The innovative practice of iBuying, at least on the surface, seems like a tremendous shift—a new, growing force with the potential to rock the real estate industry in myriad ways. Pundits, observers and brokers have regularly shared predictions as to how much iBuyers could change the industry or disrupt markets, and analysts have scrambled to interpret data as they seek to predict the future of the industry.
Perhaps, though—at least in the short-term—iBuying is not yet ready to upend traditional real estate. Industry insiders reacted with shock as Zillow announced early this week they would put a temporary pause on its iBuying arm, Zillow Offers, at least through the end of the year. Many saw this as evidence that iBuying is a fad and has already reached (or surpassed) its potential with current technology and market conditions.
That might be an overreaction though. Even before the Zillow news dropped, many saw both the hype and criticism of iBuying as excessive.
“iBuyers thrive when houses need to be fixed up and a seller that just wants to get out,” says Creig Northrop, broker/owner of Northrop Realty in Maryland. “‘As is’ is a sexy word to a lot of sellers.”
Lennox Scott, owner John L. Scott Realty in the Pacific Northwest (which offers an iBuying service), says he has approached iBuying as just another real estate service that will fluctuate in its scale and usefulness but remain integral to the industry going forward.
“For sellers, this is something good, because it just brings one more purchaser into the market for their home,” Scott says. “There’s been a lot of investment [in iBuying], but as an industry, we’ve been moving toward these concepts.”
Zillow representatives declined to comment further on the pause—which the company has emphasized is temporary and a result of supply chain constraints.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” said Jeremy Wacksman, Zillow’s chief operating officer.
In a conversation with RISMedia last week before the pause, Zillow Economist Jeff Tucker offered an analysis of iBuying that was broadly, if cautiously, optimistic about both the long- and short-term prospects of the industry.
“It’s still a segment that a lot of people haven’t even heard of, which suggests that there’s a lot of potential new customers out there, and there’s certainly evidence as well of more companies trying to participate in iBuying,” he says. “We’re continuing to see growth from the major incumbent players in the segment. All of that suggests that in the near- to medium-term we expect it to keep growing.”
Not everyone believes that the outlook for iBuyers is such a sure thing. HomeSmart Founder & CEO Matt Widdows told RISMedia that he was not convinced the model had long-term staying power.
“I think the jury is still out on the viability of the iBuyer model, especially if we see a major shift in the market,” he says.
Though Tucker cautions that nothing is certain and makes it clear he is speaking about the whole industry and not just of Zillow—which itself is relatively new on the iBuying scene—the fact that such a large company had to so suddenly pull back its operations certainly could suggest more foundational issues with iBuying. The number of homes sold to iBuyers doubled from Q1 to Q2 of 2021, and many expected that kind of growth to continue.
Other iBuyers, including Offerpad, Redfin and Opendoor have shown no sign they will follow Zillow with a similar pause, which also could be indicative that the problem is specific to Zillow rather than a broader issue with the iBuyer model. Opendoor purchased more than twice as many homes as Zillow in Q2, according to data compiled by the Wall Street Journal, though Zillow still made up about 25% of iBuyer purchases that quarter.
Rather than focus on these short-term metrics—after all, iBuyers still make up only around 1% of the housing market—brokers say they are looking at the more fundamental limitations of the model, which should temper expectations (or concerns) going forward.
“The iBuyer breaking into a 20% market share—which I think is the highest peak they could possibly grab—will have an influence on others, but the best thing about real estate is diversification,” says Northrop. “It’s what different people offer. It’s ‘I want to sell my house for the most money and who can give me that?’”
There are certain markets where the iBuyer model simply will not take hold, Northrop says, due to consumer needs as well as technological limitations in valuing homes. Traditional brokers will also move to compete with the value that iBuyers offer through technology, simplicity and speed, further limiting their appeal.
Scott, who competes with iBuyers in many of his markets, says he has already focused on being “progressive” in speeding up his service and integrating automatic valuation technology while still offering the increased value that comes with a traditional brokerage—a higher selling price, more personal touch and a local reputation.
“If the intensity of the market shifts down the road, will people sell to an iBuyer? There’s a potential for that,” Scott says. “But we’ll counsel with our clients on which is the best way to go and what do they want to accomplish. It’s about the possibilities in their lives.”
Tucker says it is far too early from an economic perspective to extrapolate the rapid growth of iBuying this past year into the future and make any solid predictions about what 2022 will look like. Seasonal trends and unprecedented economic conditions around the pandemic could explain these huge leaps in iBuyer participation as much as anything else.
But he adds that many of the opportunities iBuying can create are stable and predictable, and leave plenty of room for the model to grow and establish itself as more than a fad or a niche practice in the long term. Helping consumers time a home sale and home purchase on tight deadlines, or increasing liquidity in slow markets will always be things iBuyers will be counted on to do, he argues.
“I think those conditions will be present in pretty much any market circumstances, and for that reason…there is a role to play,” he says.
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com.
