Over the next two blogs we will be highlighting the emerging i-Buyer marketplace. Our intention is to point out how this new market represents both good and bad news for the real estate industry.
Over the last year, consumers have been bombarded by a tsunami of advertising from companies with interchangeable sounding names, (Opendoor, Offerpad, Knock, Ribbon, UpNest, etc) all selling the future of real estate. These are the, “we buy houses”-type operations all cleaned up and groomed with venture capital.
Search; “real estate i-buyer”. You’ll find hundreds of “news-like” articles from the industry’s vendor community. Interestingly, they all stress a, “convenience experience” in selling a home over a more traditional, old school, cost savings approach. This is done because selling to an i-buyer has nothing to do with getting the best price.
Confused? Many of the bias-written articles online won’t help much. It’s almost as if they were written with the intent to deceive. Sort of like some written form of 3-card monte.
Perhaps an easier way to think of the i-buyer market is to remember the Brad Pitt movie, “Money Ball”. This lightweight baseball movie introduced the world to what baseball nerds knew for years: Sabermetrics*. Sabermetrics is defined as:
“The application of statistical analysis to baseball records, especially in order to evaluate and compare the performance of individual players”
Massive amounts of data can now tell us the probabilities of a batter’s average against left-handed pitchers after the 7th inning in day games. And yes, it gets that weird.
But, change two words within definition: baseball and players to housing and property.
“The application of statistical analysis to housing records, especially in order to evaluate and compare the performance of individual properties”
Same damn thing!
Nerds with spreadsheets, can now with a measure of certainty, predict the value of most any home. They can chart neighborhoods and communities, and through the wizardry of data manipulation, can identify the potential of individual properties in much the same fashion as Coach does with a new recruit.
So Who Are i-Buyers?
Well-funded, faceless companies using data analytics to make volume buying and selling decisions. Data analysts interpreting their spreadsheets will determine how much, if any, seller equity can be retained in each home. So the question isn’t so much; “who are they”, but rather “what are they” in terms of a technology approach. It’s man versus the machine for the bottom rung of the real estate industry.
What is the i-Buyer Strategy?
Buy low, sell high—duh. But, how they get there is interesting. They are on betting on the consumer being lazy and or disinterested. They create a narrative that equates selling a home to one of life’s biggest hassles. And sure, it can be. But, the i-buyer narrative takes it to comical levels.
Their challenge is to find the “pain point” of every seller. By openly offering low ball offers, they are trying to determine the point where a seller says; “for that, I will do it myself”. So, ask yourself, how much money would you walk away from for the sake of convenience? $5K, $9K, $15K?
People aren’t idiots. As a result, offers from i-buyers are NOT ridiculously low. Call them in the ballpark. Just know, they are specifically tailored to take equity out of each homeowner’s pocket.
Who Sells to an i-buyer?
Sellers with little or no equity in their property. When someone buys a house with little or nothing down and stays only a few years, they virtually have no skin the game. The house is not an asset at that point, it’s a function. For these types of sellers, and there are millions of them, using an i-buyer makes perfect sense. To sellers with little or no equity, using a traditional agent is literally a waste of their time. Sure, agents will make some money, but the seller gets nothing! So why bother?
Moving forward, i-Buyer homes will define the lower end of the market. As originally written in our blog; “The Buying and Selling of Blah”, i-Buyer homes tend to be more practical in design making them an ideal choice as starter homes. Remember i-Buyers are smart as well; so don’t look for them to buy crap. The cleaned up i-Buyer market will, for the most part, represent very nice suburban homes. The American Dream for many.
The only losers in the i-Buyer movement are traditional sales agents. A prospective segment of the market, open to them previously, has now been ceded to the venture-backed spreadsheet i-Buyers. As everyone says; when one door opens, another door watches it go by.
Society for American Baseball Research (Sabr)