Will iBuyers survive a buyer’s market?
The iBuyer concept is fresh and exciting, but it remains untested throughout a full market cycle
By Ben Caballero
[This column was first published by Housingwire.]
Venture capitalists are investing hundreds of millions of dollars in the iBuyer business model. I thought it would be interesting to see what they are doing in my local market of Dallas-Fort Worth.
As of March 31, 2019, a search of MLS activity for Opendoor, Knock, Offerpad, Zillow Instant Offers, Redfin Now, and cataLIST revealed Opendoor was the most active, and so I’ve selected this particular company as the best representative of the iBuyer concept in our market.
DFW was one of the nation’s hottest sellers’ markets in 2018 and named the best housing market in America by several outlets, but now this market is showing signs that its seller’s advantage may be cooling.
Now the question is: How will iBuyers perform in a more balanced market? And, can they still thrive if the market were to skew toward buyers?
Selling homes in a seller’s market is not difficult. But when the market turns and buyers gain the upper hand, will the iBuyer concept survive?
From the early 1990s through 2005, I operated a company with an early version of the iBuyer concept. It was a Guaranteed Buy Out (GBO) for families buying new homes. My company offered to buy a family’s existing home if they couldn’t sell it before they had to close on the new home. The homebuilder paid us a fee.
All was well for years; most of the buy-out homes sold before my company was required to buy them. My company did well and bought an average of two homes a month and collected our GBO fees from the homebuilders.
But in July 2006, the market began to soften, and we had to buy 34 homes that month. Over the next two years, we topped out owning 254 homes. That’s not a lot if you if you have iBuyer money, but I didn’t, and I had to scramble.
At the time there were about a half dozen competitors, all of which during the next 12 to 15 months filed for bankruptcy or left town in the middle of the night. If I had not had a strong hands-on business plan, our company would not have survived either. But it did, and I still hold 61 of those homes for investment purposes…more