In 2021, iBuyers doubled from pre-pandemic levels, driving tens of billions of dollars in home sales. Las Vegas was among the top 10 markets where startups were focusing their investments. During the frenetic summer, Maxson had already lost out twice to cash offers from Zillow and Opendoor. On Dancing Avenue, Zillow was now the seller, and it was listed on June 24 for $470,000, nearly $60,000 more than he'd paid just under two weeks earlier. But Maxson wanted the property, and agreed to close just below the asking price.
Zillow listing for Maxon's dream home on Dancing Avenue.
But when he went to view the property, he discovered a 37,000-gallon leak had eaten away at the garden wall and flooded his neighbor's yard. The homeowner, Seattle's Zillow, hadn't noticed, but city officials had. Maxson found a sign on the garage door warning of fines for pooling green water that attracts mosquitoes that carry the West Nile virus. It's one of the downsides to having a home owned by a “faceless” corporation, Maxson says. [owners] “It was just a number on a spreadsheet, so I was disconnected from it.” He offered to handle the estimated $30,000 in repairs himself and take it off Zillow's books for $30,000 less than the list price, but they refused. Maxson soon found out the house had sold to another family for the same price he'd offered. He estimates he lost about $2,000 on inspections and other costs. It was the first time in 22 attempts that summer that he'd come close to getting the house.
But right around that time, the startup that was cashing in on dream homes was starting to notice cracks in its foundations. After all, Zillow Offers had lost more than $420 million in three months on shaky home purchases and unprofitable sales. As Zillow Offers shut down, analysts questioned whether other iBuyers were in danger or whether the entire technology-driven model was even viable. For the rest of us — neighbors, renters, and would-be buyers — a bigger question remained: Does the arrival of Silicon Valley tech signal a better future for housing, or threaten to disrupt the industry?
Dogfight
By summer 2021, the U.S. housing market had nearly run out of records to break. The Washington Post reported that home prices had hit an all-time high (median price $386,000 in June) and the number of homes for sale had hit an all-time low (1.38 million nationwide). That summer, the average home sold in 15 days, half the time of the previous year, as cash-rich investors and second-home buyers bought in greater numbers than ever before. By November, a New York Times headline asked, “Will Real Estate Go Back to Normal Again?”
Though they accounted for just under 2% of home purchases nationwide during this period, iBuyers have come to play a larger and more unpredictable role than most others, prompting calls by Los Angeles' mayors to ban the platform. iBuyers are growing city by city, with investment clustered in a few Sunbelt regions, with the top five (Phoenix, Atlanta, Dallas, Charlotte, and Houston) accounting for more than half of the total. By 2021, iBuyers had purchased 70,400 homes nationwide. Emerging iBuyers are raising funding rounds in the UK, Europe, and Canada, but all iBuyers are looking to the successes and failures of their US predecessors.
According to a National Bureau of Economic Research (NBER) working paper by researchers from Stanford, Columbia and Kellogg, which analyzed iBuying by Zillow, Opendoor, Knock, Redfin and Offerpad from 2013 to 2018, these cities are following trends that are “strikingly similar” to those seen in pioneering Phoenix, forming a neat growth pattern. iBuyers took up about 1% market share in Phoenix in 2015, but grew to 6% in 2018. In the hectic summer of 2021, iBuyers accounted for 10% of home purchases in Phoenix. “In certain areas, 25-30% of current listings are now owned by iBuyers,” says real estate technology strategist Mike Delpreet.