Who Needs A Realtor? iBuyers Pay Instant Cash For Your House

Feb 26, 2020
Originally published on February 26, 2020 10:01 am

If you're looking to sell your home and avoid people tromping through your living room at open houses, there's a new option that's becoming popular in many parts of the country. Companies called iBuyers, or instant buyers, use computer algorithms to make you an offer, often within a day.

These types of sales are growing very quickly, according to new data out Wednesday. The way it works is that companies such as Redfin, Zillow, Opendoor and Offerpad will make you an almost instant offer over the Internet. They then send an inspector to take a closer look. Their sales pitch is they'll move very quickly and buy a house with very little hassle.

"In Raleigh, more than 7% of sales in 2019 were iBuyer sales so it's becoming quite prevalent there," says Daryl Fairweather, the chief economist for Redfin, which is releasing a report on the iBuying industry.

In Phoenix, Charlotte and Atlanta, iBuyers account for more than 5% of sales, according to Fairweather. She says in many of these same places iBuyer sales have doubled from the year before.

Redfin's iBuyer service, RedfinNow, is also purchasing homes in Southern California. That's where Janet Jenkins was living until recently, when she and her husband separated. She moved across the country to North Carolina. And they decided to sell their home outside Los Angeles.

Janet Jenkins' rainbow lorikeet parrot named Malibu shows off his leg-lifting trick. Having parrot and dog cages in the house, not to mention the animals themselves, was one reason Jenkins decided open houses would be a hassle and selling to an iBuyer was a better option.
Janet Jenkins

She wanted to get it done quickly. And listing through a broker and hosting open houses wasn't a great option for Jenkins. She has a lot of pets — parrots, peacocks and dogs. And her husband was still living in the house with some of them.

One of her parrots, Wrangler, happily squawked away during her interview with NPR. She knew that real estate agents would want the animals and her estranged husband out of the house. "The parrot is not my husband's favorite pet," admits Jenkins. "And having to catch the bird and put it in a cage and take it someplace is a whole 'nother ask,' " she says with a laugh.

The house also needed some repainting and new carpeting. She didn't want to deal with that.

"And so I started looking up homebuying services and ran into Redfin," she says.

The economist Fairweather says RedfinNow can get you the money for your home in as little as a week. She says a lot of people buying a new home and moving also appreciate that the iBuyers can be flexible and let them sell their house exactly when they want to. "So they can time it perfectly with their move," she says.

After buying houses, the iBuyers fix them up a bit and then try to quickly sell them again for a profit.

In Jenkins' case, she went online and answered some questions about her house. Redfin's computers ran their algorithms and the company made her an offer for about $500,000. Jenkins says she thought that was a little low. So did two of her close friends who are Realtors in the area.

"So I pushed back," Jenkins says. It was a friendly negotiation. She made a case that her property had several advantages to others that had sold recently in her complex. A bigger backyard for one thing. Redfin then made her a better offer — and they had a deal.

It's hard to know for sure, but Jenkins thinks she could have made a little bit more — maybe $10,000 — if she took the time to spruce the house up herself, repainted and made repairs, and sold it the traditional way. But she'd already moved across the country.

"You do leave money on the table," Jenkins says. "And while we did, we didn't leave that much."

Redfin does get a fee like a regular Realtor commission, but it didn't say what the average profit is on the houses it buys and then resells.

So, is this a smart way to sell your house? We put that question to William Wheaton, a housing economist and professor at MIT. He says the iBuyer approach works in places where houses are similar. For example, the places where a lot of these iBuyer sales are growing quickly like Phoenix, Las Vegas and Atlanta. These markets have sprawling subdivisions with many houses that are almost identical.

"There's not a lot of difficulty in pricing those houses," Wheaton says. "The ones with the swimming pool are worth a little more than the ones without. But you can do statistical modeling of that and just nail it, be 99% correct in predicting the price."

And he says that means iBuyers can offer you just a little less than what the house is worth and still be confident they can sell it for a little profit.

But it's a different story in areas where houses are not similar. Many older cities have some houses that are newer, some older, some renovated, some not, different styles, all mixed up in close proximity. Prices can be all over the place, and so in those areas, Wheaton says, "the iBuyers have to be really, really careful."

He says being careful means they'd likely offer you a very lowball price because they aren't really sure what your house is worth and they don't want to lose money.

That's why the iBuying companies so far are focusing on places with a lot of similar housing. In places like that, Wheaton thinks iBuyers could keep growing dramatically and really change the way homes are sold in large parts of the country.

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DAVID GREENE, HOST:

So if you're looking to sell your house and you don't want to deal with realtors, maybe you don't want people tromping through your living room, well, there is another option. Companies called iBuyers use these computer algorithms to determine an offer price. The downside of this - it is typically a lower figure than if you went with the traditional route. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: Janet Jenkins and her husband recently separated. She moved across the country to North Carolina, and they decided to sell their home outside of Los Angeles. And doing open houses to show the place was problematic, in part because Jenkins has a lot of pets, as in parrots and dogs and peacocks, and her husband was still living in the house with some of them.

JANET JENKINS: This is Wrangler. Wrangler is an eclectus parrot.

(SOUNDBITE OF PARROT SQUAWKING)

JENKINS: He gets into a lot of mischief.

(SOUNDBITE OF PARROT SQUAWKING)

JENKINS: And then, of course, you had the dog crate and you had the bird cages, and it was just not the best environment.

(SOUNDBITE OF DOG BARKING)

ARNOLD: You could kind of hear right now how it might get a little chaotic showing the place.

JENKINS: People - my friends refer to my place as the zoo (laughter).

ARNOLD: She knew the realtors would want the animals and her estranged husband out of the house, which would mean him catching the bird each time.

JENKINS: The parrot is not my husband's favorite pet.

(SOUNDBITE OF PARROT SQUAWKING)

ARNOLD: The house also needed some repainting and carpeting to get it really ready to show, and she didn't want to deal with that.

JENKINS: And so I started looking up home buying services and ran into Redfin.

ARNOLD: Instant buyer, or iBuyer, services are growing very quickly in parts of the country. Companies such as Redfin, Zillow, Opendoor and Offerpad will give you an offer to buy your house in about a day. Then they'll send an inspector by to take a closer look.

DARYL FAIRWEATHER: Redfin now can get you the money for your home in as quickly as a week.

ARNOLD: Daryl Fairweather is Redfin's chief economist. She says iBuying companies also offer flexibility so you can time the selling of your house perfectly to work with buying a new house and moving. The iBuyers then spruce up the houses that they buy and sell them again. Redfin today is releasing a report on all the homes being sold this way around the country.

FAIRWEATHER: In Raleigh, N.C., more than 7% of sales in 2019 were iBuyer sales, so it's becoming quite prevalent there. And then in markets like Phoenix, Charlotte, Atlanta, it's more than 5% of sales.

ARNOLD: And Fairweather says in many of those places, iBuyer sales doubled from the year before. Redfin is also buying homes in Southern California. In Janet Jenkins' case, she went online, answered some questions about her house and Redfin's computers ran their algorithms and offered her around $500,000. She actually thought that was a bit low and so did two of her friends who are realtors.

JENKINS: So I pushed back.

ARNOLD: Redfin then made her a better offer, and they had a deal. Jenkins says she thinks she could have made more, maybe $10,000, if she took the time to fix up the house herself and sold it the traditional way.

JENKINS: You do leave money on the table. And while we did, we didn't leave that much.

ARNOLD: Redfin does get a fee like a regular realtor commission. The company wouldn't say what its average profit per home is. So is it a good idea to try to sell your house this way? William Wheaton is a housing economist at MIT. He says the key to this whole thing is that it works in places where many houses are similar, places where a lot of these iBuyer sales are - Phoenix, Las Vegas. You have sprawling subdivisions where houses are almost identical.

WILLIAM WHEATON: There's not a lot of difficulty in pricing those houses. The ones with a swimming pool are worth a little more than the ones without. But you can do statistical modeling of that and just nail it, be 99% correct in predicting the price.

ARNOLD: And that means iBuyers can offer you just a little less than what the house is worth and still be confident that they can sell it for a little profit. But in areas where houses are not similar, say, older cities where some homes are newer, some are old, some are renovated, some are not, prices are all over the place, in those areas...

WHEATON: The iBuyers have to be really, really careful.

ARNOLD: So Wheaton says they're likely to offer you a very lowball price because they aren't really sure what the house is worth, and they don't want to lose money.

WHEATON: Exactly.

ARNOLD: That's why the iBuying companies so far are focusing on places with a lot of similar housing. Still, Wheaton says, in places like that, he thinks iBuyers could really change the way homes are sold in large parts of the country. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.