The iBuying market exploded in 2018, to the point that its rapid expansion has become one of the year’s dominant real estate stories. From waves of funding to a crop of new players in the space, the practice of buying and then quickly selling homes has proven over the past 12 months that it can actually capture market share and entice consumers in a real way.
There were too many iBuyer headlines this year to list them all in one place, but here are some of the biggest stories of 2018:
Opendoor raised hundreds of millions of dollars, epitomizing how big money is flowing into iBuying
Credit: Opendoor
Opendoor made headlines in September when it announced that it had raised $400 million in venture funding from Softbank’s Vision Fund.
That money came on the heels of another funding round that raised $350 million, and by the end of this year the company’s total equity financing stood at more than $1.045 billion. Opendoor has said that this capital enables it to accelerate integration of its in-house title and mortgage services, among other things. It also planned to use the money to continue expanding into new markets — something that has been happening steadily since the company was founded (more on that below).
Opendoor rival Offerpad also raised significant amounts of money this year, and the flow of cash showed that investors in 2018 were especially anxious to get a piece of the iBuying pie.
Asked about this flow of money, Opendoor spokesperson Cristin Culver told Inman in an email that it shows “investors believe in the model that Opendoor pioneered when we launched in 2014.”
Mike DelPrete — a scholar at the University of Colorado, Boulder, and a consultant who has written extensively about iBuyers — told Inman that in the future he “absolutely” expects major investments in iBuying to continue. But, there’s a catch.
“But I think it will aggregate into 1-2 of the biggest players (Opendoor and Zillow), as opposed to an even split among the field,” he said.
Pete Flint, an entrepreneur and former CEO of Trulia, described the influx of capital to iBuying as the most important story about the sector in 2018, saying that it’s “enabling these companies to scale.”
Existing, big-name real estate companies began entering the iBuying market in earnest
For a brief period, iBuying was the domain of quirky startups like Opendoor and Offerpad. But that period ended in 2018.
This fall, heavyweight Realogy announced that it was launching its own iBuyer program via its Coldwell Banker brokerage. The program is called “cataLIST Cash Offer” and is backed by Home Partners of America. And unlike other iBuyers, which are willing to deal directly with consumers, Coldwell Banker’s program is designed to foreground agents.
Ryan Gorman, who as CEO of Realogy’s NRT LLC oversees Coldwell Banker’s iBuying program, said that the company has completed “pilot launches in Atlanta, Tampa and Dallas and agent education is underway and has been well received.”
“We do know that cataLIST is already showing successful results for consumers and NRT’s Coldwell Banker affiliated agents,” Gorman told Inman in an email.
This year also saw Keller Williams, another massive player in the real estate industry, get into iBuying. The company announced the program in September and said it had closed nearly 100 deals, though it was still in an “ideation” phase.
Neither of these iBuyer programs has so far generated the impact of startups like Opendoor and Offerpad, but 2018 showed that existing companies are not going to sit around and let younger companies rule the world. And given the significant resources that these companies have behind them, their iBuyer programs have the potential to become formidable players who could clobber smaller upstarts.
“A lot of people are dipping toes,” Victor Lund, founder of the real estate consulting firm WAV Group, told Inman. “But it is as hard as ever to get it going.”
Zillow launched its own iBuyer program
Zillow deserves a special mention here both for launching its direct iBuyer program, called Zillow Offers, and for expanding that program to multiple cities in 2018. Zillow was itself once a startup, but has since grown to become a massive disrupter across multiple parts of the real estate industry. And its entry into the iBuyer space has made Zillow the company to beat.
“Zillow is at the start of the consumer journey,” DelPrete explained. “That gives them so much control and power. Incumbents will have their own potential advantages (120k+ agents in living rooms), but they’re pretty old school. I’m not sure how well they can make iBuying work for them.”
Zillow Offers initially began operation in 2017, but at the time was limited to facilitating cash transactions on its site from companies like Offerpad. In 2018, however, Zillow started buying and selling homes itself.
Ibuyer’s median purchase price between November 2017 and October 2018. Credit: Mike DelPrete
DelPrete’s research shows that Zillow has generally been less disciplined than its startup competitors in choosing homes, and that its margins are lower. But multiple people who spoke to Inman for this story and others on iBuying, including DelPrete, still pointed to Zillow as a major iBuying force during 2018.
Flint also told Inman that Zillow “aggressively” going into iBuying shows that “the concept is going mainstream.”
Smaller iBuyers started moving into the turf of bigger players
Big names like Opendoor and Zillow generate big headlines, but 2018 showed that younger, sometimes-scrappier companies are also trying to get in on the iBuying action.
Perhaps chief among these smaller iBuyers is Knock, a Georgia-based company that made headlines in 2017 for its impressive, multimillion-dollar fundraising efforts.
CEO Sean Black in an image from a Knock promotional video.
This year, Knock steadily expanded its business beyond its home base in Atlanta to North Carolina and Texas. Knock also spent 2018 innovating new services, including a home trade-in option and a program that involves the company purchasing homes in cash for first-time buyers.
The point here is that 2018 saw Knock both growing in a traditional sense — it’s spreading to new cities — and evolving the definition of what an iBuyer actually means.
Other smaller companies that made headlines this year include Amherst Holdings-backed Bungalo Homes, which has $1 billion in funding to play with, and Felix Homes, which wants to be a kind of hybrid that marries a traditional brokerage model with iBuying.
The takeaway is that 2018 saw the iBuyer marketplace become increasingly crowded with upstarts. Asked about this fragmentation, Flint said he ultimately expects there to be “multiple winners, but not dozens.”
“Yes, real estate is local and there is a long history of multiple brands focused on multiple segments doing well in the category and plus it’s highly regional,” he said in an email, “so I expect regional winners.”
All of the iBuyers expanded into new markets, and they did it quickly
For all the new products, massive funding, and flashy headlines, 2018 may simply go down as the year that many Americans heard of iBuying for the first time. And that’s because the main players expanded so rapidly.
This year Opendoor, now the elder statesman of the industry, expanded into 12 new cities and established a presence in four others thanks to its acquisition of discount brokerage Open Listings. That more than tripled the number of metro areas where the company operates. Moreover, some of Opendoor’s new cities, such as Los Angeles and Chicago, are among the most populous in the U.S.
Opendoor itself sees this expansion as the most important development in iBuying this year, with Culver saying that the company’s “growth and the expansion of the overall category validates that the future of real estate will be more streamlined, convenient and nearly on-demand.”
Credit: Offerpad
Offerpad also expanded this year, pushing into the Dallas and Tucson areas. The company now operates in 534 different municipalities (which are clustered in a much smaller number of metropolitan regions), and has plans to grow more in 2019.
Redfin also deserves a mention. Though RedfinNow launched in 2017, the program expanded in 2018 and has been touted this year as a prominent part of the company’s future business strategy.
And of course, the growth from these big companies comes in addition to the expansions, mentioned above, from smaller companies like Knock.
Major U.S. cities by iBuyer market share. Credit: ATTOM Data Solutions/Jim Dalrymple II
As 2018 comes to a close, iBuying is still a niche product. Even in Phoenix, a city with where multiple iBuyers have been operating for years, the sector has only about 4 percent of the overall market, according to recent figures from ATTOM Data Solutions.
Many experts who have spoken to Inman about iBuying believe that it will remain a niche product for the foreseeable future. Lund even described this niche status as the most important story of 2018 iBuying, adding that “it is not a big deal yet.”
But no one expects iBuying to disappear any time soon either, and this year showed that companies and their customers have an appetite for growth. And that appetite will likely only grow as consumers skew younger and are more empowered by technology.
“Consumers are increasingly in the driver’s seat,” Flint said. “[The] majority of younger buyers find the home they buy themselves online.”
