Rival real estate companies Redfin and Opendoor recently announced they were teaming up to bring their iBuyer platforms to more potential clients in select markets throughout the country. The Redfin Opendoor partnership was hailed as a victory for consumers, providing more options for sellers in more markets. In reality, their claims just don’t hold up.
Opendoor Redfin Partnership – What are iBuyers?
While iBuyer programs have been touted as the next logical step in disrupting the real estate industry, they are, in fact, not new — only the technology has changed. These platforms facilitate lowball offers by large-scale real estate investors. However, unlike traditional investors who seek out investment opportunities, iBuyers wait for sellers to approach them for a fast-turnaround offer.
iBuyer programs like the one resulting from the Redfin Opendoor partnership claim to offer sellers new choices and lower real estate commissions than traditional real estate brokerages. However, their platforms have a number of caveats that undermine any possible advantage offered by the lower commissions.
- Like most real estate investors, iBuyer platforms make their money on the purchase of properties, so the offer they provide will likely be far below normal market value for the property.
- While programs like Redfin and Opendoor’s iBuyer say they offer lower commissions than those of traditional real estate brokers, there are a wide variety of possible commissions depending on the market. That means you don’t know upfront how much they’ll charge. In addition, they frequently tack on unspecified service fees that can offset any potential commission savings.
- iBuyer platforms use the home inspection process to charge for expensive “necessary” repairs and updates which can result in a significantly lower purchase price than the initial offer would suggest. Because these repairs do not help the seller arrive at a higher sale price, the seller ends up paying a premium for selling As-Is while also paying for the improvements that would allow them to sell at full market value.
How Opendoor homes and iBuyers hurt neighborhoods.
In addition to the financial toll, these low sale prices take on individual homeowners, they lower property values throughout the markets in which they operate. That’s because their lowball offers create artificially low comparables that end up driving home prices down further.
It’s easy to understand why this works well for companies like Redfin or Opendoor. They primarily depend on the following types of homeowners to sell their service:
- Financially compromised homeowners in pre-foreclosure
- Absentee homeowners like heirs or small investors
- Homeowners facing repairs or updates that they cannot afford in order to sell through a traditional process
- Homeowners under a severe time constraint who do not have time for a traditional sale process
- Homeowners who, after months or even years, have given up on a traditional home sale process and just want to get their home sold.
Because all of these homeowners are vulnerable in some way, iBuyer platforms have leverage and are able to close for far less than the fair market value of the home. Ideally, from the iBuyer perspective, the more vulnerable homeowners there are, the more potential investments there are.
As iBuyers flood a market with lowball offers, they create an environment where home prices are artificially lowered as well. This means that homeowners who are unwilling to accept their lower prices face a market full of low comps. This has a chilling effect on the local market, creating a situation where right-priced homes sit on the market longer, undergoing repeated price reductions.
Eventually, some of these homeowners will also turn to iBuyers in order to get out from under their now months-long sales process. By the time they get to closing, many of these homes will sell for far less than they would have initially, further suppressing prices.
What a Difference a Real Estate Agent Makes compare to the Redfin iBuyer Program
Unlike an iBuyer, a real estate agent or broker depends on the health of the local market and promotes pricing and practices that will tend to keep the market robust. By encouraging appropriate valuations, smart home improvements, and appropriate inventory levels, real estate agents help to create conditions that are good for both buyers and sellers.
Through expert negotiations and market knowledge, real estate agents help ensure correct pricing. By contrast, iBuyers do not negotiate at all, preferring a take-it-or-leave-it approach that hurts sellers and undermines the market.
With a real estate agent or broker, the commission is discussed with the client upfront and there are no surprise fees. Marketing, the initial offer, the home inspection process, repair negotiations — in all of these cases, the real estate agent works at the behest of the client, and according to the client’s direction.
Finally, the agent or broker owes a fiduciary duty to the client, always acting in his or her best interest. This is in stark contrast to the adversarial relationship in an iBuyer scenario, where the company is seeking to undermine the seller and his or her property value at every turn.
Rather than allowing an iBuyer platform like the one created by the Redfin and Opendoor partnership to take advantage of sellers, a highly qualified real estate agent can assist sellers with alternatives that improve the property and facilitate the sales process. The Compass Concierge program is one approach designed to streamline value-added repairs and improvements to help the client get top dollar in today’s market.
Compass Concierge identifies and facilitates items like home repairs, upgrades, and staging with no up-front costs. Services are paid for at closing with no interest charges. Thus, one of the primary reasons for selling to an iBuyer — an inability to afford needed improvements — is no longer a barrier to a timely and profitable home sale.
If you are considering working with an iBuyer, let me help you crunch the numbers. As study after study has shown, the advantages they promise are merely smoke and mirrors. A well-planned traditional home sale can provide all of the convenience you are looking for with a much higher net return. Let’s talk about your home and put together a plan that makes sense.