The latest buzz in the Real Estate world is the concept of the iBuyer. Basically, it’s the idea that when a consumer is thinking about selling their home, they can simply go online and sell it with minimal hassle and fuss.
Just click a version of the “Buy My House” button, provide some personal information, and you just sold your home. Companies like Knock, Offerpad and Zillow are jumping in the game. Zillow will even bring in contractors to make repairs and essentially flip your home for a profit…their profit. In fact, a recent investigation by BuzzFeed News found that nearly half of Zillow’s profits come from the company itself buying and selling homes. It’s moving away from being strictly a technology company into a kind of hybrid tech firm slash real estate wholesaler.
Up next on the horizon will be the promise of doing the same thing on the buying side. If you’re a millennial, and you’ve spent your entire life doing just about everything online, why not buy a house virtually? What could possibly go wrong?
Plenty, if you ask most traditional Realtors. So what are the risks and what are the rewards of being an iBuyer? Is this the next Zune or the next iPod? With all innovation and tech disruptions, there are going to be winners and losers. What about for the consumer? How do the chips fall right now for iBuyers?
For starters, there is a small percentage of sellers where this is a perfect option. For people that have been transferred out of state or families dealing with the death of a parent, having the option to quickly sell a house can be a dream come true. As long asking price is not the most important factor.
Marketwatch did a study on closed deals and found “transactions involving iBuyers show that their offers would net their customers, on average, 11% less than owners who choose to sell their homes on the open market, when fees and other costs are considered, translating to tens of thousands of dollars lost.”
Ouch. But to be fair to the iBuying firms, for some people, not having to bring their house to market is worth the 11% loss. Consider it a convince fee. Sellers don’t have to do much beyond make arrangements to get their possessions out and sign the paperwork. Or so it would appear. And therein lies the rub.
If you’ve ever bought or sold a piece of real estate, you remember that giant stack of papers that needed to be signed. Each one was most likely prepared by lawyers trying to build in protections and contingencies for the parties to the transaction. Is that really something you can automate through a web portal?
Many industries buried their head in the sand when disruptive technology was emerging. Newspapers, record labels, and bookstores notwithstanding, are Realtors up next on the endangered species list?
After extensive research, my definitive answer is “maybe… it depends.” That settles it, right? “Good night everybody, don’t forget to tip your waitress!”
Let me explain. While it’s clear that technology has already dramatically changed the entire home buying experience from the initial research phase all the way to digital signing of documents, is buying a home something that you can remove human beings from entirely? Amazon removed the human from buying books and Craigslist did with the classified ad. In a few years, will we just log on, find a house, and buy it without ever having to deal with a person IRL?
The most obvious thing I keep thinking is that spending hundreds of thousands of dollars on a home is much different than buying a CD, newspaper, or book. With the average cost of a house on the Eastside rapidly approaching a million dollars, the vast majority of consumers still want an expert to guide them through the process. People are justifiably nervous when they start writing checks in the seven figures.
But more importantly, can an automated system anticipate possible problems better than a human? What happens when something goes wrong? How does the algorithm quantify the way a house smells or the fact that a neighbor has three broken down cars in the front yard? Who is going to supervise letting people into a stranger’s house? How will the website meet the inspector or appraiser at the property? There are so many questions to answer at this stage of the game.
Unlike retail transactions where you simply take an item to the checkout stand and can return it if there’s an issue, that option doesn’t exist in real estate. The stakes are much, much higher. And when something goes sideways, you can find yourself being deposed for a lawsuit.
Talk to any seasoned Broker and they will tell you that there is no such thing as a “standard transaction.” Every single one is bespoke. You need knowledge and experience to know when to include various contingencies or when to waive them. Brokers would tell you that their feel for a neighborhood beats the raw data of an algorithm any day. Agents would argue that there are literally hundreds of details that need to be attended to, and many of them are beyond the scope of an algorithm.
In my opinion, with the current technology as it is, I think that iBuyers will represent a very small fraction of all real estate transactions. Of course there will be people where iBuying will be a great fit, but for most sellers and buyers, this is just too complicated of a transaction to do it with the click of a button. Buying or selling a home has so much emotion wrapped up in it. Emotions have been exceptionally tricky to distill into a computer.
It’s possible that I’m completely wrong and that in a few years we’ll have our driverless flying cars picking us up from our house we bought on our iPhone, but I think we’re still a ways away from that Jetson’s reality.
You can reach out to Ron with your real estate questions at firstname.lastname@example.org