Instant-offer companies were growing their market share until COVID-19 hit. Can their promise of a fast—and contactless—transaction strike a new chord with consumers as the public health crisis evolves?
Home packed up and person turning over keys

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Key takeaways:

  • iBuyers are companies that make instant cash offers online to sellers who want a quick sale.
  • iBuyers, like real estate brokerages, are looking to diversify their offerings by adding title insurance, escrow, and mortgage services.
  • Data shows consumers continue to favor the human interaction of working with an agent.

As the COVID-19 outbreak began in the U.S. this spring, well-funded, Wall Street–backed iBuyers paused their instant cash offers to homeowners in a suddenly uncertain housing market. During the second quarter, iBuying giants such as Opendoor, Zillow Offers, and OfferPad purchased the fewest homes in more than three years—essentially since iBuying became mainstream.

iBuyers mostly resumed purchases, albeit at a much slower pace, as state coronavirus lockdown orders lifted this summer. Will their promise of contactless closings amid social distancing protocols cause further disruption in the real estate industry, or are sellers favoring public listings to capture more equity in a now-booming housing market?

iBuyers make instant cash offers to sellers who wish to bypass the traditional MLS marketing route, often for assurance and a quicker sale. However, homeowners tend to pay higher fees for the convenience. Buyers, too, may be drawn to iBuyer-owned homes that tout self-guided touring options and promises of vacant, sanitized homes.

But while a hands-free transaction may be appealing, iBuyers face several challenges in growing their market share back to the 0.5% of sales nationally they commanded pre-pandemic. The field of iBuyers, which don’t rely on repeat customers to fuel growth, has become overcrowded, so there’s low differentiation among offerings in consumers’ eyes, Mike DelPrete, a real estate technology strategist who studies iBuying in the industry, said during a recent webinar.

“You now have portals, aggregators, brokerages, and individual real estate brokers that have gotten into the space with their own iBuying programs,” DelPrete said. “There’s a lot of competition. But at the end of the day, customers taking an instant sale just care about the actual number and what their home is worth after all fees are taken out. It’s all about the number.”

As more real estate brokerages get into the instant-offer game, iBuying firms are trying to vary their offerings to better compete and differentiate themselves.

How iBuyers Are Trying to Grow

Opendoor essentially began the iBuying movement in 2014, seeking to change the way real estate is transacted. Since then, iBuyer firms have multiplied nationwide. Looking to broaden its reach from 21 to 100 markets, Opendoor recently announced an IPO through a merger with Social Capital Hedosophia Holdings Corp. II. Opendoor generated $4.7 billion in revenue last year on 18,000 home sales across its 21 markets. However, Opendoor, like other iBuying firms, has struggled with profitability. In the first quarter, Opendoor reported net losses of about $20,000 per home, DelPrete’s data shows. iBuying companies appear willing to lose money as they vie for market share, DelPrete says.

To try to ramp up profits, they’re taking a cue from some traditional real estate brokerages by adding in-house ancillary services, such as title insurance, escrow, and mortgage services. They’re also trying to unlock savings by targeting their single biggest expense: commission payments to buyer’s agents when selling the properties they own. More iBuyers are hiring real estate agents to offer new brokerage services.

Starting in January, Zillow plans to have salaried agents work with sellers who seek cash offers through Zillow Offers. Opendoor started bringing real estate professionals onto its team in Phoenix this summer to support its “Home Reserve” iBuying platform, where it will list sellers’ homes and purchase their next home with an all-cash offer. Also, Offerpad, another iBuying giant, is bringing licensed agents onto its team. Its newly launched Real Estate Solutions Center allows sellers to have an option of accepting an instant cash offer or listing a home publicly with one of its affiliated listing agents. That brings it more in line with brokerage iBuyer offerings, such as Keller Williams’ Keller Offers and Realogy’s RealSure, in which licensed agents guide sellers through options of instant offers or a public listing on the MLS.

Who Will Own the Space?

At the same time that iBuyers’ purchases are down—Opendoor, for example, bought 50% fewer homes year over year in July, according to DelPrete’s data—selling on the MLS is increasingly attractive. Publicly listed homes are spending less time on the market, selling in a median 22 days in August, and fielding competitive offers in bidding wars, according to National Association of REALTORS® data. Homeowners may be more enticed to capture as much equity as possible by listing publicly than selling to a firm via an instant offer. “You could make the claim that the consumer proposition of iBuying is lower than what it was six months ago,” DelPrete says.

Keller Offers, Keller Williams’ iBuying arm, uses agents to present instant offers and has seen demand pick up recently. “Many people have a curiosity over the cash offer, but that doesn’t mean they will take it,” says Gayln Ziegler, COO of Keller Offers. “In fact, we’ve learned that most won’t take it. They want to capture as much equity as they can, especially right now.” But for some sellers who need the assurance of a quick sale or are concerned about home tours in a pandemic, iBuying may be an option. Keller Williams agents can present multiple cash offers to clients from multiple entities through Keller Offers and also discuss the pros and cons of an instant offer versus a public listing.

“Brokerages are becoming bigger contenders in this space,” Ziegler says. “Agents are starting to own this trend and not allowing it to overtake their role. We’ve found their role is even more vital in an iBuying situation. Agents serve as a trusted adviser and can help identify and solve their clients’ needs while making sure their client is represented with whichever route they choose.”

Even before the pandemic, when iBuyers were beginning to amass some market share, the clear majority of consumers chose to work with an agent in a traditional transaction. And they will now, DelPrete says. “The data and evidence suggest single-digit market share for iBuyers going forward. It’s going to get harder for iBuyers when there’s less incentive to sell to them. There are lots of limits to their market share. There’s also the psychology of selling your biggest asset to a company, [as] opposed to using an agent who can guide you through the process. Companies that just outsource with all tech tend to fail. There needs to be a blend of technology and people. You can’t streamline all of real estate.”