The property market landscape is changing according to a new report from CoreLogic, as 30-year mortgage rates reached their highest levels in two decades, while experts predict the pandemic-driven widespread move to digital solutions is a change that is likely here to stay. Along with these market shifts, much of what has been familiar in the homebuying and selling processes for generations is being remodeled.
One area of the real estate industry that is getting a particularly large overhaul is the homebuying and financing space with the emergence of iBuyers (instant buyers) and other related PropTech technologies. IBuying allows homeowners to quickly sell their properties online for all cash, typically to large, deep-pocketed investors and corporations.
In 2021, venture capital investment into real estate tech reached a record-breaking $32 billion, a 28% increase in funding since 2020, according to The Center for Real Estate Technology & Innovation (CRETI). Much of this funding landed with companies that provide iBuying and bridge financing solutions – two approaches to the homebuying process that prioritize certainty of transaction completion for buyers and sellers while also adding additional efficiencies to a process that has many contingencies and much uncertainty built in.
“These PropTechs are trying to bring venture capital technology to the consumer to give them choice and flexibility as to how they either find a house, buy a house or protect the house,” said CoreLogic’s real estate tech solutions expert Mark Weaver.
Will the Cooling Housing Market Affect iBuyers?
IBuyers are not a new phenomenon in the real estate space. They are, however, an option that has gained popularity in the last two years as market dynamics encouraged quick transactions.
But as the housing market begins to cool, the long-term success of market-leading companies such as OpenDoor and OfferPad is predicated on the accuracy and reliability of their data. After all, iBuyers typically use a “buy-box” model whereby they define the acceptable parameters, based on market conditions, for purchasing a home instantly for cash. If an estimated valuation is off, an iBuying company stands to lose a significant portion of its investment, especially when executing large purchase volumes.
“In the PropTech space, we’ve worked with a leading iBuyer to navigate market conditions as they started to change and the company’s risk appetite changed,” explained Weaver. “We helped this leading iBuyer overhaul what we call their ‘buy-box,’ so that now they’re only going to make instant offers on homes under certain parameters and conditions that we help them refine in response to the changing market.”
The relaxing market has also brought forth questions surrounding maximizing a home’s market value. Given the importance of a property’s market value, sellers that work with iBuyers want to be sure that they are receiving a highly competitive offer. Since it can be difficult to know whether the data supporting an iBuyer’s offer is of the highest quality, working with an experienced and trustworthy real estate agent is still the most popular approach to ensure that all aspects of a home’s value, from school districts to neighborhood amenities, are considered and marketed to potential buyers.
The Human Touch Remains Important
As pandemic market trends begin to give way to new realities — easing competition and a slowing pace of home price gains are trends that are taking hold — real estate agents are still a highly reliable resource for both homebuyers and sellers.
While options like iBuying should not be overlooked, it can also be helpful to consult a real estate agent because they can offer advice on current market conditions, as well as insight into how much one can reasonably expect to earn on a home sale.
If sellers are armed with accurate market information, they will be better able to judge instant offers and decide whether that route is feasible or whether they should take the traditional route and put the property on the open market. Should a seller choose the latter avenue, it is invaluable to tap a knowledgeable, experienced agent who can offer insights on how to price a home, the number of offers to reasonably expect and how long a sale might take.
Similarly for buyers, many real estate agents have a deep understanding of the most current market trends, including supply levels, the average number of offers on homes, the percentage of all-cash bids and the quality of local schools. Arming yourself with that knowledge can not only help buyers purchase the right home, but it can allow them to optimize and streamline the overall experience via the use of new technologies.