The i in iBuying stands for immediate. This means that a company or person offers a cash price for a property, this can even be site unseen. iBuying has been around forever. Individual property flippers and companies make a living out of finding off market deals, offering a cash price, doing renovations and reselling for a profit. This is not a new concept, however the scale in which this new wave of iBuying companies are operating at is what is groundbreaking. The first company to introduce this new era of iBuying was OpenDoor then followed by Zillow and Offerpad and many others operating at a lower volume.
Where is iBuying popular?
iBuying has the biggest following in the USA followed by the UK. The US market in particular has embraced this proptech, likely in part by the fact that the buying and selling process is so complicated, especially compared with New Zealand. This coupled with the fact that the USA has a few markets that are red hot and have been for some time, means that the risk associated with iBuying is reasonably low.
What are the benefits of iBuying?
In a fast moving real estate market, iBuying can be a massive benefit to both the buyer and seller.
From a sellers perspective, getting a cash offer with no conditions is very attractive. This is made even more tempting by the fact that you know the offer is in line with the market, you don’t have to go through the stress of renovations, open homes, negotiations and all the costs associated.
For the iBuyer this all comes down to some clever maths. By analysing a market, an area or even a street, it can be predicted with only a few variables being input what a property is worth. Even more so, they can predict what a property is worth right now, but also what it will be worth with renovations, marketing or even holding for the best time of year. The key to iBuying is using both data and local knowledge to be able to offer a fair price to the seller, but to also work within the goal margins. With this method, iBuyers can scale as quickly as they can raise funds and de-risk (in a buoyant market) with volume. As we have seen during the global pandemic, many iBuying companies have been left exposed, with jaw dropping amounts of assets on their books and no one to buy them, let alone to buy them at the previous market price.
Could iBuying work in New Zealand?
It’s unclear if New Zealand could ever operate a iBuying industry even close to those that are already established overseas. In order to be able to gain the confidence needed in a market to offer on a home without in depth knowledge, more data might be needed. It’s pretty tough to tell. The other key boundary is capital. There would only be a few players in New Zealand (or Australia) who could front the amount of money required to get this underway and the risk to the reward might not be there. As we get more data and the housing stock in NZ continues to improve with more new builds and apartments where values are more predictable, we might see this idea catch on. Until then, Kiwi’s will likely just continue to operate the way we have been for the last few decades.