By Jacob Passy
When the coronavirus pandemic first forced states to issue stay-at-home orders, so-called iBuyer companies quickly stopped purchasing homes in anticipation of major upheavals in the U.S. housing market.
But now two of those companies are resuming operations.
Offerpad, a company that specializes in buying homes directly from sellers and then turning them around quickly to be resold, said that it will begin fielding offers from home buyers, sellers and real-estate agents again starting May 8 in more than 800 cities across the country.
The company worked with HealthyVerify, a service that develops health and safety protocols for businesses, to create new procedures to reduce the risk of transmission in the home-shopping process. The procedures include disinfecting common areas, limiting the number of people in homes and handling most processes remotely.
Offerpad is rolling out virtual and video chat tours of its homes. In cases where a buyer needs to tour a home in person, Offerpad-owned homes will be sanitized and vacant, the company said.
Another iBuyer, Opendoor, said Monday that it will begin buying and selling homes again . In doing so, the company is rolling out new features that seek to make the process as contactless as possible.
“Life didn’t cease because of COVID-19,” Opendoor co-founder and CEO Eric Wu said in a blog post. “People are still having kids, getting married, and retiring. People still have a need for a home with an extra bedroom, a bigger backyard, or in a better school district. And we’ve heard loud and clear that safety is the No. 1 priority.”
Direct sales to Opendoor now only require a virtual interior home assessment, rather than an in-person walk-through, starting with Phoenix on May 4 and Raleigh-Durham, N.C., on May 11.
Additionally, Opendoor has added a new service called Home Reserve geared toward those looking to buy and sell at the same time. Through this service, Opendoor will purchase and reserve a family’s new home on their behalf with an all-cash offer. The homeowners will then be allowed to move into the home, and then Opendoor will list and sell their old home once it’s empty.
The Home Reserve feature will be rolled out in tandem with the “Sell Direct” feature. Opendoor will only purchase homes on behalf of customers if they are single-family homes or townhomes at a purchase price between $100,000 and $750,000. Households that participate will be charged a 6% listing fee on the home they are selling — Opendoor will also get a commission from the seller of the new home.
The company has also updated self-touring technology for those looking to buy homes from Opendoor. Shoppers can also visit vacant properties by unlocking them through the Opendoor app. This service will be available starting in Phoenix, Los Angeles, Dallas and Riverside, Calif., before becoming available in more cities in coming weeks.
The new services could help Opendoor remain competitive at a time when home buyers, sellers and real-estate agents are quickly adapting to a virtual home-shopping process. “If there are consumers out there that are more sensitive to contactless transactions, which clearly there are, Opendoor can appeal to them in a way that nobody else can,” said Mike DelPrete , an independent analyst who tracks the iBuying industry.
So-called iBuyers, which also include divisions of Zillow /zigman2/quotes/205077794/composite ZG -0.69% and Redfin /zigman2/quotes/203726414/composite RDFN -7.14% , represent a small but growing share of the overall real-estate market. Nearly 7% of homes sold in Raleigh in the third quarter of 2019 were bought by iBuyers, according to a December report from real-estate firm Redfin, more than any other market nationwide.
While it’s still a small percentage, many cities have seen the share of homes sold to iBuyers double in recent years. And the iBuying firms have spread to more cities nationwide. While these companies are growing, they do face some challenges — and not just as a result of the coronavirus outbreak. Even before the pandemic, there were questions about the business model.
“They all struggled with profitability,” DelPrete said. “These were cash-burning businesses, and they were all struggling to start up ancillary revenue streams like mortgage and title operations to prove out that profitability.”
These companies mainly derive their profits from fees they charged to home sellers, along with any price appreciation they might see between the time they bought the home and then flipped it. That means these companies operate with very tight margins. Amid the temporary shutdown, Opendoor laid off over a third of its employees. according to TechCrunch.
Another iBuyer, Zillow Offers, has not yet resumed home-buying operations. A spokeswoman for the company said it continues “to monitor market signals and local health orders.”
“We’ve already seen a significant increase in traffic to for-sale listings on Zillow, impressive adoption of buyers requesting virtual home tours and strong interest in Zillow-owned homes as they are unoccupied, regularly cleaned, and can be easily toured while adhering to social distancing practices,” the spokeswoman said.
Moving forward, DelPrete said iBuyers will need to begin adjusting the fee they charge home sellers to account better for risk, given how volatile home prices could be in the months ahead. Zillow /zigman2/quotes/204413973/composite Z -0.60% has predicted that home prices could drop by as much as 4% if the economic recovery is rocky, while Fannie Mae /zigman2/quotes/208846331/composite FNMA +2.51% predicted that home prices would continue to rise in spite of the pandemic.
Resuming operations ultimately is just the first step. “The iBuyers need to prove their relevance in the real estate market,” DelPrete said. “And you can’t be relevant if you’re not buying houses.”