The next challenge to Australian and New Zealand real estate agents will come not from a fancy technology but a change in thinking around how property can be sold.
The growth of the iBuyers in the USA is moving from being an ‘interesting’ development to ‘uh-oh’, meaning the concept is not just getting traction, but is on the verge of scaling. And when it scales, Australia and New Zealand should expect it to launch – and fast.
What is an iBuyer? The ‘I’ in iBuyer stands for immediate. An iBuyer is where buyer have the option of selling their property immediately for a cash offer. There are no painful weeks of backbreaking work of getting the property ready for sale, no staging, no stressful auction campaigns.
Just an estimate of what the property is worth using automatic valuation tools, a cash offer, and then an agreement with the purchasing company which can include options such as letting the seller rent the property and/or move out when they are ready. Which can also remove the stress around the need to find a new home to buy by a deadline.
Seems pretty attractive, huh?
What’s the downside? Well iBuyers purchase properties based on automated valuations. Are these amounts what the property would sell for in an open market, especially if competition could be generated for the property through a solid marketing campaign? Most probably not.
When using the iBuying technique, sellers are trading the premium they get for the property selling it through an agent against the stress and time it takes to get a sale, and any worries about the finance or sale falling through. The offer is up front and immediate and the iBuying agency itself at a later date seek to sell the property at a premium. In effect, iBuying is property arbitrage – trading the premium for convenience.
In the US, the first – and largest – player in this space is a proptech called Opendoor. Opendoor have raised $US 645 million in equity financing and are currently valued at over $US2 billion. The startup plans to be in 50 US markets by 2020 and has already rolled out in 18 cities.
Opendoor uses a website and app for prospective homesellers to enter their address and receive an offer, less a service charge that is typically between 6% and 13%. (so higher than Australian and NZ commissions, but remember, there’s no marketing spend).
Opendoor will also conduct an on-site assessment to identify if any repairs are needed. The seller then has the option of doing the repairs themselves, or let Opendoor do them, in which case they are deducted from the offer price. If the vendor takes the offer, Opendoor closes in days, and then it re-lists the home for sale on its site and app, where prospective buyers can do on-demand showings. Buyers can also use Opendoor’s app to shop for homes.
Other startups now in the space include Knock and Offerpad, while the big US real estate agency, Redfin, and real state portal, Zillow are also moving into the space.
So will ibuying take off in Australia and New Zealand? The seller need for immediate results – or a set period of selling pain - is served to a degree in markets where auctions are strong. (The US doesn’t have auctions). But vendor complaints about the cost of auctioning, especially the marketing campaigns around them, could mean that the method gets some traction.
Especially when markets are on the downturn and time on market is increasing, iBuying could have greater appeal, especially for vendors who need to sell quickly.
There was $294 billion in residential property sold in Australia up to September 2018 according to CoreLogic. The proportion of that up for grabs from proptech startups who can cash in on the poor experiences being had by agents is estimated at $41 billion in property sales in Australia alone. If the iBuyers can better the commission rates of agents, there is more than $1billion up for grabs. (See full article on the cost of disruption)
However, there’s also the idea of ‘missing out’ on the premium. Will Australians and Kiwis be prepared to trade speed and certainty for letting someone else capitalise fully on their largest investment? That is literally the billion-dollar question.
And will our local portals or real estate franchises embrace the model to give consumers more choice? Watch this space.