The coronavirus outbreak is testing the resilience of the iBuyer model during slowing and unsettling times for the real estate market. Zillow, Redfin, Realogy and Opendoor are suspending their home purchase programs amid mounting concerns among buyers and sellers about contracting COVID-19 through the real estate process.
iBuying made waves in the housing market in 2019 by changing the way people buy and sell their homes. But in a world of social distancing and self-quarantines, the softening of the real estate market is leaving iBuyers in a state of limbo. What the iBuyer landscape will look like when the dust settles is a big question mark.
The term iBuyer, short for instant buyer, is used to describe real estate companies that use technology and artificial intelligence to make instant offers to home sellers and then purchase homes in quick cash transactions.
iBuyers charge sellers a higher fee than a traditional real estate agent would for the convenience of avoiding home preparation, showings and open houses and the certainty of a cash offer with a flexible move-out day. The companies then make any necessary improvements and resell the homes to home buyers. Raleigh, North Carolina, had the highest iBuyer market share in 2019, followed by Phoenix.
Zillow Group announced on Monday that it will temporarily pause home buying through its Zillow Offers business in response to emergency orders in New York, California, Illinois, Louisiana, Ohio and Nevada that have instructed non-essential businesses to shutter. New York Governor Andrew Cuomo has specifically told the state’s real estate agents to stop in-person showings and open houses.
During an earnings call in February, Zillow Group CEO Rich Barton called 2019 “tumultuously remarkable,” and “one of the most challenging” years of his career, according to The Real Deal. And in an earnings call on March 23, Barton said “things are pretty foggy and uncertain right now” with would-be home buyers sheltering in place. He added, “We are keeping the apparatus in place and the people in place while we pause and get ready to accelerate out of this.”
In a recent blog post, Redfin CEO Glenn Kelman said the real estate brokerage “is committed to guiding home buyers through the buying and selling processes during these difficult times, while taking proper precautions to prevent the spread of COVID-19. Due to recent public health orders, we’re adjusting our service to ensure the safety of our customers, agents, and communities.
“In areas where the public has been asked to stay at home and real estate has not been deemed an essential business, we cannot offer in-person home tours or selling consultations. As of March 25, no in-person services are available in California, Kansas, Louisiana, Michigan, Missouri, New York, Pennsylvania and Washington.
“Video tours may be available, and we can meet with you via video chat to discuss selling your home. In other states and provinces, we offer both video chat and in-person home tours and selling consultations, but exact service availability varies depending on local stay-at-home orders. If you request a tour or selling consultation, we’ll contact you about what type of service we can offer in your area.”
Kelman added, “In all areas where we continue to offer in-person services, we’re taking precautions to protect our health and yours, including not shaking hands, limiting tours and meetings to two attendees, and leaving six feet between ourselves and you. We also ask that anyone experiencing cold or flu symptoms not attend any in-person meetings.”
The ripple effect of the iBuying tumult is upsetting people like Jeramiah Dooley, who is trying to sell his two-story townhome in Charlotte, North Carolina. After receiving bids from Zillow, Offerpad and Opendoor, Dooley told Forbes that Zillow made the highest offer on the home, and he signed a contract on January 13.
“They gave me up to 90 days to close, which was perfect because I am scheduled to actually move on the 30th of this month,” Dooley said. “Then the day before yesterday, I got the same email that looks like everyone else has gotten, basically blaming the latest public health orders issued for a wholesale cancellation of every house that Zillow had under contract to buy.”
Dooley said he was given 48 hours to choose between two options from Zillow: “I could take a check for $5,000. That’s $1,000 in earnest money that they were contractually obligated to pay me for breaking the contract and $4,000 extra for the trouble. Or they would pay for a Realtor to relist the house. They were just going to cancel the contract and walk away.”
Faced with that dilemma, the father of two said, “I chose the money. I didn’t have any choice. And the $5,000 doesn’t come close to the cost of what I put into getting the house ready to sell as well as what it’s going to cost me now that I have an additional mortgage payment that I have to take care of until I can find someone to buy the townhome.”
He noted, “I understand the financial part of it. I understand that Zillow feels like there is going to be a downturn in the market, and they need to get out from under these contracts now. Even if they have to pay some money to get out, the chances are the houses will be available on the market for less money in the next few months. I understand that. It stinks for me personally, but I understand how the math works.”
Dooley said he could fully grasp if Zillow had said it would halt any offers that were in the negotiating stage. “But this was a contract that had been in place for almost exactly three months, and then we were less than 10 business days from closing. And we would have never had to have been in the same room,” he pointed out. “The contracts were done. The lawyers could have sent the papers back and forth.”
He said, “What has offended me the most, what I think has insulted me the most is that every step along the way, they have blamed these health orders. They have blamed this on decisions being made by health-care officials. They have blamed this on wanting to protect their employees and customers. They’ve very much latched onto this is a COVID-19 problem to the point where when they sent me the termination agreement, the agreement is called the coronavirus termination agreement, which is insulting. It’s taking this epidemic and using it as air cover for making a financial decision that just ends up screwing every customer that they are trying to do business with.”
Dooley added, “We absolutely could have closed on this house without ever having to break any sort of guidelines around social distancing. And so for Zillow to blame what’s going on from a health-care standpoint for their financial decision to break this contract and put that burden back on me and their customers is really insulting.”