Biz Essentials

What Is An iBuyer?

Companies like Opendoor, Offerpad, and others have been flooding the streets of American cities with their attractive signs. This has allowed interested buyers to gain almost immediate access.

These companies are known as iBuyer by those in the real-estate industry. They promise maximum convenience, fair offers, and as much flexibility for their customers as they need.

This article will provide an in-depth explanation of what an iBuyer looks like, how it works, and how these businesses make their money.

What is an iBuyer?

An iBuyer is a real-estate company that makes almost instant cash offers on homes using technology.

Property owners often work with agents to manage their traditional home sales. After the sale process is completed, the agent will be paid a fee by the seller for facilitating the transaction.

Dealing with an iBuyer on the other hand does not often require any human involvement. The cash offers are made within 24 to 48 hours of the seller providing the necessary information.

iBuyers are online and can use their app or website to list homes they have purchased. This often increases the probability and speed at which an iBuyer can sell a home.

To maximize their profits, iBuyers prefer to invest in properties with a large number of comparable data points. These are common property characteristics:

  • Single-family homes in suburbia
  • Built in the 1960s and later
  • Between $125,000 and $500,000
  • No major damages

An iBuyer will therefore avoid investing in luxury and distressed properties. Moreover, traditional markets such as New York and San Francisco that are highly valued, are often overlooked.

iBuyers are more focused on properties that require minimal renovations than traditional home flippers. This reduces unexpected costs, minimizes coordination and coordination, and increases the sale speed.

Sellers may also benefit from the operational speed. Sometimes property owners simply need to sell their home by a deadline. In these cases, the iBuyer could be the best option.

How does the iBuying process work?

The iBuying process for home sellers is quite simple. First, visit the website for the iBuyer you wish to transact.

Next, they’ll need to provide information about the property that they are selling. The most common data points are the location and size of the property, the age, as well the extras (e.g. It may also include a pool or a kitchen.

Sometimes, iBuyers may require photos and videos of the property in order to verify the information.

After collecting all information, iBuyers use a number of algorithms to determine what they consider an efficient offer.

iBuyers takes into consideration information not only from property owners but also data from public databases.

iBuyers also do not invest in luxury or distressed properties. These properties are more difficult to value. iBuyers tend to focus on single-family homes because there are so many data points that can be used to value them.

Sellers will then receive an offer for their property that is non-negotiable after waiting normally between 24 and 48 hours. Sometimes, an employee or partner service may adjust the offer after an evaluation in person.

Sellers can choose when they want to move out of their home once they accept the offer. Some iBuyers offer relocation services for property owners who wish to move into a new house.

How do iBuyers make money?

Although iBuying companies use technology, their method of making money isn’t much different from traditional real estate businesses.

The technology stack is a catalyst to accelerate the buying and selling process. This, in theory, leads to higher efficiency and lower operating costs.

Let’s look closer at the revenue streams an iBuyer uses.


A commonality between an iBuyer (or real estate agent) is the fact that each party charges a commission to the property owners.

NREP states that iBuyers can charge more than traditional realtors. On average, a real estate agent charges a commission between 5 and 7 percent. iBuyers charge anywhere from 7 to 7.5 percent.

The reason is that iBuyers promise greater conveniences, such as flexible move out dates or relocation services.

Sales Profit

iBuyers make a portion of their income from flipping homes, in addition to selling fees.

A study by Collateral Analytics found that selling to an iBuyer can result in a lower selling price, anywhere from 13 to 15%. MarketWatch confirms these findings. It states that sellers who transact with iBuyers will earn 11 percent less than traditional agents.

The seller may be unable to sell a home, but the buyer can make more money by buying it. To maximize velocity, iBuyers typically only keep homes for a maximum of 90 days. They may be able to afford to keep properties for a longer time depending on how much cash they have in the bank.

Technology-enabled sales is another factor in the higher profit margins. The company’s mobile app can be downloaded by users and allows them to access the house at any time.

A video conference can be used to allow interested buyers to have a real agent accompany them during an inspection. The iBuyer can reduce expenses by having an agent accompany the inspection via video conference. This helps to increase profit margins.

Services Ancillary

As mentioned previously, some iBuyers offer ancillary service to accelerate the sales process. These services could include:

  • Moving services
  • Repairs
  • Staging

… and many other services. In return for these services, the iBuyer is compensated. Offerpad offers free moving services within 50 miles of its location and charges sellers for any additional distance.


Opendoor in San Francisco, which is an iBuyer, can now issue home loans to anyone who qualifies.

They can also offer fixed-rate mortgages, with terms from 5 years to 10 years. Refinance is also possible for borrowers.

Mortgages are sometimes issued without additional processing fees to attract customers. Instead, the borrowers pay only the agreed-upon interest. The iBuyer’s monthly interest charges are what make it money.

In certain cases, iBuyers may engage in whole loan sales. The lender would bundle its loans together to create a package which is then bought by an institutional buyer such as pension funds or insurance.

In exchange for future cash flow, these institutional buyers pay an upfront premium at the iBuyer

Referral fees

Some iBuyers don’t have the capital necessary to operate their own services, or offer mortgages to homebuyers and -sellers.

They refer users to companies that offer these services. iBuyers receive a referral fee in exchange for directing customers to other companies (and helping them get more business).The Top 10 Business Podcasts

Depending on the type agreement between the iBuyer/service, compensation may be based either on a per-lead basis or a -sale basis.

The iBuyer Model: Pros and Cons

Advantages of the iBuyer Model

Higher velocity. Although it is not yet realized, an iBuyer should be able to make higher profit margins through lower acquisition and operational costs as well as the ability sell homes via their platform (i.e. Greater reach

Higher valuations. A tech-enabled business has the advantage of allowing founders to command higher valuations. Zillow trades at a 5x multiple on its annual revenue, while Redfin or Opendoor are valued at 4x their annual revenues.

Higher valuations have the primary advantage that shareholders can give up less in an equity round and take on lower risks during a debt financing round. The more capital they have, the easier it is to scale the business.

Advantages of the iBuyer Model

Capital intensive. First and foremost, the iBuyer model can be very costly to run. Zillow spent $1.3 to acquire properties in 2019 when it launched its iBuying division, Offers.

Apart from the high cost of buying homes, iBuyers also have to make large investments in human capital. This includes both the engineering and real estate side.

Competitor. iBuyers compete not only against each other, but also have to share their leads with other brokerages or independent agents. Selling a home is (and will always be) a people-driven business. Some sellers prefer to have a person fully focused on their needs.

There is market variety. Although an iBuyer may use algorithms to value a property it must still rely on human judgement to a limited extent. Each market or city might have its own set characteristics that can positively or negatively impact the asking price.

Limiting Addressable Market. As stated previously, an iBuyer will focus on properties that have a lot of data. This means single-family homes priced between $100,000 and $500,000 in (predominantly mid-market) locations.

This means that luxury and distressed properties can often be out of reach. Redfin estimates that the average American luxury property sold in America for $825,000. This would generate revenues of $41,250 even with a conservative 5 percent agent commission. Add to that the thousands of luxury properties that are sold every year and you have a market worth billions.

Largest iBuyer Companies in The United States

There are many startups, as well as public companies that offer iBuying services. Let’s take a look at the top players in this market.


Opendoor, founded by Eric Wu (CEO), Ian Wong and Justin Ross in 2014. The company has been valued at $4.8billion and has raised more than $1.5 billion. The firm is expected to go public with SPAC sometime in 2020.

Opendoor Home Loans LLC offers a variety of mortgage options. Sellers can also list their homes on the website.

Opendoor earns money by charging a sales fee (between 6 and 14 percent), as well as the profit from selling homes through its platform as well as interest on mortgages that the company issues.

Zillow (Instant Deals)

Zillow was established in 2005. It started as a real-estate database that allowed users to determine the value of a home.

Zillow remained a website listing site for a long time. However, in 2019, Zillow decided to move into the iBuying business model.

It is known as Zillow offers and its iBuyer segment generated $1.37 Billion in annual revenue in 2019. Zillow also contributed 4,313 home sales in 2019, with an average sale price of $316,000.

Zillow is an iBuyer and also makes money through software that real estate agents use, as well as referral fees for loans it facilitates.


Offerpad was founded in 2015 and is based in Phoenix, Arizona. It is the second largest pure-play iBuyer in the United States (trailing just behind Opendoor). To date, the company has raised over $975 million in equity capital and debt capital.

Offerpad doesn’t charge property owners any sales fees. It charges a service fee that can range from 6 to 10%. This fee covers the cost of the service fees, which can include the salary of the agent or real estate agent. It also makes money when a property is sold for more than the original purchase price.


Knock was founded by Jamie Glenn and Karan Sakhuja in 2015. It is best known for allowing homeowners the opportunity to swap homes.

Knock will buy the property for the owner and represent them in the sale their existing home which is on the open market. Knock will transfer the mortgage and the existing home to the buyer once the property is sold.

The firm earns money by charging a convenience fee of 1.25 percent and the profit it makes from selling homes.

Redfin (Now).

Redfin is an online brokerage that specializes in real estate. It was founded in 2002. To date, the company uses technology to assist its agents in their sales process.

Redfin’s iBuying division was launched in 2018 under the tag RedfinNow. Service fees can be anywhere from 6 to 12 percent. Redfin also charges a 1 percent estimate closing cost and 0 to 3% for related repairs.

Redfin’s income comes from more than just flipping houses. It also makes money through interest on loans (through Redfin Mortgage), listing and management fees on its real-estate marketplace, as well as a concierge service for homes over $500,000.

Redfin raised over $319.6 millions during its startup years. Redfin went public in July 2017 and added $138 million to its balance sheet.

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