An iBuyer is a tech-based real estate company that uses data analytics and algorithms to value homes and uses a huge war chest of investor funds to buy homes en masse.
iBuyers usually offer slightly less than market rate for the homes they buy, but they offer a fast, frictionless transaction in which sellers don’t have to list their home, prepare it for the market, or negotiate with the buyer over price or contingencies. Sellers simply accept or reject the iBuyer offer, and then choose their closing date.
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A new study by Clever Real Estate looks at consumer sentiment around iBuyers like Opendoor, and unearths some fascinating insights. Although iBuyers only have a tiny fraction of the market, they seem to have a very significant presence in the mind of potential home buyers and sellers, who consistently overestimate the amount of homes iBuyers are buying, while also not being very clear on what, exactly, iBuyers do.
The study also takes a close look at consumer concerns about traditional real estate agents, and learns that homeowners don’t feel great about working with a realtor, the their fees they expect to pay, and timing the purchase of their new home with the sale of their old one. These concerns suggest that iBuyers could capture a lot of business just by streamlining the sale process and making it more transparent.
Let’s take a closer look at what people think of iBuyers, who is more or less likely to sell to an iBuyer, what people like and dislike about iBuyers (and agents), and a lot more!
1. Very Few Homeowners Could Define What an iBuyer Is
Only a little over a quarter of surveyed homeowners, or 27%, were able to offer an accurate definition of an iBuyer. Over a third of respondents, or 36%, also incorrectly identified “We Buy Houses for Cash” companies as iBuyers — they are not.
That suggests that iBuyers have a lot of educating to do if they want to capture a larger market share — though it’s an open question if homeowners, once they learn what an iBuyer actually is, will be open to selling to them.
2. Nearly Two-Thirds of Homeowners Are Open to Selling to an iBuyer
The study found that 65% of homeowners would consider selling to an iBuyer, which is pretty surprising (and a little puzzling) considering how few homeowners actually know what an iBuyer is. This suggests homeowners have a pretty positive impression of iBuyers, even if they don’t actually know exactly what they do.
3. iBuyers Haven’t Been Around Very Long
iBuyers are a relatively recent entrant into the homebuying arena; the very first iBuyer, Opendoor, was founded in only 2014.
4. iBuyers Haven’t Captured Much of the Housing Market — Yet
In 2021, iBuyers accounted for only 1.3% of all U.S. homes sold, a tiny fraction of the market considering how deep-pocketed they are.
5. Some Big Name iBuyers Have Already Exited the Business
Zillow Offers, real estate giant Zillow’s iBuyer division, abruptly closed up shop in November 2021 after they found that their business model wasn’t profitable. Still, even in failure, their numbers suggested that there’s a big unmet demand out there for iBuyers, as they were only able to extend offers to 10% of sellers who requested them.
6. Black Homeowners Are a Lot Less Likely Than White Homeowners to Sell to an iBuyer
The study found that nearly half of Black homeowners surveyed, or 46%, said they would not consider an iBuyer. Only a third of white homeowners, or 33%, said they wouldn’t sell to an iBuyer.
7. Older Homeowners Are a Lot Less Open to iBuyers Than Younger Generations
Baby boomer respondents were 72% more likely to be against selling to an iBuyer than millennial respondents, which is likely a reflection of Millennials’ greater comfort with new technology like home buying websites.
8. But Millennials Would Prefer to Sell to an Individual — Even Moreso Than Boomers
Even though millennials are more comfortable with new technology, 84% of millennial respondents said they’d rather sell to an individual buyer than a company, while only 70% of tech-averse boomers said they’d prefer to sell to an individual.
This highlights an interesting and somewhat counterintuitive insight; while the younger generations may have a better understanding of new tech, and be more comfortable with it, they also seem to have a strong preference for personal, face-to-face relationships.
9. The Majority of Homeowners Would Recommend iBuyers — with Some Reservations
Over half of homeowners, or 52%, said they’d consider recommending an iBuyer to friends and family, though that recommendation would come with some caveats for many of them. Less than a quarter of homeowners, or 23%, said they’d recommend an iBuyer without any hesitation.
Whether their hesitation comes from unfamiliarity with the iBuyer business model, or actual discomfort with the iBuyer business model, is going to have a big impact on how successful the iBuyer industry as a whole is in the future.
10. iBuyers Are Pretty Popular Everywhere — But Moreso In Certain Regions
iBuyers are most popular in western states, where 74% of respondents said they’d sell to an iBuyer. They were least popular in the midwest, where only 61% of respondents were open to selling to an iBuyer.
Part of this geographical disparity is likely due to the fact that the first iBuyers were based in the western part of the U.S., in Phoenix and San Francisco. iBuyers aren’t available everywhere yet, so as they do become more common, homeowner openness will likely increase along with market share.
11. Nearly One in Five Homeowners Thought They Knew What an iBuyer Is — But Were Totally Wrong
One interesting finding is that 19% of respondents said they definitely knew what an iBuyer was, but turned out to be mistaken.
Furthermore, when told what iBuyers actually were, most homeowners were open to working with them. Right now, outreach and education seem to be the main hurdles for the iBuyer industry.
12. A Huge Majority of Home Buyers Have Reservations About Purchasing from iBuyers
Interestingly, those positive perceptions mostly disappear when the study looks at home buyer attitudes towards iBuyers.
While most sellers were pretty positively inclined towards iBuyers, a whopping 92% of homeowners had reservations about buying a home from an iBuyer. Their top concern was being taken advantage of, with 42% of respondents citing this reason — an interesting response that suggests sellers believe the iBuyer algorithm will be generous towards them, while buyers believe it’ll take advantage of them.
13. Many Buyer Concerns Are Related to a Lack of a Personal Touch
The second-most common concern cited by potential iBuyer buyers was “poor quality repairs” (33%), followed by “inability to negotiate” (32%); the fifth most common concern was “lack of personal experience” (26%).
Looking at these concerns together implies that buyers are worried about the lack of quality and control that comes when buying from a large-scale, automated, tech-based real estate company. If traditional real estate agents are looking for a silver lining in this study, it’s right here: buyers still want a human face for their home purchase, and they want to feel like they negotiated a great deal, or they’re leaving themselves open to buyer’s remorse.
If iBuyers want to sell their homes to individual buyers, they may have to offer incentives like home buyer rebates to lure them in.
14. Most Homeowners Know That iBuyers Don’t Pay More Than the Open Market
Around 37% of respondents said that iBuyers offer less than a traditional sale would bring in, and another 29% said iBuyers offer around the same as a traditional sale; that means that a total of 66% of respondents correctly understood the type of offer they could expect from an iBuyer.
However, a little less than a fifth of respondents, or 17%, thought that iBuyers offered “much more” than a traditional sale, a finding that suggests support for iBuyers might decrease once people know more about their business model.
15. Less Than Half of Respondents Knew How Much iBuyers Charge In Fees
Only 49% of respondents were able to correctly identify that iBuyer service fees typically eat up 6% to 15% of the sale price, plus normal closing costs — costs which are significantly higher than in a typical conventional sale.
16. A Large Majority of Homeowners Are Surprisingly Flexible on Price
Only 18% of homeowners surveyed said they’d “never” sell their home for less than market rate. The other side of this coin is that 82% of homeowners would be open to selling for a price that’s less than market rate if circumstances were right.
This particular finding should be especially encouraging for iBuyers, as their business model is to offer less than the market price in exchange for certain non-financial perks and benefits.
17. Sellers Would Take a Lower Price In Exchange for Greater Convenience
Among homeowners who said they’d be interested in selling their home for less than the market price, the most common benefit they were interested in was “selling their home with no contingencies” (38%), followed by “avoiding repairs and renovations” (36%), “selling their home instantly” (36%), “timing their sale with the purchase of a new home” (31%), and “avoiding a realtor or paying commission” (31%).
Looking at all these reasons together, it’s clear that sellers are willing to leave some money on the table if it means they can reduce some of the uncertainty of the sale process.
18. The Exact Amount of Money Homeowners Would Leave on the Table In Exchange for Convenience Is Shockingly High
Over half of homeowners surveyed, or 54%, said they’d accept a lower-than-market-rate offer on their home if they could sell instantly, and choose their closing date. How much lower than market rate? The average price cut they’d be willing to accept was $45,400 — which shows how highly the average home seller values a fast, frictionless transaction.
19. Homeowners’ Biggest Home-Selling Complaints Say a Lot About Their Priorities
The top stressors cited by homeowners were moving (44%), repairs (41%), negotiating with buyers (40%), paperwork (40%), and finding a good real estate agent (38%).
Considering that working with an iBuyer eliminates three out of five of these complaints suggests that iBuyers may have significant appeal among home sellers, especially when you take into account that the average homeowner is willing to leave over $45,000 on the table for a more convenient transaction.
20. Many Homeowners Couldn’t Name a Single iBuyer
Nearly a fifth of respondents, or 19%, weren’t familiar with any of the iBuyers listed in the survey. Furthermore, 35% of respondents ranked Zillow Offers as the most legitimate iBuyer, despite the fact that they went out of business last year.
21. Homeowners Think iBuyers Are Buying a Lot More Homes Than They Actually Are
A surprising 87% of respondents overestimated the share of homes that iBuyers purchased in 2021.
Only 1.3% of homes sold in 2021 were bought by iBuyers, a surprisingly small slice of the market considering the outsized presence iBuyers have in consumer consciousness.
22. The Vast Majority of Homeowners Think iBuyers Are Here to Stay
85% of homeowners think iBuyers will either increase or hold steady in popularity over the next year. When asked about the next five years, 68% of respondents thought iBuyers will become more popular than they are now, and nearly a quarter, or 24%, think they’ll overtake traditional real estate agents in popularity.
Even though one major iBuyer has gone out of business, and others paused operations for significant chunks of the pandemic, consumer confidence in iBuyers is extremely high.
23. Homeowners Still Have More Confidence in an Agent, Though
Despite their extremely high confidence in iBuyers in general, respondents were still more confident selling with an agent than with an iBuyer, with an overwhelming 91% saying they’d feel most confident working with an agent, while only 76% said they’d feel better going with an iBuyer.
That doesn’t mean they don’t have serious reservations about agents, though.
24. Homeowners Have Substantial Concerns About Agent-Assisted Sales
Although the large majority of sellers feel most confident working with an agent, many homeowners have serious reservations about agents. The most common complaint, by far, was expensive real estate commission, which was cited by 53% of respondents.
In second place were drawn-out timelines (39%), followed by pushy personalities (38%), pricing their home correctly (38%), and receiving bad advice (36%).
Again, the iBuyer model addresses several of these concerns, implying that the industry has a lot of room to expand. And the fact that commission was, by far, the top concern of respondents, suggests that other industry innovators like discount real estate companies could also expand their market share.
25. Most Homeowners Want an Agent and an iBuyer
72% of homeowners want to have it both ways, saying they’d contract with an agent even if they were selling to an iBuyer.
While this arrangement could potentially address a lot of the concerns they have about the home selling process, it would also double their transaction costs — meaning that it’s probably not a great idea.
This article originally appeared on Listwithclever.com and was syndicated by MediaFeed.org
More from MediaFeed:
Common & costly homebuyer mistakes
It’s not just first-time buyers who make mistakes when buying a new abode. It’s easy to overstretch financially or to overlook something you shouldn’t when you see a new home you’d love to own.
From buying furniture for a home you don’t yet own to presenting an earnest money deposit check that’s not in your name, real estate and loan professionals have seen buyers make common mistakes all the time.
Here are 11 home-buying mistakes and how to avoid them.
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Depending on how long you plan to stay in your home, buying may not be the best option. Roger Ma, a certified financial planner and licensed real estate agent, told LendingTree that the decision to buy or rent really depends on your specific circumstances and your timeline.
“One of the biggest factors is your estimated time horizon,” he said. “The rule of thumb that real estate agents use is that if you expect to live in an area for five to seven years or less, it might actually be better for you to rent considering all of the closing costs.”
For anything under five years, he added, you don’t really give yourself that much time for the property to appreciate and to overcome some of those costs. On the other hand, if you’re set on living in an area for more than just a few years, it may be beneficial to buy.
Check out the LendingTree Rent vs. Buy calculator to help find out which option makes more financial sense in the long-term.
Related: Does your state have the worst healthcare in America?
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When you get preapproved for a mortgage, a lender will typically tell you how much of a loan they might approve you for. That doesn’t necessarily mean you should use that figure as a target price, however. This can set buyers up for disappointment, and even financial difficulty.
According to real estate expert and investor Brian Davis, one mistake he’s seen a lot of homebuyers make, particularly first-time home buyers, is framing affordability as the question “What’s the absolute highest price I can afford to pay for a home?”
“Instead, a buyer should set a target savings rate and work within that budget,” he said. “Then, they should ask themselves, ‘What’s the least expensive home I can be happy living in?’”
If you want to see how much house you could comfortably afford, use our Home Affordability Calculator.
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It’s not just the price of the home that a buyer should factor into their budget. In Ma’s experience with clients, he has found that many people save up enough for the down payment, perhaps 20 percent, but they might not have enough for the closing costs that must be paid at the end or enough funds to live on after closing.
“Many clients don’t have enough savings to retain an emergency fund for up to three to six months after they close on a home,” said Ma. “They might think about the mortgage payments and things like that, but if you live in a multi-housing building like a condo or co-op, there are HOA or maintenance fees associated with that.”
Ma also pointed out that things break all the time: “You might have to paint your house or fix your dishwasher, and all those monthly costs add up.”
If paying for closing costs and leaving some emergency funds in your savings account means putting down less than 20 percent, it could be a fair trade-off. Yes, you may end up paying private mortgage insurance as a result, but you mitigate the risk of running out of savings and having to turn to high-interest debt as a result.
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When buying a home, it’s important to think beyond just the house itself. For example, does the location mean that you will have a longer commute, and are you comfortable with that? If you like nightlife, are you close enough to the city, or will you feel isolated in your new home? Are you close enough to family and friends? No house will provide absolutely everything that you want, so it is a good idea to prioritize what factors are most important to you and your lifestyle.
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Yes, your home is an asset, and hopefully, one that will increase in value over time. But, according to Davis, it’s also an expense.
“According to a net worth audit, technically your home is an asset, but it’s an expense, and it may or may not ever appreciate,” he said. “Thinking of a home as an ‘asset’ or ‘investment’ just helps buyers justify spending more than they should.”
Homeowners learned this the difficult way in the wake of the 2008 housing crisis when many were left underwater on their mortgages. It was especially damaging for homeowners who had treated their home as a nest egg. Things have certainly improved since then — home prices have increased by more than 42% nationwide since 2009. However, that trend is predicted to level out soon, according to Freddie Mac.
Carefully consider where you purchase a home and do some research to see how home values have changed in recent years to get a sense of the local trends. And, of course, consider your home as one of a variety of investments you’ll make along with a 401(k) or an IRA, not the only investment.
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Changing employers during the loan qualification process is a mistake that can quickly jeopardize your ability to secure a loan — yet, according to mortgage loan originator Chad Vincent Hubert, “this is the biggest mistake I see home buyers make.”
Unless you can document a two-year work history prior to leaving your job with pay stubs or a W-2, or you have been there for six months at least, a lender will balk at your application. It doesn’t necessarily mean the nail in the coffin of your homeownership hopes, but be strategic if you’re looking to take a new job in the midst of the lending process. Be sure to communicate this to your loan officer and supply any additional documentation they may request.
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You might be lucky enough to receive a windfall or a cash gift that you want to apply to your down payment before the closing — but this can become a logistical minefield if you don’t keep a careful record of where the funds came from.
“Large cash deposits that the buyer wants to apply to their qualifications cannot be documented if we can’t prove the source for those deposits,” said Hubert. “These deposits basically have to be backed up by bank statements.”
Transferring money between multiple bank accounts in the closing process is another big mistake, according to Hubert — “This creates a paperwork nightmare, and there’s no reason to do it.” Even something as seemingly innocuous as opening a new credit card or bank account can throw your application out of whack, as it can interrupt the careful process of underwriting your loan.
Hubert explained that if you open a new bank account, the loan officer must document the source of the funds used to open the account.
“In a perfect world, if you went to Chase Bank, withdrew $5,000, and then got a cashier’s check to open the new account somewhere else, it might not be a big deal,” he said. “But people often open new accounts with cash money that they’ve saved up at home.”
When it comes to new credit, this can throw off your all-important debt to income ratio. Many lenders will re-run your credit report right before closing the loan and if new accounts appear, it could cause delays.
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It’s important to shop for lenders. According to Davis, first-time homebuyers tend not to shop around for a loan or negotiate hard enough for better financing terms.
“Loan officers are salespeople, and they are trying to quote you the highest interest rate and fees that they think you’ll pay,” he explained. “Talk to at least five lenders, compare rates and fees, and don’t forget to compare junk fees, not just points.”
On LendingTree, you can use the mortgage marketplace to potentially compare loan offers from multiple lenders in one place. It does not require a hard credit pull.
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Your loan officer is your representative throughout the loan qualification process and the sales transaction. Hubert often has clients who don’t divulge absolutely everything.
“If you lie about judgments, bankruptcies, foreclosures, short sales, student loans, or about default or unpaid IRS debt, it’s a problem,” he said.
Most lenders have software programs that can help spot prior judgments, bankruptcies, foreclosures or liens in a loan applicant’s past, which he’s seen lead to many loan denials.
“You can’t beat the system,” said Hubert. “You have to be honest with your loan officer in order for them to do the best job for you as a client.”
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You can make your loan officer’s job a lot harder, and put your chances of qualifying in jeopardy if you don’t send the exact documents that the loan officer requests.
“Many clients send in the documents that they think will work instead of sending the exact documents that we requested,” said Hubert. “Any time that happens, it just results in a delay and makes the process more complicated. You have to trust that your loan officer knows what they’re doing. If they ask for something, send them the exact documents they asked for, not your version of something.”
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Some people approach real estate as they might approach investing in stocks — by attempting to anticipate the market. As a CFP, Ma often has clients that ask themselves, “Is this a good time for me to buy an apartment? Is this a good time to sell?”
Ma said that he prefers to tell clients that it’s better to make sure that it’s the right timing for your stage in life. Ma recommends asking yourself whether you plan to be in the home five to seven years from now, do you plan to settle down, or is there a chance that you could leave for some reason. How stable is your job, for example? Do you have thoughts of going to graduate school?
“These are all factors that might make sense in terms of your own personal timing because, from a market timing perspective, no one really knows. And if they did, they would be buying and selling homes for a living,” Ma added.
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The insights from loan experts reveal the mistakes that many home buyers make, and there are many more that we did not mention. The most important thing when it comes to buying real estate and your financial future is, to be honest with yourself. Find the best loan officer to represent your interests and remember that there will be hidden expenses even after you close on your home.
This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.
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