An iBuyer is a tech-based real estate company that uses data analytics and algorithms to value homes and uses a huge war chest of investor funds to buy homes en masse.
iBuyers usually offer slightly less than market rate for the homes they buy, but they offer a fast, frictionless transaction in which sellers don’t have to list their home, prepare it for the market, or negotiate with the buyer over price or contingencies. Sellers simply accept or reject the iBuyer offer, and then choose their closing date.
A new study by Clever Real Estate looks at consumer sentiment around iBuyers like Opendoor, and unearths some fascinating insights. Although iBuyers only have a tiny fraction of the market, they seem to have a very significant presence in the mind of potential home buyers and sellers, who consistently overestimate the amount of homes iBuyers are buying, while also not being very clear on what, exactly, iBuyers do.
The study also takes a close look at consumer concerns about traditional real estate agents, and learns that homeowners don’t feel great about working with a realtor, the their fees they expect to pay, and timing the purchase of their new home with the sale of their old one. These concerns suggest that iBuyers could capture a lot of business just by streamlining the sale process and making it more transparent.
Let’s take a closer look at what people think of iBuyers, who is more or less likely to sell to an iBuyer, what people like and dislike about iBuyers (and agents), and a lot more!
1. Very Few Homeowners Could Define What an iBuyer Is
Only a little over a quarter of surveyed homeowners, or 27%, were able to offer an accurate definition of an iBuyer. Over a third of respondents, or 36%, also incorrectly identified “We Buy Houses for Cash” companies as iBuyers — they are not.
That suggests that iBuyers have a lot of educating to do if they want to capture a larger market share — though it’s an open question if homeowners, once they learn what an iBuyer actually is, will be open to selling to them.
2. Nearly Two-Thirds of Homeowners Are Open to Selling to an iBuyer
The study found that 65% of homeowners would consider selling to an iBuyer, which is pretty surprising (and a little puzzling) considering how few homeowners actually know what an iBuyer is. This suggests homeowners have a pretty positive impression of iBuyers, even if they don’t actually know exactly what they do.
3. iBuyers Haven’t Been Around Very Long
iBuyers are a relatively recent entrant into the homebuying arena; the very first iBuyer, Opendoor, was founded in only 2014.
4. iBuyers Haven’t Captured Much of the Housing Market — Yet
In 2021, iBuyers accounted for only 1.3% of all U.S. homes sold, a tiny fraction of the market considering how deep-pocketed they are.
5. Some Big Name iBuyers Have Already Exited the Business
Zillow Offers, real estate giant Zillow’s iBuyer division, abruptly closed up shop in November 2021 after they found that their business model wasn’t profitable. Still, even in failure, their numbers suggested that there’s a big unmet demand out there for iBuyers, as they were only able to extend offers to 10% of sellers who requested them.
6. Black Homeowners Are a Lot Less Likely Than White Homeowners to Sell to an iBuyer
The study found that nearly half of Black homeowners surveyed, or 46%, said they would not consider an iBuyer. Only a third of white homeowners, or 33%, said they wouldn’t sell to an iBuyer.
7. Older Homeowners Are a Lot Less Open to iBuyers Than Younger Generations
Baby boomer respondents were 72% more likely to be against selling to an iBuyer than millennial respondents, which is likely a reflection of Millennials’ greater comfort with new technology like home buying websites.
8. But Millennials Would Prefer to Sell to an Individual — Even Moreso Than Boomers
Even though millennials are more comfortable with new technology, 84% of millennial respondents said they’d rather sell to an individual buyer than a company, while only 70% of tech-averse boomers said they’d prefer to sell to an individual.
This highlights an interesting and somewhat counterintuitive insight; while the younger generations may have a better understanding of new tech, and be more comfortable with it, they also seem to have a strong preference for personal, face-to-face relationships.
9. The Majority of Homeowners Would Recommend iBuyers — with Some Reservations
Over half of homeowners, or 52%, said they’d consider recommending an iBuyer to friends and family, though that recommendation would come with some caveats for many of them. Less than a quarter of homeowners, or 23%, said they’d recommend an iBuyer without any hesitation.
Whether their hesitation comes from unfamiliarity with the iBuyer business model, or actual discomfort with the iBuyer business model, is going to have a big impact on how successful the iBuyer industry as a whole is in the future.
10. iBuyers Are Pretty Popular Everywhere — But Moreso In Certain Regions
iBuyers are most popular in western states, where 74% of respondents said they’d sell to an iBuyer. They were least popular in the midwest, where only 61% of respondents were open to selling to an iBuyer.
Part of this geographical disparity is likely due to the fact that the first iBuyers were based in the western part of the U.S., in Phoenix and San Francisco. iBuyers aren’t available everywhere yet, so as they do become more common, homeowner openness will likely increase along with market share.
11. Nearly One in Five Homeowners Thought They Knew What an iBuyer Is — But Were Totally Wrong
One interesting finding is that 19% of respondents said they definitely knew what an iBuyer was, but turned out to be mistaken.
Furthermore, when told what iBuyers actually were, most homeowners were open to working with them. Right now, outreach and education seem to be the main hurdles for the iBuyer industry.
12. A Huge Majority of Home Buyers Have Reservations About Purchasing from iBuyers
Interestingly, those positive perceptions mostly disappear when the study looks at home buyer attitudes towards iBuyers.
While most sellers were pretty positively inclined towards iBuyers, a whopping 92% of homeowners had reservations about buying a home from an iBuyer. Their top concern was being taken advantage of, with 42% of respondents citing this reason — an interesting response that suggests sellers believe the iBuyer algorithm will be generous towards them, while buyers believe it’ll take advantage of them.
13. Many Buyer Concerns Are Related to a Lack of a Personal Touch
The second-most common concern cited by potential iBuyer buyers was “poor quality repairs” (33%), followed by “inability to negotiate” (32%); the fifth most common concern was “lack of personal experience” (26%).
Looking at these concerns together implies that buyers are worried about the lack of quality and control that comes when buying from a large-scale, automated, tech-based real estate company. If traditional real estate agents are looking for a silver lining in this study, it’s right here: buyers still want a human face for their home purchase, and they want to feel like they negotiated a great deal, or they’re leaving themselves open to buyer’s remorse.
If iBuyers want to sell their homes to individual buyers, they may have to offer incentives like home buyer rebates to lure them in.
14. Most Homeowners Know That iBuyers Don’t Pay More Than the Open Market
Around 37% of respondents said that iBuyers offer less than a traditional sale would bring in, and another 29% said iBuyers offer around the same as a traditional sale; that means that a total of 66% of respondents correctly understood the type of offer they could expect from an iBuyer.
However, a little less than a fifth of respondents, or 17%, thought that iBuyers offered “much more” than a traditional sale, a finding that suggests support for iBuyers might decrease once people know more about their business model.
15. Less Than Half of Respondents Knew How Much iBuyers Charge In Fees
Only 49% of respondents were able to correctly identify that iBuyer service fees typically eat up 6% to 15% of the sale price, plus normal closing costs — costs which are significantly higher than in a typical conventional sale.
16. A Large Majority of Homeowners Are Surprisingly Flexible on Price
Only 18% of homeowners surveyed said they’d “never” sell their home for less than market rate. The other side of this coin is that 82% of homeowners would be open to selling for a price that’s less than market rate if circumstances were right.
This particular finding should be especially encouraging for iBuyers, as their business model is to offer less than the market price in exchange for certain non-financial perks and benefits.
17. Sellers Would Take a Lower Price In Exchange for Greater Convenience
Among homeowners who said they’d be interested in selling their home for less than the market price, the most common benefit they were interested in was “selling their home with no contingencies” (38%), followed by “avoiding repairs and renovations” (36%), “selling their home instantly” (36%), “timing their sale with the purchase of a new home” (31%), and “avoiding a realtor or paying commission” (31%).
Looking at all these reasons together, it’s clear that sellers are willing to leave some money on the table if it means they can reduce some of the uncertainty of the sale process.
18. The Exact Amount of Money Homeowners Would Leave on the Table In Exchange for Convenience Is Shockingly High
Over half of homeowners surveyed, or 54%, said they’d accept a lower-than-market-rate offer on their home if they could sell instantly, and choose their closing date. How much lower than market rate? The average price cut they’d be willing to accept was $45,400 — which shows how highly the average home seller values a fast, frictionless transaction.
19. Homeowners’ Biggest Home-Selling Complaints Say a Lot About Their Priorities
The top stressors cited by homeowners were moving (44%), repairs (41%), negotiating with buyers (40%), paperwork (40%), and finding a good real estate agent (38%).
Considering that working with an iBuyer eliminates three out of five of these complaints suggests that iBuyers may have significant appeal among home sellers, especially when you take into account that the average homeowner is willing to leave over $45,000 on the table for a more convenient transaction.
20. Many Homeowners Couldn’t Name a Single iBuyer
Nearly a fifth of respondents, or 19%, weren’t familiar with any of the iBuyers listed in the survey. Furthermore, 35% of respondents ranked Zillow Offers as the most legitimate iBuyer, despite the fact that they went out of business last year.
21. Homeowners Think iBuyers Are Buying a Lot More Homes Than They Actually Are
A surprising 87% of respondents overestimated the share of homes that iBuyers purchased in 2021.
Only 1.3% of homes sold in 2021 were bought by iBuyers, a surprisingly small slice of the market considering the outsized presence iBuyers have in consumer consciousness.
22. The Vast Majority of Homeowners Think iBuyers Are Here to Stay
85% of homeowners think iBuyers will either increase or hold steady in popularity over the next year. When asked about the next five years, 68% of respondents thought iBuyers will become more popular than they are now, and nearly a quarter, or 24%, think they’ll overtake traditional real estate agents in popularity.
Even though one major iBuyer has gone out of business, and others paused operations for significant chunks of the pandemic, consumer confidence in iBuyers is extremely high.
23. Homeowners Still Have More Confidence in an Agent, Though
Despite their extremely high confidence in iBuyers in general, respondents were still more confident selling with an agent than with an iBuyer, with an overwhelming 91% saying they’d feel most confident working with an agent, while only 76% said they’d feel better going with an iBuyer.
That doesn’t mean they don’t have serious reservations about agents, though.
24. Homeowners Have Substantial Concerns About Agent-Assisted Sales
Although the large majority of sellers feel most confident working with an agent, many homeowners have serious reservations about agents. The most common complaint, by far, was expensive real estate commission, which was cited by 53% of respondents.
In second place were drawn-out timelines (39%), followed by pushy personalities (38%), pricing their home correctly (38%), and receiving bad advice (36%).
Again, the iBuyer model addresses several of these concerns, implying that the industry has a lot of room to expand. And the fact that commission was, by far, the top concern of respondents, suggests that other industry innovators like discount real estate companies could also expand their market share.
25. Most Homeowners Want an Agent and an iBuyer
72% of homeowners want to have it both ways, saying they’d contract with an agent even if they were selling to an iBuyer.
While this arrangement could potentially address a lot of the concerns they have about the home selling process, it would also double their transaction costs — meaning that it’s probably not a great idea.