US Real estate marketplace Zillow is in the perfect spot to begin its takeover of the iBuyer market
Imagine you knew nothing about real estate. That you had never heard of an escrow, natural hazard disclosures or title insurance. In this world, what does a home transaction look like? Do you have to worry about mortgage rate increases, all cash offers or seller contingencies? Or, if your only frame of reference was the frictionless process in which we buy everything else in our daily lives, would you assume that you would be able to find a house that you like, enter your payment details and buy it.
This ignorant, idealized version of the home buying process seems like pure thought experiment but, in fact, it’s a lot closer than any of us ever imagined. The end-to-end customer experience for real estate transactions has seen billions of dollars poured into companies called iBuyers, who’s very business model is to buy houses instantly and sell them without the hassles that we have come to accept. This trend is still in the early stages and there are no signs of it slowing down.
The iBuyer business model is pretty straight forward, a real estate company uses data science and property data, both public and private, to create valuation models that identify home with high investment potential. They can then make an instant offer that provides liquidity to homeowners that doesn’t exist on the traditional real estate market. Typically, iBuyers charge a 7-10% fee compared to a standard 6% agent commission and will offer an 80-100% of the market value for a home. They might charge a higher fee for convenience but many sellers will be willing to pay for the benefit of being able to have a sale finalized within weeks or even days. You may take home a bit less than the traditional method but you can save time and all the headaches that come along with selling or buying a home.
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