iBuying is changing the real estate landscape; offering consumers an option to cash out equity, where time is more important than milking the last dime out of a home’s value. It works a bit like a car purchaser trading in their old vehicle rather than spending countless hours and money trying to sell it online. Convenience usually has value and iBuyer programs can offer that value under the right circumstances.
Large, institutional property investors traditionally focus on multi-family units. The great housing recession last decade, when the stock market was providing lack-luster returns, opened the door for big money to find its way into the single-family acquisition market. As hedge funds began buying large blocks of single-family homes, rehabilitating them with primarily cosmetic facelifts such as carpet and paint, and offering small investors shares in these behemoths, they created an investment vehicle that had the potential to beat Wall Street. If it could work in the “hold-and-rent” market, surely it could work in the “flip” market. Thus, iBuying was born to do just that.
Many fortunes have been made buying, renting, trading and selling real estate. Historically, real estate values trend up, making it a smart investment, so large firms jumping into the real estate investment game made perfect sense. Will it make sense long term? What about the newest entrants to the iBuying fray? How long will they find this practice attractive? Frankly, there is no reason that this approach can’t co-exist along with more traditional real estate ownership. Take ERA Real Estate’s “Sellers Security Plan.” It has been in place for decades and survived both housing booms and busts. Why? Because the price that anyone will pay for a property is based on economics 101: the law of supply and demand. Not only this, but ERA is doing what many iBuyers are not, and that is keeping the real estate agent at the center of the transaction. While iBuying is certainly a buzzworthy term in real estate these days, there are many consumers across the U.S. who still don’t know what it means and are intimidated by its unfamiliarity and at the prospect of gambling with one of the biggest transactions of their lives. The components that enable iBuyer programs to cut through the clutter: simplicity, convenience and efficiency.
So, as long as an institutional real estate buyer doesn’t panic in the midst of a housing downturn and “dump” large blocks of homes on the market, driving prices down further, nor get too crazy when faced with a housing bubble and over-extend their financial resources, natural economic factors will drive prices up and down, allowing these new, large buyers to benefit from changing market values.
What do traditional real estate professionals need to consider when advising their clients about iBuyer options? Here are some questions to ask:
1. What is the client’s motivation? MUST they sell by a particular date in order to move forward with their plans?
2. What repairs are needed to get the most money for the property? Does the client possess the financial resources to make the home marketable for top dollar?
3. Are home prices trending up, making waiting to sell a better option or is waiting simply costing the Seller time with little chance of bigger gain?
If the client needs to sell in a hurry, lacks the funds necessary to make the property marketable or won’t benefit financially by holding out for a better price, it might be in the client’s best interest to take advantage of the iBuyer option.
There is no doubt that there is risk. There is in most financial transactions. But isn’t that where all big money is earned? As long as iBuyer companies are well-funded, take a long-term view of this business and focus on adding a measure of value to the end-user buyer and seller, there is no reason that this practice can’t be a permanent part of the new American real estate landscape.
Greg Martin is the president and managing broker of ERA Sunrise Realty in northern Metropolitan Atlanta, Georgia. Together with his business partner David Moody, they opened a new branch of ERA Sunrise Realty in 2002 and have since expanded the company to seven offices with more than 130 agents. He is very proud of the work ERA Sunrise Realty does, and of their recognition as the winner of the 2018 ERA “Jim Jackson Memorial Award for 1st in Service.” Greg has been in real estate since 1998, before which he served as a marketing and sales team leader for Union Pacific Railroad and Southern Pacific Railroad. Greg is also part owner of Sure Close Title Services LLC and is co-owner and school director for The Real Estate Productivity Center, a state-approved real estate school devoted to improving the knowledge and professionalism of real estate agents across Georgia.