Would You Buy a Home From an Algorithm? Exploring the Future of the iBuying Market

The hassle and stress that comes with home buying is something that everyone interested in purchasing a property dreads. The long process of negotiations between buyers and sellers, months of escrow, and expensive closing costs demand a more simple and convenient process of home transactions. Consumers today expect a quick turnaround on all services- including purchasing a home. Enter ‘iBuyers” who are removing the hurdles around this process and making home valuations and sales a more automated process.

iBuyers are companies that use technology and algorithms to make a fair market value offer on your home instantly. While the practice is hardly new, and only represent about 1%-6% of all home sales in the United States, over the last year with the surge of those who looked to escape pandemic stricken cities in search of a more spacious lifestyle in the suburbs were turning to iBuyers to quickly purchase homes. How these services operate differs from company to company, but at a high level, they quickly evaluate certain characteristics of your home and make an offer. If you accept the offer, they take ownership over the home and all responsibilities associated with reselling it to another buyer.

Would You Buy a Home From an Algorithm? Exploring the Future of the iBuying Market - Image 3 of 3
Courtesy of MikeDP.com

While it may seem like the intersection of technology and buildings have helped solve a common pain point for buyers and sellers alike, the recent news on Zillow’s iBuying struggles is causing some to reconsider and wonder if this might have any promise as the future of real estate transactions. One of the biggest criticisms is the way that the algorithms place value on one property over another. While the technology is able to quickly scan prices of other homes in the area to make an estimate on the for sale home’s value, there is little room for personal subjectivity. What one person may like in a home might not be what someone else likes, and what these companies are betting on is that they’ll be able to find the one person who wants to purchase that particular house. The small design differentials, like kitchen countertops, appliances, bathroom finishes, flooring, swimming pools, crown molding, and overall stylistic character of a home that the algorithm doesn’t differentiate is sometimes what seals the deal for a buyer. Taking the human aspect out of the buying process has already proven to be a bit of a hurdle for companies that are launching iBuying platforms.

Another issue they face is the sheer volatility of the housing market as we turn a new corner of the post-pandemic real estate landscape. Only a year ago, the housing market was hot, and the volume of for-sale homes could not keep up with the demand, driving prices to a new high. iBuyers were rapidly bidding on these homes, sometimes paying above market value in hopes to then turn around and sell them for a greater profit. However, the housing market has now begun to cool off, prices are stabilizing, and now these companies are left with two options: hold the homes at above market value or sell them for a loss.

Would You Buy a Home From an Algorithm? Exploring the Future of the iBuying Market - Image 2 of 3
via iBuyer Stats

For some companies, the losses have made them reconsider their business model altogether. Zillow, until recently, ran the second-largest iBuying group in the United States. However, earlier this month the company announced that it would close all of its algorithmic buying divisions and lay off more than 25% of its workforce, while also selling off the remaining homes that were acquired. But other companies, such as RedfinNow and Opendoor, have had success in their strategies by buying homes slowly, renovating them for a quick profit, and selling them to a targeted market.

iBuying is not for everyone. If you need to make a quick sale and feel comfortable with technology, don’t want to deal with the hassle of realtors that create bidding wars, and don’t want to have to worry that your home is always in pristine shape for inconvenient showings, then iBuying could be a feasible option. If you want to sell a home with a personal touch and don’t mind the long process in exchange for the potential of a higher profit, then traditional methods may be best for you. Regardless, it remains to be seen how much of this new proptech strategy begins to take over the way that we buy and sell homes. Even if it disrupts the status quo, how many people will feel comfortable removing the human aspect of one of the most expensive and high-commitment things they will ever buy?

About this author
Cite: Kaley Overstreet. "Would You Buy a Home From an Algorithm? Exploring the Future of the iBuying Market" 21 Nov 2021. ArchDaily. Accessed . <https://www.archdaily.com/972284/would-you-buy-a-home-from-an-algorithm-exploring-the-future-of-the-ibuying-market> ISSN 0719-8884

You've started following your first account!

Did you know?

You'll now receive updates based on what you follow! Personalize your stream and start following your favorite authors, offices and users.