This piece originally appeared in the February 2022 edition of MReport magazine, online now [1].
Over the last year and a half, the real estate industry has dominated the news as the market for sellers heated up following pandemic lockdowns in 2020 and its lasting effects on inflation, global supply chain issues, and low housing inventory. As office openings and life post-pandemic begin, the residential real estate market is trending back to its pre-pandemic norm, but one notable exception is homeowners finally branching out and considering their options outside of traditional real estate agents.
Since 2020, homes have become a higher priority for many Americans, leading to the kickoff of the hot sellers’ market we have seen. The availability of new, for sale housing inventory improved over the summer of 2020 but could not keep up with sales growth. Additionally, despite marginally increasing existing home sale counts, the demand placed on the market by hungry and often desperate homebuyers lead to a hyperactive homebuying market that has continued into 2022.
Coupled with a new, hypercompetitive homebuying market, the pandemic also drove home prices to record high heights due to the United States’ highest inflation rates in nearly four decades. Inflation has led to low mortgage rates, which in turn have attracted more Americans to begin the search for a home. As demand stayed consistently high over the last year and half, the pandemic and new variants stand in the way of the housing market returning to its pre-pandemic infrastructure.
Which brings us to alternative methods which offer sellers the ability to navigate the home-selling process with less time and stress. By relying less on traditional real estate agents to sell their home, sellers can streamline the process and help to lead the market out of its current low-inventory status. While millennials and first-time homebuyers are competing for homes, they are also driving the growth of these alternative buying methods by prioritizing virtual opportunities.
What Rising Interest in Home-Selling Alternatives Tells Us About the Future
Nontraditional options like iBuying are picking up steam and disrupting the residential real estate market. In a recent survey by SOLD.com, the company found that 15% of all respondents indicated that they are currently selling or sold their home using an iBuyer in the past year.
Homeowners are beginning to branch out of their traditional selling options. Many are considering options outside of real estate agents, and as a result, alternative selling options have become more prominent. These include iBuying, trade-ins, online auctions, and ‘sell-and-stay.’ In questioning consumer familiarity with alternatives, SOLD.com also found that 48% of the 4,603 respondents were familiar with trade-ins, 47% were familiar with online auctions, and 42% were familiar with sell-and-stay options.
Among these alternatives is iBuying, the instant homebuying and selling method revolutionizing the real estate market. iBuying appeals to a broad audience of sellers as it is a more streamlined process compared to the traditional real estate agent route. The online process is fairly simple, requiring only a few details from the seller. Within a few days, the seller receives a cash offer from the iBuyer, based on what they think the home is worth. In the same survey, SOLD.com found that awareness of iBuyers is also growing: 44% of respondents claimed to be familiar with the service in 2019, while today it’s at 61%. This significant increase in awareness can be attributed to the pandemic and the need for contactless, completely virtual home-selling options.
There are many reasons that people sell their homes, and many new models designed to appeal to the various sellers’ objectives. Other alternative models include trading in your existing home for a new one, discounted commission models, selling your home and renting it back from an institutional landlord, and many more.
Awareness of Alternatives Is Giving Real Estate Professionals Better Insights Into Home Sellers
In today’s environment of rising inflation, global supply chain issues and low housing inventory, many sellers are looking for the fastest and least stressful option when selling their home. Sellers want to capitalize on the hot sellers’ market and additionally receive a higher price than pre-pandemic prices. When comparing sellers from different generations, younger generations like Gen Z and millennials are looking at alternatives when deciding to sell their homes. This awareness is leading industry professionals to see this alternative movement as more than a trend—rather, this is a fundamental reshaping of the traditional home-selling model.
SOLD.com found that 60% of home sellers chose their method of selling because their believed it would be fastest and 57% chose it because it would be the least stressful.
The Impact of Zillow
While these alternatives, like iBuying, have skyrocketed in popularity, this fast-growing market segment has hit some bumps along the way—including, recently, Zillow’s announcement of the shutdown of its iBuying services. Nevertheless, the pace of the iBuying sector’s growth continues.
However, iBuying firms are finding it incredibly hard to become profitable. Even with last year’s record-high home prices, Zillow continued posting massive losses. The company’s recent exit from the space is indicative of its algorithm-valuation metrics, which supplemented the suspicion the company was overpaying for homes and selling them below cost. Zillow likely entered the market too quickly, as they were competing against other iBuyers such as Opendoor and Offerpad that have been doing this for years. Zillow’s exit may have altered potential home sellers’ perception of iBuying, leading them to believe that the issue that led to Zillow exiting was due to the iBuying practice itself, rather than the specifics of Zillow’s situation.
Alternatives Are Here to Stay
Ultimately, as we continue to navigate return to office structures and new COVID-19 variants, the demand for a virtual, fast, and easy home selling option will continue. Due to these current factors, iBuyers right now are positioned at the forefront of the alternatives movement for homeowners.
While companies are fielding volumes of new customers as homeowners consider other options available to them, we believe that as we continue into the new year, alternatives will continue to slowly pick away at the traditional real estate agent route and will eventually be a widely considered option by sellers of all generations.
However, to truly unseat traditional real estate agents, iBuyers will have to invest significant money, time, and effort to develop on-the-ground resources that traditional agents have used so successfully to build their leadership of the sector.