iBuyer Real Estate Blog

What is an iBuyer? [Podcast Episode 1]


what is an ibuyer

Podcast Transcript

Hello and welcome to the iBuyer podcast. I’m going to be your host, I’m Shamus Samerdyke and I’m one of the co-founders here at iBuyer.com.

We are bringing this podcast to you guys to make sure that everyone is on the same page about what’s going on in the iBuyer marketplace right now. What’s this huge disintermediation of real estate and what exactly is an iBuyer, who are the players, what are they doing, what markets are they going to.

So this is our first episode, we’re really super excited and we’re hoping to bring you guys tons more and make sure that it’s a really valuable content and that everybody has an idea of exactly what what’s going on the iBuyer world. So let’s get started.

The first question of course is, what the heck is an iBuyer exactly, right? So by definition, it says that an iBuyer is a company that will buy your home with an instant offer in minutes up to days using a proprietary Asset Valuation Model or AVM.

Basically what that means is it’s a company that’s going to come in totally sight unseen using algorithms in their own, in proprietary technology to make you an offer on your house and then close on it within a matter of days, buy it from you.

Okay?

Now what they do is they didn’t do a little bit of sprucing up if need be and they turn around, they put it right back on the market and sell it for a small profit.

Now some of the larger players in the market right now are of course:

Opendoor

Which was the first major iBuyer to come on the scene and since they started in 2014, they’ve raised over a billion dollars, they’re in multiple cities around the country and are slowly expanding to become a nationwide service, right!

The next one is Offerpad

Who very similar business model to buy your house in a very short amount of time using their asset valuation model and give you an instant offer. Haven’t raised nearly as much money but are also expanding very rapidly and are in multiple markets around the country right now.

Next is Redfin

Now we all know Redfin as a sort of competitor of Zillow, you can go on and find listings and homes for sale. Well, they’ve also started an iBuyer arm of their business as well.

It’s a little bit different, it kind of goes more towards an agent centric model but we’ll dive into each of these guys deeper and deeper in later episodes. Of course you can’t forget about the big hairy gorilla that is zillow.com.

Zillow has also started a branch of their company that is an iBuyer model and it’s called Zillow offers and again we’re going to dive into it more later but they’re going to be very interesting to watch over the next couple of years and they’ve got such huge market awareness. I’m really fascinated to see what they’re going to do.

The last one as far as like top five major players is going to be:

Knock.com

Now Knock is a little bit different, instead of buying your home directly from you, what they are doing is a trade-in model similar to like trading your car in or at a dealership. So you bring your house to them and instead of them buying it from you, they actually buy your next house that you want to move into.

So their model really is relying on people wanting to sell their house and move to a new house. So they’ll buy your new house for you, they’ll work out a deal, it’s sort of like a lease back while they take over your old house and go ahead and do whatever it needs to be done in order to get that sold on the market for you and your guys, set up AVM.

It’s very interesting and again we’ll dive into those guys in another episode but when you’re talking about all these larger players, it’s important that we don’t forget that this isn’t a totally brand new model. Okay?

Most people are just hearing about it now and it’s got a name, it’s being called iBuyers, right? So they have this name attached to these guys but the model has been around for a long time you know, in almost every market around the country.

If you’ve driven around, you’ve seen from time to time those signs that say, we buy houses or we will buy your house, we pay house or we pay cash for houses, we buy ugly houses etc. Those companies have almost the exact same model, you know those are house flippers right? You might have seen on HGTV.

It’s very similar concept, they offer you, you know, instant offers, they offer all cash closings, they can close quickly, very similar model. So one thing we want to make sure that we highlighted in our show is if we’re going to be all things iBuyer, we want to let you guys know and keep you updated on your local iBuyers too.

We want to make sure that they’re a part of the conversation moving forward

Now let’s see, a big question about these iBuyers is what exactly does that mean for the housing market in general? So a couple of things to keep in mind when we’re trying to tackle this question because it’s a big question, we don’t really know yet it’s so early in the process, it’s such infant stages that it’s hard to know exactly how it’s going to affect the housing market.

We know it’s going to be a huge factor but exactly how, we’re still sort of waiting to see how things shake out but we’ll be the source so we will let you know.

But a couple things to keep in mind is first off according to multiple polls and data, we’re sitting about three million houses short to fill the housing need in the U.S. right now which means that there’s an inefficiency in the market and in any major industry where there’s been in inefficiencies, they’ve come in and they’ve done some sort of disintermediation.

And what is disintermediation? Disintermediation is basically removing the middleman. So when there’s an inefficiency in an industry or a marketplace, it’s typically due to some sort of a bottleneck in the middle of a transaction.

Take like manufacturing for example, cost of goods was more and more expensive because the manufacturers had to sell to a wholesaler who then sold to a retailer who then sold it to you. Now you’ve got companies like Alibaba and Amazon where you can go directly to the manufacturer and buy whatever you’re looking for at a fraction of the cost before and it has created a more efficient market.

Same thing is happening in real estate and it’s been happening over the last few decades. If you think about, you know, 30 years ago, if you wanted to buy a home and you wanted to know what was for sale in an area, you could drive around and try and find all the for sale signs or you can go and talk to a local real estate agent and at the time they had this big three-ring binder massive book where they would open it up and each couple of pages, there was a different listings.

These were all the homes that were available for sale so you had to go and see a realtor in order to get access to that information. Then along comes the MLS.

The MLS, the Multiple Listing Service was the first service that Realtors had to interact with other Realtors in the market and be able to take their listings and put them online.

This allowed for more efficiencies in the marketplace, letting Realtors speak to other Realtors and see what other listings are going on on the fly, putting it on the internet, huge move, and boom!

Few years later, along comes Zillow and Zillow the biggest disintermediation that’s happened thus far, what they took that and they opened it up to everyone.

They took the MLS, the Multiple Listing Service and they gave it to everyone, they gave it to you and me and they said hey look now at your leisure you can come on and you can see what’s for sale, you can see the homes in your market, you can go ahead and list home for sale yourself if you’d like to and they allowed everyone to come in and have access to something they didn’t before.

Now with the iBuyer marketplace, the iBuyer industry as a whole, what they’re doing is they’re adding another layer of efficiency. So again it’s one of those things where it’s not going to be perfect for everybody but what they’re doing is they’re removing all of the friction out of a standard real estate transaction and they’re doing that by giving you an instant offer, by being willing to close in a short amount of time and being able to handle all of the tediousness that comes along with a real estate transaction.

You know, if you sell to an eye buyer, they’re going to buy your home as is which means you don’t have to leave your home on the weekends for showings, you don’t have to deal with appraisals or people coming in for inspections, you don’t have to fix that leaky faucet.

You can literally pack your things up and be out the next day. So again they’re adding efficiencies to the market and that’s what all of this is about, it’s adding efficiencies.

Now we’ve also, again keep in mind the car trading analogy from earlier. It’s the same kind of concept where you’re able to go in and take your existing car, go in, you trade it in with a dealer and you walk out with a new car.

Same sort of concept just with homes if you can sort of grasp what I’m saying there. Now big question of course is what does this mean for real estate professionals and this is something we’re going to dive in really deep into in another episode as well.

But just sort of a brief overview is that it’s going to revolutionize and change how Realtors do business, which there’s nothing we can do about that.

And what that means at least from our point of view is we think we’re going to see a decline in the sheer number of realtors that are out there but it’s going to be initially sort of your weekend warrior part-time Realtors, your brothers, cousins, nephews, aunt, who got his real estate license and kind of does it on the weekend might do one or two transactions a year. I think they’re going to, we think they’re going to be the first to go.

Now, but what that means is that for the real estate professionals out there who do this 247, this is their livelihood and they’re very savvy, very good at what they do, is we hope that they see this as an opportunity more than anything, not as a threat but an opportunity for a couple of reasons; one, you’re able as, juts take a listing agent.

So as a listing agent, your whole job is to sell somebody’s property for them and get as much money as possible as quickly as possible. Well, now from day one, you can bring them a guaranteed offer. So you can go to your seller and say hey, you know if we go ahead and submit this to Opendoor, we know we have an offer of X and we can hold on to that offer and then put it on the open market, let me list it for you, let me do the marketing for you and let me see how much more than that I can get for you.

Give them a chance to prove your superiority if that fits the situation or say they need to move quickly or let’s say maybe they need to move quickly. They are in a situation, they just got a transfer that their job or maybe they’re in the military and they got a new posting, anything like that, you know God forbid there’s a divorce, who knows?

But say they’re in a situation where they need to sell quickly, all right, but get as much money as they can as quickly, I mean even quicker than they would normally by putting it on an open market.

Well now you can come to them again on day one and say hey you’ve got to go in two weeks, we can have your home sold by then guaranteed and again you’re their resource to do that because at the end of the day, when especially when you’re dealing with something like your home which is often the largest transaction somebody makes in their entire life.

Most people are still going to want to know that they have somebody on their side in the transaction, somebody who’s looking out for only their best interest and that’s going to be you Realtors, that’s going to be the agents out there who are savvy enough to again see this as an opportunity and really give you guys a chance to be true advocates for your seller, to have their best interest in mind.

This is just another tool in your tool belt is to be able to go to these iBuyers and say hey, we want to use your services or paid, that’s bring me an offer for my seller so that they have a little bit of peace of mind. So for the savvy Realtors out there, keep in mind this is another tool for you to use in your tool belt and could really drastically change your business and help you make even more money.

Next oh sorry, I almost forgot tip of the week for realtors is submit your sellers property to an iBuyer first because remember you’ll always have that guaranteed offer.

Now what does this mean for the average consumer is next, right?

What this means is a lack of friction for the average consumer and that falls into a lot of different categories. The first and biggest is ease of access to information. It’s now much easier for you to get more and more information and what that also means is that with these iBuyers is you’re going to be able to contact them directly and know what your house is worth to them from day one.

So again ease of information, that’s number one. Number two is the ease of the transaction itself. It takes this long drawn-out traditional real estate transaction which can take months or you know even years in some cases and compiles it all down into just a few days because it gets rid of like we said before the appraisals and the inspections and having to fix the leaky faucet etc. and you go straight to the source, so you have a much easier transaction.

Next, another big piece of this to keep in mind too is that there’s no free lunch. So you’re paying for this convenience and though it might sound great and oh it’s going to be easy and we don’t have to deal with all of these different things, you are trading something for that ease and that’s equity.

So let’s go back to the car example, trading your car. When you go to a dealer with your car, you’re not going to get full market value for your trading most times.

Some people will but most of the time you’re going to take a little bit of a hit on the equity because they’re going to resell it try and make a little money and instead they’re going to, you’re going to take a little hit on the equity and they’re going to make sure that they put you in a new car that day that you can drive out with for as close to your current payment as possible.

Well the concept is very similar with the iBuyers. You’re losing out on equity in your home and in exchange for this ease of transaction and hopefully trying to get into a new home for a very similar payment. Concept is the same, so it’s going from an equity economy to a payment economy.

So that seems to be where things are going these days, people are more concerned about their monthly payment than they are about you know how much potential equity they might have and whatever it is.

I mean most people aren’t paying off 30-year mortgages anymore, it’s just a fact. You know the records show that most people are moving in every four to seven years. So how much equity can you really acquire in that four to seven years if you’re doing a traditional you know FHA mortgage for example, you’re only putting three and a half percent down upfront.

If you’re doing a twenty percent conventional, you know maybe you’ve got more equity and whatnot in there in that first seven years but all those loans are interest front-loaded, so you’re mostly paying interest for the first few years anyway.

But I digress, so with that so let’s recap therefore what does this mean for the consumer? Ease of access to information, ease of transaction, removing the friction out of the real estate transaction and then, there; there’s no free lunch because you are trading equity, you’re giving up some of what you have invested into that house in order for the ease of the transaction.

And then our tip of the week for the consumer is go to a ibuyer.com because there you’re going to be able to get all your questions answered without having to go through the process of submitting a home to an iBuyer.

You can find out who’s in your market, you can find out approximately what they’re paying with our valuation tool. It’ll give you an estimated price range for each iBuyer on what they’re paying for homes just like yours.

So you can get all of this information totally for free and really arm yourself with knowledge without before ever having to go and actually talk to these iBuyers.

So tip of the week:

Go to iBuyer.com and find out what iBuyer would pay for your house today

Ladies and gentlemen, that does it for the first episode, the iBuyer podcast and again I just want to reiterate that we’re here as an informational resource to you guys.

If you want to know what’s going on in the iBuyer marketplace, who the players are, what they’re doing, how this affects you, how this affects agents, how this affects the industry as a whole, we’re going to be the best and most up-to-date source of information.

You can find out more information on us by going to ibuyer.com, checking out ratings and reviews, get your valuation of your home for what the typical iBuyer would pay for it and also see not only what larger institutional iBuyers are in your marketplace but find out who the local mom and pop investors are, find out who the local iBuyers in your market are and be able to get in touch with them as well.

So just some final thoughts for the week is, one; keep in mind a lot of statistics are putting it out there that over the next five years, there’s a potential that forty percent of all home resale’s over the next five years could be conducted to or by iBuyer.

It’s a huge jump from the existing number of homes being bought and sold by iBuyers right now. Massive jump which means lots and lots of big changes over the next five years and we’ll be right here the entire time keeping you guys up to date on what’s going on in the market. And how to stay in touch with us, number of different ways; one; you can go to iBuyer.com, subscribe to our blog for updates on what’s going on, what we’re doing and anything interesting for the week. You can find us on Instagram at iBuyer.com, same thing on twitter, Facebook and LinkedIn.

So basically anywhere you’re hanging out, we’re hanging out and we’d love to talk to you.

Also please make sure you hit subscribe to the podcast and if you could, leave us a rating in the review and iTunes or SoundCloud, wherever you’re listening to this, it helps us tremendously, it really helps us get the name and the brand out there and provides more and more people with good knowledgeable, actionable content and information on what’s going on at the iBuyer marketplace.

So hit subscribe, tell your friends and we can’t wait to see you next week.

Take care.

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