iBuyer Companies Head for the Exits

iBuyer companies are heading for the exits. In major shakeups across the industry, Redfin, Zillow, RealSure have exited iBuying leaving Offerpad and Opendoor as the major remaining players. Offerpad is in violation of NYSE rules that require listed stocks to be valued at over $1 each. Offerpad has suffered blows to its stock price coming off a high of $6.17 in 2022 to $0.60 as of this writing.

iBuyers are companies that swoop in and work to convince sellers to not do anything to sell their home (fixes, open houses, letting buyers look at it) and take the price being offered by them prior to listing with a brokerage. Factored into the offered price are the commission costs to relist the property, fixes to the property, carrying costs, and – of course – profit. In a traditional sale via a real estate agent/brokerage, sellers traditionally pay the first two costs, but are saved from paying the last two costs. Still, for those who must get out of town immediately, iBuyer companies have proved useful.

Beyond the additional cost downside, the home never reaches the open market, which is the best way to maximize the sales price. They never really ever know how much their home was worth when they sold it as they did not have any of the potentially emotionally connected home buyers look at it.  As you may suspect, the iBuyers generally resell the home using the traditional real estate brokerage to maximize their profit.

There is a second type of iBuying company – the ugly houses type brands. Quite usually they buy ugly or nice homes – it really makes no difference to them. Their profit derives from two different sources. To obtain the first source they convince the seller their home is not worth as much as the market might indicate, and that the repairs to it are extensive and the seller has neither the time nor the money to complete them. If these iBuyers can get the price low enough, they complete the sale, fix, and flip the property.

The second profit system comes into play if they can’t get the price low enough.  In this system the sales contract, which they insist is theirs and not a standard CAR contract, is assignable. The companies work to get the price low enough so that they can reassign the contract to an existing investor they are connected with for a few tens of thousands over the price they are paying the seller. The investor completes the sale with the net funds going to the seller and the a few tens of thousands going to the iBuyer company. The investor then does the work and flips the home. Although it sounds sketchy, it’s pretty good work to make $10k - $50k on a home you’ve only visited perhaps once and already have a flipper for.

Most of what sellers need to know is that iBuyer companies do not resell the properties through other iBuyer companies as they know it's a bit of a scam.  As well, sellers have plenty of fix options now - most brokerages and some private companies will do all the fixes necessary and get paid at closing further reducing the benefits of the iBuyer companies  

In my experience, due to the large amount of money moving around in a home sale, there are ALWAYS folks looking around for free money in a home sale transaction. Two words of advice: there isn’t.

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