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The Language of iBuyer

Written by Posted On Tuesday, 14 January 2020 13:29
The Language of iBuyer

Sometimes industry terms get lost in translation. It seems a day doesn’t go by without some reference to iBuyers in the press, in social media, or in brokerage meetings. 

Exactly what do you think of when you hear the word iBuyer?

My first thought is what does the “I” stand for? Instant? Internet? Institutional? The answer is all three, with the emphasis on Instant.

iBuyer has become a popularized term that actually covers a multitude of practices and services with its own language and nuances. The common denominator of these practices is technology and quick funding, with a focus on improving the consumer experience in the real estate transaction by minimizing the usual pain points that typically come with buying and selling residential real estate, and the time required to turn a real property asset into cash (or cash equivalent).

Saul Klein and I were struck by the variety of iBuyer nomenclature while engrossed in reading the recently published 2020 Swanepoel Trends Report (“Report”) and its Chapter 1 entitled “The iBuyer Revolution – Redefining the Real Estate Transaction.” The T3 Sixty Team did an excellent job in researching and facilitating a more comprehensive understanding of how the fast-growing iBuyer trend may develop and potentially shape the residential real estate brokerage industry. 

The iBuyer chapter covers key terms such as:

• Synchronous Sellers
• Guaranteed Offer
• Convenience Fee
• Concierge
• Trade-in
• Buy and Sell
• Bridge Loan

Chapter 1 includes a helpful chart that segments the iBuyer Landscape into Sellers, Synchronous Sellers, and Buyers. 

Sellers:

With respect to Sellers, there is the Traditional iBuyer Service model in which the Sellers receive fast all-cash offers and select a closing date in exchange for a service or convenience fee (in essence, a premium for a simple, fast and certain sale) . 

Under the Concierge model, Sellers receive cash upfront to fix-up the home before selling, and then repay the loan upon closing the sale. The thought is to generate a premium for an upgraded home that can also reduce time on market with targeted improvements.

Under the Guaranteed Offer model, Sellers receive a base guaranteed offer and the iBuyer then lists the home on the open market for a specified time. If the home does not attract offers above that base in the time allowed, the iBuyer buys the home at that guaranteed offer price.

Synchronous Sellers

With respect to Synchronous Sellers, there is the Trade-in model in which the iBuyer makes an offer to purchase the Seller’s home and enables the Seller to time the closing of the transaction in coordination with the purchase of the new home. By syncing the purchase of their new home with selling their old one, home sellers eliminate the challenge of potentially carrying two mortgages while streamlining both the buy and sell transactions. As noted in the Report, “the value proposition for consumers jumps up when the iBuyer offers discounts or added convenience for buying and selling with it.” 

Under the Buy and Sell model, the iBuyer makes a guaranteed offer on the Seller’s home and then purchases the next home the seller targets. The Seller rents the new home from the iBuyer while the iBuyer tries to sell the previous home for a specified period. If the previous home does not attract offers above the base amount in the time allowed, the iBuyer buys the home at the guaranteed offer amount. Upon the sale of their previous home, the Sellers then complete the financing or purchase of their new home outright from the iBuyer.

Under the Bridge Loan model -- designed for Sellers wanting to buy their next home before their current one sells -- the iBuyer company provides a bridge loan to the Sellers to help them make a down payment or payments on their new home while their previous home sells.

Buyers:

With respect to Buyers, there is the All-Cash offers model in which the iBuyer makes a fast offer with its own cash on a potential Buyer’s behalf. The potential Buyer then rents the home from the iBuyer and purchases it upon securing the necessary financing

Under the Guaranteed Offer model, the iBuyer guarantees the Buyer’s offer up to a specified amount. This enables the Buyer to make offers free of a financing contingency, which can improve their chances of winning the home in a competitive market. If the Buyer’s financing falls through, the iBuyer steps in and purchases the home. The Buyer then rents the home from the iBuyer until the Buyer secures the necessary financing.

It is clear from the Report’s “ iBuyer Revolution” section that the variety of iBuyer offerings will continue to grow into 2020. One emerging angle that some iBuyers and other companies are employing is the targeting of synchronous sellers to make them guaranteed all-cash offers that then become collateral for mortgages from the iBuyer’s affiliated mortgage company for the home they purchase. There are new services that aggregate cash offers from existing iBuyers -- a way some brokerages have found to participate in the iBuyer trend without having to operate the model themselves.

While some iBuyers are building strong national presences, a number of other players highlighted in the Report have emerged in recent years who have introduced twists on the traditional iBuyer model --companies such as Flyhomes; Knock; Perch; Ribbon; Homeward; and Bungalo.

But the big takeaway from the Report is the fact the industry is getting ever close to solidifying the elusive end-to-end transaction. In addressing the future of the iBuyer model, the Report concluded that:

“Geographic expansion is just one part of iBuyer company growth plans; they are also aggressively pursuing revenue opportunities around the transaction, just as many other brokerage companies. Zillow, Opendoor, Redfin and other iBuyers are building the industry’s long-held end-to-end transaction dream. Each of these companies owns its own mortgage and title companies. By stitching these together into one platform and baking it into their iBuyer offering, these companies could offer consumers a seamless transaction from one dashboard. 

IBuying is clearly a low-margin, high-volume business that will require scale for companies to operate profitably. However, this calculation does not include revenue iBuyers can pull in from their ancillary mortgage and title companies and from the referral fees they collect on seller leads they pass to partner agents... the transaction-based traditional brokerage business model increasingly must lean into these revenue streams to remain viable. Transactions are quickly becoming a brokerage loss-leader for these other areas of the business.”

iBuyer may not be a household word right now, but as new services enter the industry, a clear understanding of new products and services foster high confidence and celebrity authority for smart agents and brokers who demonstrate value and expertise and authority for their customers and clients.  

Be the professional who invests time and attention to new innovations that help them stand apart from the crowd. 

SOURCE: Excerpts from Chapter 1 2020 Swanepoel Trends Report - “The iBuyer Revolution – Redefining the Real Estate Transaction.”

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John Reilly

John Reilly is a real estate educator and one of the foremost writers of real estate materials, including several published books and numerous articles. His national bestseller, "The Language of Real Estate", published by Dearborn Publishing, is now in its seventh edition and selling over 125,000 copies. John, an attorney, served as a Captain in the US Army JAGC during the era of the Vietnam War.

While residing in Hawaii in 1995, John and his partner, Saul Klein, founded Real Estate Electronic Publishing Company (REEPCO), which produced RealTown and Internet Crusade. In 2000, John moved to San Diego to devote his efforts full time to real estate electronic publishing with a focus on the development and moderation of NAR’s online e-PRO Technology Certification Program.

John and Saul are still running REEPCO and continue to engage in new ventures that bring today’s cutting edge technologies to the real estate community. He resides in San Diego with his wife Patti, has three children and four grandchildren, and is content with the knowledge that he has led and continues to lead a life rich in career and family.

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