, capitalism will eventually eat itself.
For generations, “equity” was the bedrock from which we grew our lives and secured our futures. Home ownership was the American dream and “sweat equity” was the way to get there. But things change. If consumer equity is X today, it will be X-less as i-Buyer successes add up. And, they will add up. Remember, i-Buyers are well-funded sales professionals calling on individuals with little equity. Doesn’t take a genius to see that deck isn’t stacked right.
Limited to those who really find themselves in a jam, the i-Buyer option can be a godsend. But for folks on the margins, they’re sitting ducks. For their own good, sellers will always be better off being engaged in their transactions. And yeah, it’s a hassle. But losing equity over convenience has long term consequences not easily identified at the time.
In the olden days of the 90s, home ownership was still a source of pride for its owners. In the near future, as we become even more mobile and more transitory, will home ownership become nothing more than a utility? Something to rent or use. If so, we are going to need to come up with new methods for consumers to build their financial equity. If not the home, then what?
The i-Buyer market is designed to succeed at the expense of consumer equity. The business model is sound. It will be successful. But, it’s the kind of success that’s isn’t universally celebrated.