Have you checked on the value of your property recently? Did you happen to use a website like Zillow, Trulia, or Redfin? Was that price lower than what you were expecting? Today I am going to discuss the growing “iBuying” trend in real estate, its impact on perceived property values, and how it may threaten home flippers.
Market Disruption
Whether it’s transportation or dating, Silicon Valley has sought out ways to change how we live and interact with one another. While many of these market disruptions have created conveniences out of previously inconvenient activities, they have also had negative impacts on smaller businesses. Take taxi services for instance. Once, they were a major mode of transportation in cities. However, the uprise of ride sharing services such as Uber and Lyft have opened the floodgates for competition, leading to economic hardships for traditional taxi drivers.
Recently, websites like Zillow have entered the home flipping business with a model known as instant buying or “iBuying”. These websites that consumers previously visited to check real estate values are now buying homes and flipping them with the goal of speeding up a process that typically takes a few months. The benefit to home sellers is that they don’t have to mess with renovations, staging, dealing with an agent, negotiations, or potentially waiting for a buyer. Buyers benefit from a streamlined process of one stop shopping for their next home by buying from the same website they were visiting to research a market. The downside for everyone? The prices may not be as good now that Silicon Valley companies seek to become the Middle Men. But who may suffer the most? The home flippers that suddenly find themselves competing with much larger businesses. The New York Times reports that Zillow bought fewer than 1,000 homes last year, but expects to be buying as many as 5,000 per month within five years.
A Conflict of Interest for Consumers?
Historically, consumers have visited real estate sites such as Trulia, Zillow, and Redfin to get an idea of what their home is worth. They go to these websites because they trust them to provide impartial pricing. But how can they be impartial if they’re in the business of both buying and selling? What is to stop them from reporting lower prices for homes they are not selling and may buy, and then reporting higher prices for the properties they’re selling? In the short-term there is enough competition to prevent this but what happens when they get too big and control both ends of the marketplace?
MarketWatch asserted this summer that iBuyer customers would average 11% less than homeowners who sell their properties via traditional means, which would add up up to 5-figure losses in many cases. Furthermore, MarketWatch notes that these iBuying services’ fees in some markets exceeded the the 5-6% that sellers are accustomed to with traditional real estate agents. In other words, these services cost people more money, regardless of whether they’re buying or selling their home. All for convenience. Furthermore, market prices are in part based on the historic stability of real estate values, which, as Ben Casselman and