Corporate entities buying single-family homes is nothing new. They’ve been doing it for years to diversify their portfolios, to add rental income to their revenue streams, or to sell the houses they buy for a profit. But, according to the National Association of Realtors (NAR), the last few years have witnessed a sea change.
Tech companies — backed by money from Wall Street and venture capitalists — are entering the market as digital direct buyers, and they’re offering both sellers and buyers alike a new kind of bargain that is changing a sorely outdated business model.
Direct Buyers Take the Stress Out of Selling — For a Price
The new crop of startups that the NAR referenced are known as eBuyers or iBuyers. They offer homeowners a tempting alternative to the long, drawn-out, and often frustrating process of selling a home the traditional way.
iBuyers use algorithms to estimate the fair market price of the homes of interested customers and then make those customers a cash offer. If the homeowner agrees, the iBuyer takes ownership of the house, which it will then turn around and sell to a regular homebuyer. iBuyers make money by buying at a slight discount, selling at a slight premium, and by charging a service fee, which is roughly in line with traditional agent commissions, according to MarketWatch.
Even if they get less for their house than they might have the old-fashioned way, sellers close the deal right away without listing, staging, and showing the home, and without the months-long closing process that’s standard with a buyer with a mortgage. The process also gives the seller much more control over when they move out.
For those willing to pay a premium for stress-free simplicity, iBuyers have filled a gaping void left open by the traditional real estate model. Here’s a look at the biggest in the industry.
Opendoor Has Low Fees and a Strong Record
As of September 30, 2020, Opendoor’s service charge will be no more than 5% — historically, it’s been as high as 14%. There are no hidden fees and the top-tier iBuyer makes any necessary repairs after you move — sellers choose their own move-out date. One of the best-known iBuyers, Opendoor receives a request for an offer every 60 seconds. You can also list your home through Opendoor and interested buyers can purchase a home from the company, as well.
Offerpad Is Flexible and Brings Competitive Bids to the Table
Offerpad is another of the most popular iBuyers — the company buys or sells a home every 10 minutes. They give a competitive cash offer within 24 hours of your request and let you pick your own moving day. Everyone who sells directly to Offerpad receives a free local move from a professional moving company. Their extended-stay program lets you remain in your home for up to three days after your closing date for extra flexibility and, like Opendoor, you can also list your home through Offerpad if you choose.
There Are Also Some Names You Know
It’s not just new, exciting tech startups. Well-known online real estate marketplaces are cashing in on the trend, too. Zillow Offers and Redfin Now are the iBuying divisions of their namesake brands — and they follow the same format as the new kids in town. They use algorithms to calculate a property’s fair market value, send a rep to appraise the home, make an offer, pay cash, and then sell it for a profit.
These bigger, more established companies are doing so well, in fact, that they’ve become victims of their own success. Zillow Offers, for example, recently stopped buying homes for the rest of 2021. Their direct-buying format has been such a hit that the company has built up a huge backlog of inventory, according to CNN.
Pacaso Is Changing the Game — and Ruffling Feathers
All the big buyers sell homes, too, but aside from a streamlined online experience, the process isn’t much different than the traditional method of buying a home. You’re just financing the purchase with a mortgage directly through the iBuyer instead of through a third-party lender.
Pacaso, however, is different.
Designed specifically for second homes, Pacaso lets interested buyers shop single-family homes in top destination markets and pairs them with qualified, pre-vetted co-owners. Each and every property is converted into an LLC, and Pacaso takes care of all the details involved in the sale. At closing, you and your co-owners own 100% of the property — it’s not a timeshare and Pacaso maintains no ownership. The company even manages the property and takes care of repairs and furnishings.
Pacaso earned unicorn status — $1 billion in valuation — faster than any private company in history, according to NPR. But while its venture capital investors are happy, plenty of neighbors are not. The concept of homes as corporations is a turnoff for many, as is the influx of partial-share owners buying into neighborhoods they could have never otherwise afforded.
Picasso is facing powerful legal challenges while it rakes in cash.
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Last updated: Oct. 22, 2021
This article originally appeared on GOBankingRates.com: Tech Startups That Are Changing the Way We Buy and Sell Homes