In the real estate market, IBuyers are all the rage.
They are gaining in popularity as home sellers push to reduce the “pain points” associated with moving. However, the number of cash-sale real estate transactions is falling. So if IBuyers are so popular then, why are the cash-sales transactions falling? This may be due to either local investors being outbid by IBuyers or local investors are using financing.
I predict that “pain point” reduction will continue to flow through the real estate industry. And, cash and other perks to the seller of real estate clearly reduces pain. It’s just that markets always fluctuate. Right now, we’re experiencing equity growth and the need for quick cash is not as dire as when markets crash. And, we are experiencing reductions in foreign cash buyers due to some (likely temporary) global issues.
IBuyers or not, local investors continue to purchase properties with cash.
The disruption that is being experienced is enabled by algorithms that have improved real estate evaluation services. Automated valuation models, or AVMs, use regression analysis to estimate the market value of a property accurately by looking at similar properties that recently sold in the market. You can leverage machine learning software to analyze vital information, such as changes in the local neighborhood, schools, public transportation, and other factors, to assess property values. This enables you to dig deeper beyond the previous sale price to provide a more precise property value. AI software can also streamline the negotiation process by predicting where a price compromise is likely to happen.[1]The real estate appraisers are experiencing this disruption firsthand as lending institutions cut back on their appraisal requirements. Certain commercial institutions rely on automated services rather than appraisals for transactions under $1,000,000.00.
Many local real estate investors are experiencing lower profit margins as the field gets crowded with national ibuyers like Offerpad, Opendoor and the like. The number of investors increased as technology for evaluations have improved, allowing large investors to participate in the local marketplaces where once only the locals understood the values. Now, some smaller local investors fall prey to the increased competition.
So, though there are fewer cash closings occurring today, I would be surprised if this market segment drops much lower than the 16% reported in June. Investor purchasers will remain an important part of the real estate market. The trend towards using technology to reduce pain will continue across all Markets. You’ll also see more traditional real estate companies readjusting their business models, acknowledging the reality of today’s disrupted real estate markets, and offering more perks to sellers.
Interestingly, Realogy who owns Coldwell Banker® and Century 21®, has announced that they will soon have an IBuyer program.
Would you use an IBuyer?
[1]Realtor Magazine, August 02,2019, “4 Ways AI Can Make Your Business More Efficient” Adrian Fisher.
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