US real estate

Are ibuyers manipulating the real estate market?


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As house prices skyrocket to record highs, some observers point out that the technology-driven buying process is contributing to the housing market craziness.

In a recent viral TikTok video, Real estate agent Sean Gotcher said a billion-dollar real estate company, with a website that “everyone” visits, taps into user data to determine where it can profitably buy homes.

Gotcher said that this company – heavily referring to Zillow – could then, hypothetically, buy 30 homes for $ 300,000 each, but buy its 31st home for $ 340,000. Gotcher said this creates “a new mix,” which gives appraisers a benchmark for a home’s value in the area.

In theory, the value of comparable homes in the area would be $ 340,000. Said company would then be able to sell those 30 homes at that higher price, making a profit of $ 1.2 million, according to Gotcher.

How the purchase works

Tech companies like Zillow have the ability to quickly grab homes through buying, which has gained traction in recent years.

Homeowners disclose information about their property to a buyer, which prompts an algorithm to estimate the home’s value, generating an offer in 24 hours or less.

What you pay for is the convenience. Homeowners pay these buyers a generally higher fee than their real estate company’s standard bill and are generally unable to negotiate the offers they receive.

According to a 2019 research report by real estate data company Collateral Analytics, buyers cost sellers about 13-15% of the home’s selling price, while an agent costs 5-7%.

Zillow is among the biggest buyers in the industry, as are Opendoor, Offerpad and Redfin.

The practice is clustered in some of the country’s largest markets, such as Phoenix; Charlotte, North Carolina; and Atlanta, said Mike DelPrete, research fellow at the Leeds School of Business at the University of Colorado at Boulder.

A “hot scramble” to buy

According to Zillow, homebuyers made up 1% of U.S. home purchases in the second quarter of 2021.

This share is simply too small to have an effect on the vast majority of the US real estate market, according to Anthony Orlando, professor of real estate at California State Polytechnic University, Pomona.

“And while it is possible that this is happening in some neighborhoods, we have no concrete evidence,” he added.

Additionally, if the strategy discussed in the Gotcher video was correct, you would expect to see house prices rise in many markets where buyers are operating. But prices are rising everywhere, DelPrete said.

Prices have hit record highs for four consecutive months, jumping 19.7% year-on-year in July.

DelPrete said buyers are paying higher market prices and are able to resell these homes for more than in the past. He found that the median price appreciation for ibuyer transactions in 2021 is 8.1% – up from 4.7% in 2020. However, he said, there is no conspiracy to do so. raise prices. But they don’t need a plot.

People are willing to pay more because “there is a scramble” to buy in certain markets, noted DelPrete, saying that is why Zestimates, Zillow’s term for its real estate value indicator, is not ” the ultimate value of a home. “

“It just has to do with supply and demand,” he explained.

Zillow responded to the video’s claims by telling Yahoo Finance, “We pay the market value for every home we buy.”

Redfin CEO Glenn Kelman also responded to video on Twitter, stating that the company “would never intentionally underpay or overpay for a house.” But he said there was a “conspiracy” among buyers. “It’s to pay lower commissions to brokers representing buyers of the homes we sell, around [0.6%] so far, “he tweeted.

The practice of buying has also raised concerns about companies’ listing practices. DelPrete said the video does a good job of “illustrating that there are two sides to every coin” and “the potential downside of having a for-profit company involved as a middleman.”

He pointed out that Opendoor bought hundreds of homes at the end of last year, but withheld announcements for new homes between early November and early December.

“They decided to store them in some way,” he said. “If they stored them, then they could sell them for more money a bit later and also see those sales increase in their first quarter as a publicly traded company.” (Opendoor went public on December 21.)

DelPrete said the hold came at a time when people were trying to find homes, with few available.

A supply crisis

Amid the buying hubbub, Orlando said the real underlying problem in our housing market is the lack of supply. The United States is short of about 6.8 million units, according to a June report from the National Association of Realtors.

“There are so few alternatives that people are willing to pay high prices. It’s easy to blame [ibuyers]”Orlando said.” But they are only capitalizing on a problem that we as a society have created by not providing enough housing. ”

The COVID-19 crisis – which has allowed many people to work remotely – has prompted crowds of Americans to move to the suburbs.

Buyers, Orlando explained, “are rushing into these markets because they see the prices going up. At present, they do not cause appreciation.

Orlando said another problem lurks, and the reason the video has gained traction and caused so much concern is that it has highlighted how tech companies collect personal information. of their users.

At one point in the video, Gotcher says, “They just know which zip code looks at which zip code and how much these people can afford.

Whether the market is being manipulated or not, Orlando said, these companies still have a lot of data on their users.

“As technology gets more sophisticated, businesses across industries will find increasingly smarter ways to use our data in ways that don’t always help us,” he said.


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