Purchasing a home has been increasingly difficult for first-time homebuyers and buyers alike. Prices can be expensive and mortgage rates aren't suitable for many. Now, retail buyers face more competition in the real estate market from iBuyers.
From a seller’s perspective, iBuyers can be the best opportunity to sell a property quickly and get paid in full. However, retail buyers can’t compete against these companies, as most don’t have the funds to purchase a home with all cash. This has raised concerns about whether market manipulation is taking place.
What's an iBuyer?
Instant buyers, otherwise known as "iBuyers," are real estate companies that use technology to purchase and sell homes nearly instantaneously. Using what’s called all-cash offers, iBuyers can purchase homes at full price, using all cash and no mortgage loan or other financing. lt can make selling a home much simpler than going through the traditional route.
In many cases, you don’t have to list your home for sale or pay commission or other fees that are regularly associated with selling a home. iBuyers tend to charge a fee of approximately five percent of the sale, and that's one of the very few fees associated with these transactions.
When an iBuyer purchases a home, it handles the listing, as well as all of the duties a retail seller or real estate agent would normally have. Zillow Offers, Opendoor, Keller Offers, Offerpad, and RedfinNow are some of the most popular iBuyers in the market.
With Zillow, Keller Williams, and Redfin all having their own iBuyer platform, some suggest that those companies have an unfair advantage over potential retail homebuyers. Those suggestions are fair, because both Keller Williams and Redfin are two of the top real estate companies in the U.S., and Zillow is the number-one real estate website in the world. It would be very difficult for a first-time homebuyer to compete against that.
How iBuyers have been affecting the real estate market
In Phoenix, Ariz., iBuyers have been reportedly purchasing homes consistently, and native residents are complaining about these companies buying and reselling these properties for a much higher price. Maricopa County has felt the presence of iBuyers, as one bought a house in a gated community for $100,000 more than neighboring homes. According to AZFamily, the home was overbought for $600,000, and purchases like these can contribute to market manipulation.
Even though market manipulation is often associated with the stock market, it can happen in real estate as well. When an iBuyer or real estate company buys a property for significantly more than its actual estimated value, it gives retail buyers the assumption that the property is actually worth that price.
This type of practice can even be done more maliciously if the company repurchases the home at a bloated price, and then hides cheaper homes in its area. That type of practice is illegal but there are some who claim that it’s still practiced today. Accused of these practices, Zillow argued in a statement that if “we overpay, we’ll lose money on the resale. If we make too low of an offer, homeowners won’t use us.”
Retail buyers can make all-cash purchases themselves through certain online lenders
Companies such as Better Mortgage allow people to purchase homes with all-cash offers. Depending on the state, these companies will make all-cash purchases on behalf of the client, and when the client obtains a mortgage loan from a lender, ownership of the property will be transferred to them. Buyers who use these services tend to avoid more fees than buying a property themselves or through a buyer’s agent.