What is an “iBuyer”?

iBuyers are companies like Opendoor and OfferPad which use pricing algorithms and other technology to make quick offers on homes, close in days, and then resell them. 

These are not traditional home flippers seeking properties in disrepair to purchase at a steep discount. (Remember the yellow “We Buy Ugly Houses” signs?) 

These are Wall Street-backed companies which have raised millions of dollars and are experiencing initial success with home sellers in their current markets.

iBuyer companies including Opendoor, Offerpad, Knock and Zillow’s Instant Offer are making cash offers on thousands of homes without a showing appointment often within minutes of a seller inputting their home’s information.

When a seller accepts an iBuyer’s offer escrow is able to close within days. The process of selling a home online to an iBuyer offers convenience, avoids the stress of back and forth negotiations, eliminates financing and appraisal contingencies and offers a speedy closing. So why isn’t everyone selling home online?

Selling a home to an algorithm is gaining traction among sellers. Zillow’s Instant Offer program has been successful in Phoenix and Las Vegas, where they expect to close 1,000 homes this year, and Redfin Now is available in test markets in California.

iBuying has quickly become a relatively sophisticated process that takes advantage of a number of newly minted technologies. These technologies, however, are not the sole basis of its newfound success. The essence of iBuying is the process and philosophy through which iBuyers arrive at their offer price. The original iBuyer players essentially identified homes that didn’t sell on the open market owned by individuals who identified themselves as “motivated buyers” as distressed properties. The resulting transaction was treated on that basis.

In sharp contrast, the current iBuyer uses sophisticated technologies to determine the actual market value of the property and generates an offer based upon market value rather than distressed value. This simple shift of philosophy changes the whole game.

Keller Williams is the latest brokerage to jump into the iBuyers game.