The winds of change are coming to Chicago, according to an iBuyer market report published by home-value data platform Ownerly this month.
The Windy City, alongside New York City, Detroit, Philadelphia, St. Louis, Cleveland, Washington, D.C., and eight other markets across the South and Northeast are part of the “iBuyer Frontier,” thanks to a Federal Deposit Insurance Corporation (FDIC) appraisal regulation change that could benefit iBuyers such as Opendoor, Offerpad, Zillow Offers and RedfinNow.
“IBuying is still in its beta state, experimenting in select markets with an eye toward eventually being in all markets,” said Ownerly spokesperson Richard Gargan in a prepared statement. “Our next-frontier list suggests some markets that may be ripe for future iBuying. Clearly, the race is on among the major providers to open up iBuying to the rest of the nation.”
Credit: Ownerly
As of January 2020, the FDIC increased the minimum home purchase price requiring an appraisal from $250,000 to $400,000, a move Ownerly theorizes will make homeowners of higher-priced homes more apt to consider using an iBuyer.
On top of gaining a new consumer base in existing markets, Ownerly said the FDIC change will lower costs, allowing iBuyers to expand to markets, such as Chicago, with ample inventory priced at $400,000 or less.
“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),” Ownerly Business Intelligence Manager Manager Evan Schlossman explained to Forbes.
“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.”
Credit: Ownerly
With this in mind, Ownerly predicts Miami, Houston, Atlanta, Dallas, Tampa, Phoenix, Orlando, and Riverside, California will experience explosive iBuyer market growth in 2020. Gargan pointed to Texas and Florida as the states primed for the most growth, as median home values of for-sale homes range from $274,500 to $299,000 — right within most iBuyers’ preferred price point.
“Phoenix may be top for sales right now, but the inventory of suitable homes in Florida and Texas suggests iBuyer markets in those states are poised for strong growth in the next few years,” he said.
Credit: Ownerly
Although there’s plenty of opportunities for iBuyers to move toward nationwide market dominance, Ownerly said the majority of iBuyer activity is still relegated to Phoenix, Atlanta, Dallas, Houston, and Charlotte — Opendoor, Offerpad, and Zillow Offers’ starting grounds (RedfinNow launched in California).
“These may be pioneer days in terms of markets where consumers can buy and sell their home online, but the future looks very bright based on how well these markets have taken to this new homebuying technology,” Gargan said while noting the iBuyer market share grew 1.6 percent year-over-year to 3.1 percent in Q3 2019.
Although there’s still some doubt about the iBuyers’ longterm viability, iBuyers, such as Zillow Offers are doubling-down on their strategies, as industry leaders predict a rapid increase in iBuyer-led transactions and the consolidation of platforms.
“This is the most dynamic, interesting time in the business if you’re serious about this business,” former Zillow President Greg Schwartz said of agents’ place in an iBuyer world at RE/MAX’s R4 conference on Wednesday. “If you’re serious, a student of the business, engaged, if you’re providing an exceptional service, you’re all good.”
“If you are a marginal player and you’re fighting progress and technology, if you have a negative mindset and you communicate that out, you’re going to be in trouble.”