This article was originally published on Inman News on August 28, 2019 under, “Can iBuyers survive a market shift?” Links may send you to articles behind Inman’s paywall.
For the budding copyright cop, relax. My agreement with Inman allows me to republish.
Right about now, someone is thinking, “Another piece on iBuyers? Really?”
After all, love ‘em or hate ‘em, they are in the news, getting money and not going away. Last week, I had the pleasure of speaking at the Florida Realtors Convention & Trade Expo. (What a great state conference, by the way.) There were sessions on iBuyers.
IBuyers are a hot topic. It’s important to understand them, and be able to have a rational, accurate conversation about them with your sellers (and buyers).
The general agent conversation
Having paid attention to iBuyers since they first “became a thing,” there is an aspect about them that is often mentioned but never really gone into, at least not in-depth. Those conversations happened again, more than once, at the Florida event last week. They happen everywhere, and they will continue to happen.
These conversations go something like this:
“These iBuyers have it easy in a seller’s market. If the market shifts, they’re screwed.”
“Yes. That’s when sellers really need an agent. IBuyers won’t stand a chance in a buyer’s market.”
Despite the brevity in that conversation, there’s quite a bit going on, Let’s look at it line-by-line.
‘These iBuyers have it easy in a seller’s market’
Not really. First, selling real estate for a living isn’t easy, no matter how you slice and dice it. As anyone who lists property can tell you, Step 1 is finding someone ready, willing and able to sell.
Yes, some models might do better in certain markets or cycles. They might have it easier, but it’s not easy.
‘If the market shifts, they’re screwed’
First, there is no “if.” The market will shift, it’s just a matter of when, how fast and how hard. This is not rocket science, it doesn’t take a doctorate in economics to see.
The real estate market is cyclical. Although it may not “crash,” it is undeniable that the market will “shift,” “turn,” “slide,” whatever term you choose to use.
Many think an economic recession is looming. Some disagree. Many prognosticate. Just look some headlines here on Inman in the past two weeks:
- “A recession is on the horizon: KW New York City CEO“
- “How will a recession impact home prices?“
- “Yield curve inversion fears are overblown“
- “Housing start data spells good news for recession fears“
Wholesale recession or not, the real estate market will cycle. It always does.
Now, are the iBuyers screwed when it happens? More on that in a moment.
‘Yes, that’s when sellers really need an agent’
Actually, sellers really need an agent all the time. Tell me a time when sellers don’t need an agent. I’ll wait …
(I’ll keep waiting, but let’s move on.)
For the vast majority of humans, a real estate transaction is too infrequent, too expensive, too complicated and too emotional to go it alone. Sellers (and buyers) really need an agent all the time.
IBuyers might help with the complicated part for some. They do nothing for frequency, cost or the emotional aspects. If I was a seller considering using an iBuyer, I’d want representation. Some won’t. Some go FSBO. The facts remain, however, that 87 percent of buyers and 91 percent of sellers use an agent, according to the National Association of Realtors’ Profile of Home Buyers and Sellers.
Maybe iBuyers will result in fewer people using an agent. It’s awfully early in the game to be speculating on that. Let’s be honest — the industry’s track record on forecasting its own demise is worse than a Zestimate on a luxury waterfront home.
Consider all those things that were supposed to spell the end of real estate as we know it: fax machines, buyer agency, “100-percent” commissions, FSBOs, the internet, Zillow, discount brokerages, Redfin, venture capitalists, Compass, iBuyers; all those things, all those disrupters, yet here we are, with more people using an agent today than when Zillow launched almost 14 years ago.
Sellers are always better served with representation, no matter which path they take to sell.
‘IBuyers won’t stand a chance in a buyer’s market’
Usually, that is the extent of the debate — iBuyers won’t stand a chance in a market shift. When pressed as to why that is, there is often a blank stare accompanied with something akin to, “No one’s going to sell for less.”
Pressing further, I think what we’re really seeing is more of the FUD (fear, uncertainty and doubt) and misunderstanding that’s rampant in this business. Agents are afraid of iBuyers, they don’t understand them — or how to leverage them — so they simply want and hope they fail.
The “market shift” then becomes a convenient path for their ultimate demise. A demise that will fix the perceived problem that somehow iBuyers will really be the ones to eliminate agents.
Hate to pop that bubble, but I think a market shift might actually benefit iBuyers.
Let me make this clear — I don’t think iBuyers are going to replace agents. Ever. I also don’t think they are going away.
They serve a purpose for a limited segment of the market. My crystal ball says 10 percent, 15 percent tops. Right in line with FSBOs. But just like FSBOs haven’t eliminated agents, or any other oft-cited potential disruptor, neither will iBuyers.
That said, there are rarely discussed aspects of the iBuyer model that might very well benefit from a market shift. Wise agents would consider this and tuck it away in their toolboxes.
Convenience might command a premium in a buyer’s market. One thing that appeals to the consumer using an iBuyer is convenience. It’s a major marketing point for every iBuyer.
Ever stop to consider that if people will pay (in the form of lost equity) when selling a home is relatively easy, wouldn’t they be willing to pay even more when it’s difficult and time-consuming to do so?
Ditto with certainty.
The other major marketing point for iBuyers is the certainty they provide. Although that is a nice thing to have in today’s market, it becomes even more valuable in a market where buyers have more leverage and competition from other sellers is steep.
Listings languishing on the market. Step into your wayback machine, and go back to 2007 to 2012(ish). Home prices were dropping, everyone was talking about “the crash.” Sellers were watching their equity decline daily as their listings sat on the market, all the while accruing the high carrying costs of mortgage, taxes and insurance.
If that happened today, an iBuyer could swoop in and be a hero, taking that boat anchor off your hands and greatly simplifying your life. Certainty and convenience reign supreme in that sort of scenario, and some will pay handsomely for it.
Buyer leverage as an equalizer. Take a peek into any discussion among real estate agents about “how to combat the iBuyers,” and you will see much discussion, consternation and even anger about the repair fees some iBuyers charge.
The general consensus is that iBuyers charge hideous and outrageous fees in lieu of repairs. Although these discussions always seem to leave out the fact that most traditional sales also involve repairs, let’s assume it’s a fact that iBuyers will cost a seller more for repairs than a traditional sale would.
In a market shift, the buyers will have far more leverage than they do know. They are, in effect, in the driver’s seat. So buyers will be in a position to request more and, quite likely, receive more when it comes to repairs.
This will help equalize the cost delta between traditional and iBuying transactions and make iBuyers an even more attractive option for sellers.
Don’t write them off
It’s easy to say, “IBuyers will fail when the market shifts.” Not that you want some specific individual to fail, most humans are better than that.
But human nature is what it is, and protecting your chosen profession is crucial to your survival. It’s perfectly normal to wish a threat away.
The problem is, wishing it would just go away is a waste of time and energy. IBuyers aren’t going away. They will survive a market shift just like you do — by changing, modifying and adapting as needed. Personally, I don’t think iBuyers spell the end of real estate any more than anything else over the years.
If 10-15 percent of the market wants to sell to an iBuyer, focus on the 85-90 percent that uses an agent. That’s plenty of market share to keep you busy. Better yet, watch the consumer reaction to iBuyers, learn from them and incorporate that learning into your business.
Rather than bemoaning their existence and looking for ways they will fail — learn, leverage, and grow your business.
Jay Thompson is a real estate veteran and retiree in Seattle, as well as the mastermind behind Now Pondering. Follow him on Facebook or Instagram. He holds an active Arizona broker’s license with eXp Realty.