Erika is an attorney in Obermayer’s Business and Finance department. She focuses her practice on corporate law and real estate transactions, representing financial institutions, real estate developers and investors, as well as...Read More by Author
Are your neighbors iBuyers?
Zillow is an app that is widely known for its online real estate listings and “Zestimates,” which show approximate values of homes. In 2018, Zillow expanded its business to include purchasing homes through its subsidiary “Zillow Offers.” Zillow Offers purchases homes directly from sellers, flips them, and sells the homes directly. Other tech companies like Opendoor, RedfinNow, and Offerpad operate similarly; these operations are colloquially called “iBuyers.”
iBuyers use data and algorithms to make predictions about the future value of certain markets, which then allows them to make attractive offers on off-market homes directly to homeowners. These offers appeal to homeowners not only because of the price offered for their homes but because there is no need to pay an agent or prepare the homes for buyers. It was Zillow’s intent to use its platform to become a one-stop shop for home searching, buying, and selling. Currently, iBuyers only account for 1% of the US market but comprise up to 5% in certain areas like Phoenix, Atlanta, and Charlotte.
Zillow and other iBuyers have been met with backlash about participating as tech or investment conglomerates in an already volatile real estate market. Some skeptics have accused Zillow of overpaying for off-market properties in order to drive property values higher so that they can capitalize on gains. However, because the iBuyers only account for about 1% of any given real estate market, they often do not have enough leverage within an area to manipulate prices.
Others question the financialization of the housing market in general. The financialization of housing is the treatment of housing as an investment or commodity instead of a “human right.” It is argued that when speculative investors buy real estate from low to middle-income residents, often the newly purchased homes stand vacant until the market turns. Meanwhile, the sellers of these homes have difficulty finding new affordable housing and are often forced to then purchase beyond their means, which often leads to foreclosures, evictions, and even homelessness.
Finally, many doubt the ability of iBuyers’ to handle the logistics of managing billions of dollars in capital and the logistics of preparing a home for sale (drywall, painting, etc.). These doubts have been confirmed by Zillow’s recent announcement that it will be pumping the brakes on its home purchasing scheme as it is struggling with a backlog of properties and other supply chain issues. The company has run into problems with increased costs for lumber and labor and cannot economically flip the homes it bought in 2021. Although Zillow is taking a step back, Opendoor plans to continue leading the iBuyer market with vigor.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.