Competing with iBuyers - Leaders Edge Training

When the pandemic first hit, there was great uncertainty in real estate market and iBuyers took a pause because they didn’t want to be stuck with a lot of inventory that wasn’t selling. According to industry reports, iBuyers have come back stronger than ever. How do you compete?

Let me start by saying that in a lot of ways, we did this to ourselves. Anytime an industry offers mediocre service, it opens the door for competitors to enter. Real estate isn’t unique:

For years the taxi industry got sloppy. They charged too much, their vehicles were often dirty, the cab drivers were often mean, and it was a terrible experience. This opened the door to Uber.
For years the used car dealerships had a horrible reputation for ripping off customers. They often didn’t hesitate to sell unsuspecting consumers a lemon without disclosing repairs and they frustrated buyers with high interest loans. This opened the door to Carvana.
For years many untrained real estate agents offered sub-par service and got paid very well to do so. This frustrated consumers and low and behold, this opened the door to iBuyers whose main selling feature is alleviating the frustration of working with a traditional real estate agent.

For my Canadian friends, we do not face the same competition from iBuyers yet, but trust me, anything that works south of the border eventually makes it way north (e.g. Zillow). This conversation is something you should keep in your back pocket for the day you are faced with this challenge.

In a nutshell, here are some stats that I read this week:

iBuyers are paying more for houses than ever before. Whereas the median purchase price was $250,000 in the past few years, this has increased to $350,000 in 2021 mainly due to the hot real estate market.
Whereas iBuyers used to offer less than market value as a tradeoff for a quick cash sale, they are now making more competitive offers and expanding the types of homes they are willing to purchase. According to Inman, “iBuyer offers are now clocking in at an average of 104% of market value”. By comparison, in 2020, iBuyer offers were on average only 97.6% of market value.
At the same time that iBuyers have increased their offers they are also dropping their fees. In 2020, the average iBuyer charged 7.2% which has dropped to 5.1% this year. This is a 35% reduction in a seller’s costs.

The main way agents have competed with iBuyers in the past was by showing how sellers could get more money on the open market and save commission fees. Both arguments are aggressively being challenged by the iBuyer business model, so how do you still compete?

1

IT’S ALL ABOUT THE MONEY

According to Zillow, 45% of all homeowners that request a cash offer go on to list their home on the open market. That means that half of sellers who seriously consider using an iBuyer decide to use an agent instead. For these sellers, it is about the money. Why else give up the convenience of a firm cash offer? Which brings me back to the statistic that iBuyers are now paying about 104% of market value. The question becomes, what is true market value? With the crazy market we’ve experienced in the past year, many buyers are paying way above what typically could be considered true market value. If iBuyers are willing to pay 104% of market value and regular buyers are willing to pay let’s say 124% of market value, sellers still net more going to the open market.

2

KNOW WHAT IBUYERS OFFER IN YOUR AREA

There are several iBuyers (Open Door, Offerpad, Zillow Offers, etc.). Take the time to learn which iBuyers operate in your area and what is in their value proposition. What types of homes do they buy and what is their process for working with agents? The more you know about your competition, the better you can articulate how you are different. Many iBuyer contracts include clauses that are not favorable to consumers, and it is highly advised that sellers and buyers should have a lawyer review the iBuyer contract prior to signing.

3

BE TRANSPARENT

Many agents try to avoid the iBuyer conversation when they meet with potential sellers. Bad move. Sellers are educated these days and they want an agent who is transparent about their options. Don’t hide from this conversation. When you get to the pricing portion of the listing presentation, don’t just show them what your CMA suggests their home is worth, explain the difference between what sellers could net using you versus using an iBuyer. Some brokerages have their own iBuyer programs which make this very simple. At the listing appointment you can offer the sellers an immediate cash offer, or let them know that you can test the market for 45 days to see if you can get them a better price. It’s the best of both worlds.

4

NO SERVICE REQUIRED vs BEST SERVICE AVAILABLE

Educate potential sellers about what they can expect if they use an iBuyer. iBuyers work from a volume business model. They see the house as a commodity, not as a personal residence. Buying or selling a house shouldn’t be scary, it should be exciting. iBuyers prey on consumers’ perception that working with an agent is frustrating and they can alleviate any undue stress. You need to tackle this perception by showcasing all the amazing services you provide to make the process enjoyable. You must be able to clearly articulate your strategies, what tools and resources you will use to get the job done with as little inconvenience as possible, your communication strategy, and your access to a team of partners who make the transaction seamless (mortgage, stagers, handymen, title, warranty, etc.). The best way to alleviate a customer’s concerns is to offer a Service Guarantee in writing.

5

AVOID HEAD-TO-HEAD COMPETITION

If you are not comfortable competing with iBuyers in your market, then you can always specialize in an area or a price point that is not serviced by iBuyers. This is typically custom or luxury homes. I’ve never been afraid of a little competition, but you may prefer to avoid it.

There will always be some alternative business models that we have to compete with. As technology improves and more untrained agents join the industry, I’m afraid our business will turn into a transactional one versus a relationship-based business that has survived for over 100 years. Always remember…opportunities generally present as problems, that’s why most of the industry misses them.

Do some research this week. Get several iBuyer offers on your own house to see what the process is like. You can’t advise clients unless you understand what you are advising them on.

If you want to learn more about how to compete and win, check out https://leadersedgetraining.com/virtual-training.

Chris Leader
President
Leader’s Edge Training