S3E4 - iBuying – Zillow, Opendoor & You

Hello, I’m Lydia Shompole and welcome to another episode of the Creepy Tech Podcast.

This week we are going to do a deep dive into iBuying.

By now I’m sure most of you have seen those ads that show how beautiful your dream house is and how easy homebuying will be. Through iBuying, all you’ll have to do is create and account, browse for or list a home, enter some key information and within days, you have a new house or have just sold your current house.

Yes, dreams do come true (well not all dreams). What most people don't realize is that there's much more to buying a house online than meets the eye.

We'll talk about how companies like Redfin, Opendoor and Zillow offer such an “easy” iBuying process, and what possible issues could pop up along the way.

Let’s jump right in!

So, what is an iBuyer and the iBuying process?

Well, an iBuyer is a company that buys homes instantly – usually with out seeing the property. These companies use the data they’ve amassed over the years and other technology (an automated valuation model) to estimate the value of the property. They calculate the going market rate for a home of your size, age, location, features & condition.

I would go further to say that these calculations can also include things like how much they can offer to get a purchase accepted (based on the owner & any data they have on them), how much they can sell the property for after the purchase as well as who their target customer would be for the sale.

They typically offer cash offers and can complete the sale in a noticeably short amount of time.

Currently there are a few key players in the iBuying world, Zillow, Opendoor, Redfin, Offerpad, Knock etc. There’s a handful more but let’s focus on these ones this week.

The Benefits of Selling Your Home to an iBuyer

iBuyers exist for a few reasons:

They are trying to solve the problem of time. In a case where you need to sell or buy a home quickly, the usual route – finding a broker, or solo listing and waiting to find the perfect buyer or home may not be an option. You need to sell or buy a home fast & they can do that for you.
To provide individuals looking to buy or sell their homes a streamlined process that cuts out the agents, commissions, marketing costs, funding and all the things that come with the standard housing industry. This and the time saving aspect are there selling points.
However, they are also trying to make money – iBuyers want to buy your home at as low of a price as you are willing to let it go for because they intend on selling it at a higher price to collect a profit.

The incentive for you to work with them is simply your saved time & hassle.

Between the major iBuying companies, there seems to be a pretty standardized process. You create an account, enter in the information for you house, you select a timeline for closing & then you wait for an offer. The offer timeline ranges from instantly to up to 48 hours. In most cases, the iBuyer will provide an assessor to come to your property to inspect and assess the condition of your property as well as establish a value for your home.

One common characteristic of these offers is that it’s typically below market value for a house fitting your homes characteristics & features. Once, the inspection is complete and you decide to accept an offer and agree to any repairs or fees, then the process should be complete within a few days. Some companies (like Redfin) even allowed sellers/buyers to select the closing date depending on their schedules.

The Costs of Selling Your Home to an iBuyer

Additionally, each of these companies charge a fee ranging between 5% on the lower end to 8% on the higher end for their services. Depending on the offers available this fee could end up being amazing or pretty significant.

For example, one reddit post stated that, “We were both considering going with Offerpad who offered 193,000 - 7.5%, this seemed too good to be true to me and I was wondering if their offer is based on a perfect house and the offer will drop after Inspection.”

At this price, the resulting fee comes out to $14,475. Not including things like closing costs which you’d still have to negotiate.

Other hidden fees can show up in the form of charges for repairs for damage in your home that they find during the inspection.

Another reddit post stated that, “This is the number one, absolute, guaranteed to happen component. Offerpad wants to cut costs; they want you to do the repairs so they can flip it back. The inspection reports are hilarity. What's even funnier is, touring one of their listed properties that have some TERRIBLE repairs.”

While reading other reviews, I found more of the same from individuals who’ve sold or bought through an iBuyer.

One stating that, “Our home is 5 years old. There was nothing wrong with it. (They factor in stuff like repainting in the primary offer, so the inspection doesn’t reduce it.) But here’s the kicker: the Zillow representative that came to the inspection with a contracted inspector recommended that they reduce the offer because of its proximity to a freeway and some warehouses (this is Houston so that is like half of the city).”

For sellers looking to sell a home so that they can relocate and purchase another home in their new location, the price they end up selling for impacts their ability to find a new home.

What Happens after the Buy Offer?

When time is an issue, they may end up taking an offer that leaves them in buying limbo for the next few years. Especially since the housing market has been at an all time high.

How iBuyers Find You

You may be wondering, how does an iBuyer find you? Or do they just wait around for sellers to come to them?

Well, we’d have to say a bit of both really.

At the height of the iBuying craze, companies like Zillow or Redfin, really didn’t need to spend money to find sellers and buyers. There initial press releases announcing their foray into iBuying brought everyone directly to them. Since they already have such a large presence in the real estate industry, their companies are first in mind to consumers.

I’m not in the market for a home or to sell a home & I sometimes find myself on the Zillow website just window shopping.

However, it didn’t take long for the competition to heat up with companies like Offerpad, Knock & Opendoor making waves with their complimentary offers. For example, Knock actually acted more like a trade-in home purchasing service than a simple instant buy or sell service provider. They offered an easier way to sell your current home & buy a new home at the same time.

While other companies started including things like moving services. So, understandably these companies now needed to actively find, and secure their customers.

In 2018, one redditor explained that, “We did not approach Opendoor to sell our house. The company has been actively reaching out to homeowners themselves in our general area due to property and home value rising. This is why I am mentioning Orlando as the specific city because chances are, if you are in that area you may hear from them yourself.”

The rest of their review focused on the subpar experience they went through stating that they not only received a low-ball offer but that they were also quoted $12,000 in repairs after the inspection. The inspection included things like, “two hundred dollars to replace three light bulbs.”

They did not go through with the sale but ended with the following:

“So, do I think you should completely run away from them as soon as you see their name? Not necessarily. The free inspection, the quickness of the process, not needing to stage your home, and the lack of strings attached before closing is great. Just don't go in completely doe-eyed without asking questions or researching while acting desperate to sell.”

Currently, these companies are advertising as well as reaching out to specific homeowners & buyers that fit their target markets.

As I covered in the data broker episode earlier this season, they use the data collected about your online behavior, your background, education, where you work, how much you earn, how much you spend to determine whether or not you would be an ideal customer for them.

All right, so it’s sounds stressful, you may end up selling for less than you wanted to and sometimes you’ll still have to play hardball. That doesn’t sound too different from the usual process. What else can there be?

Well, now comes the impact to the economy.

In an article on consumeraffairs.com, they explained the following: “Many consumers have been unable to escape the steady increase in housing prices wherever they turn. Even as increased mortgage rates dampen home sales, prices are barely budging downward, at least not yet.”

For those of us that have been saving and are finally ready to buy a home, we’ve found ourselves in a housing market that just doesn’t allow that to happen.

The article further explains that “The rise in single-family homes as investment tools has been no inconsequential trend. Data from CoreLogic, a data analytics firm, found the investor share of single-family homes sold in the first quarter of 2022 was 28%, well above the 19% share a year earlier and the 16% share averaged from 2017 to 2019.”

We’ve seen in the news that in addition to iBuying companies snatching up as many single-family homes as they can, seems like hedge fund investors are following suit and unlike iBuyers, they aren’t planning on flipping & selling. They are hoping to make these long-term rentals. Meaning these homes will be off market indefinitely.

For our parents and previous generations, a home was one the high value investments that significantly contributed to wealth generation within a family unit. With that off the table, we are now well behind where we should be in terms of creating stable financial stability.

There’s a few more things I’d like to cover on this – like the gamification aspects of iBuying leading to things like impulse spending on larger purchases – but I’ll save that for a future episode that includes the whole buy now pay later movement.

I’ll leave you with this TL DR reddit post that sums it up pretty well: “Open Door is a disorganized shitshow they will try to get every penny out of you they can. But also, it's a disorganized shitshow so sometimes you might get a better deal than the offer you made at the cost of a few years of off your life due to stress.”

All right, that is all I have for you this week, if you find information that you’d love to share with me, feel free to message me what you found either by email, DM on socials or leaving a voice message on the creepy tech Anchor page...

As always, if you have a quick moment, head over to the apple podcast app and leave me a review. I’d like to know what you think about what is going on.

You can follow me on IG @Tech_Creepy & on Twitter @TechCreepy & you can find the links I mentioned in this episode on my website Lshompole.com.