Industry

Friday Flash: iBuying’s other side

Author
Brian Boero
No.
1132
Date
02/07/20

We talk about iBuying a lot. Too much, arguably

We obsess over which company is growing fastest and where, how close offers are getting to market value, how consumers are responding, and what it might mean for the future of our industry.  

I’m right there with everyone else. This is a significant thing. A new consumer real estate experience is unfolding before our eyes. I welcome it. 

But there’s one thing we haven’t been talking about much, at least out in the open. Namely, who iBuyers are selling to, and what that means not just to our industry, but our society. 

I hear it more and more lately — brokers and agents telling me that they’re seeing some homes that iBuyers buy just… disappear. No yard sign, no MLS, no magic self-guided showings, just gone. 

These homes, of course, are vanishing into the portfolios of institutional investors and become rentals.

I hear this mostly about Opendoor and Offerpad. Zillow is a consumer brand to its core, and I don’t think Rich Barton is betting his company on flipping homes to investors. That’s not where the real money is. Zillow already has a locked-in mass audience of individual homebuyers that will also pay them for a mortgage, for title, and no doubt for other goodies over time.  

Plenty of franchisors and big brokers have iBuyer programs, but those are like the vegetarian entrée at a steakhouse. Merely a necessity. 

Opendoor and Offerpad, on the other hand, have a very long journey to become trusted consumer brands, and are 100% focused on making iBuying the new model. They’ve also raised tons of money for which they must deliver a return, or at least record a lot of revenue against (selling homes is great for showing lots of revenue, as any broker will tell you). 

This could all be tracked by scouring public records, something I have not the time nor resources to do, but it is certainly happening and growing. The brokers and agents on the street aren’t imagining things.  

Wall Street (most famously, Blackstone) bought millions of single-family homes in the wake of the housing crash after enabling the batshit-crazy loan products that brought it on in the first place. Homes became houses by the millions in the early 2010s. 

The transference from individual homeowner to institutional investor may be much more efficient this time around as iBuyers plate up more and more inventory for investors who are hungry to deploy capital in a low-interest-rate/soaring-stock-market environment. 

Large tranches of average family homes (that “buy box” is right in the middle, remember) could be systematically removed from the market, exacerbating our already severe inventory/affordability problem. 

Steve Murray at Realtrends wrote earlier this week that the gap between household formations and housing starts is estimated to be between 250,000 and 400,000 per year, with no end in sight. The California State Senate just voted down a major housing bill aimed at easing the urban zoning laws suffocating new housing creation. 

Institutional iBuyer sales exist in this context. Does it sit well with you? Do we, together, as an industry rooted in a belief in the far-reaching benefits of homeownership, have anything to say about this? 

Can we at least ask these questions, please?