iBuying changing the face of real estate
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[November 12, 2021]
By Kevin Bessler
(The Center Square) – The momentum of the
real estate market continues in Illinois, but now another factor is
emerging that may alter the landscape.
“iBuying”, or instant buying, is a relatively new industry in which
companies like Zillow and Opendoor allow homeowners to avoid listing by
selling directly to them.
Zillow’s online house-flipping unit has turned into an embarrassing
flop, forcing the real estate company to flee the business, cut its
workforce, and dump thousands of its properties onto the market.
“We just determined that being an iBuyer was too risky, too volatile,
and ultimately addressed to few customers,” said Zillow CEO Rich Barton
to CNBC.
The company should never have ventured into home flipping, according to
Barbara Corcoran, real estate veteran and “Shark Tank” host.
“Barton is a phenomenal businessman. He’s a disruptor, so no one thought
he could stumble,” Corcoran told Yahoo Finance Live. “He went into a
space that has nothing to do with finding homes for people.”
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Zillow believed it had a leg up in the iBuying world with its “Zestimate.”
Launched in 2006, the highly touted algorithm had been focused on
millions of home valuations across the country before it was eventually
used to estimate the possible price of property Zillow bought intended
to flip for profit.
“Zestimates are inaccurate because they don’t know our local market,”
said Kindi Bliss, a real estate agent in Bloomington-Normal. “Now the
public thinks they are accurate, but the realtors know and laugh all the
time at Zestimates.”
Without boots on the ground, they are other limitations. As one
California-based appraiser told Money.com, “Zillow can’t smell if 20
cats live there.”
The company’s decision to bail will likely not bring down home prices
for ordinary homebuyers in Illinois. Zillow was not interested in real
estate in the Land of Lincoln, but other companies engaging in iBuying,
like RedfinNow, have been present in the state.
Illinois Realtors expects home prices to continue to increase for the
rest of the year, including 11.5% in Bloomington-Normal, 9.1% in
Rockford, nearly 8% in the Kankakee area, and about 5% in Decatur. The
group expects home prices to decrease in the Quad Cities, Peoria and
Springfield.
Other iBuying companies, like Opendoor and Offerpad said they are
expanding their home-flipping businesses. Though neither company is yet
profitable, third-quarter losses weren’t as bad as analysts predicted,
according to the Wall Street Journal. |