The iBuyer Trend Has The Biggest Potential For Growth In These 10 Cities
One of the biggest trends in real estate last year was the expansion of homes being sold under the iBuyer model where sellers sell their home to companies like Opendoor, Offerpad, Zillow Offers and Redfin Now for all cash. All of these organizations are continuing to expand to an increasing number of cities given the positive reception they have seen so far and the trend has started to spread to Europe, where the iBuyer company Kodit.io is already in Finland, Spain and Poland and expanding to France this spring. The number of homes these companies purchase varies widely, anywhere from the over 10,000 that OpenDoor purchased during last year to Zillow saying last summer they had received over 170,000 requests for all-cash buys, but they have only bought a little over 3,000 homes in their iBuyer program.
This coming year is going to see iBuyer options expanding into dozens of new cities and many of these types of transactions will be even easier because of a new law passed by the FDIC that increases the threshold for requiring an appraisal from $250,000 to $400,000. The big question is where are the next big markets for iBuyers? If you use as a starting point the report released by Redfin in the third quarter of 2019 showing Arizona and North Carolina as having the highest number of iBuyer neighborhoods, with Georgia and Texas not far behind, and look at which cities you have the highest proportion of homes under $400,000 we can start to hone in on the places which will see the most growth. The home valuation website Ownerly released a report of the U.S. cities that have the most homes under this price point that were also built after 1960 (so they are less likely to need major maintenance) and provided it here:
- Miami-Fort Lauderdale, Florida
- Houston, Texas
- Atlanta, Georgia
- Dallas-Fort Worth, Texas
- Tampa, Florida
- Phoenix, Arizona
- Orlando, Florida
- Riverside, California
- San Antonio, Texas
- Las Vegas, Nevada
Since many of the homes with iBuyer potential aren’t on the market yet, Ownerly’s BI Manager Evan Schlossman explained they determined market share using the following methodology, “Ratios of homes under the $400k threshold were approximated based on datasets from Zillow that provide the average home value for the market, average top tier home value (65th – 95th percentile), and lower tier home value (5th – 35th percentile). Using these data points, and assuming a normal distribution of home values, we were able to estimate where the $400k marker falls in the market’s distribution curve.”
But to hone in even further within each market you have to find the neighborhoods with the right type of housing stock and the right type of seller. For iBuyer the more turnkey a property is the better and the older the seller is the more likely they are to want to unload a property quickly rather than hang around for the highest offer. That means neighborhoods with plenty of condos or recently built townhouses and an abundance of retirees. That puts Miami and Tampa ahead of the rest, but Phoenix will probably still maintain pole position since it was one of the first places to see the trend take hold and the momentum will give it an advantage over the next few years.