• Erin Spradlin

iBuyers + the Colorado real estate market


Basically, at least once a day, I tell myself I need to increase my Zillow stock, buy some Redfin and set Google alerts for Opendoor. And I tell myself this because 1.) I like money and 2.) if you can't beat 'em, you may as well join them, right?? All of which is to say: I believe in iBuyers, I believe they will put us out of work one day, I am investing in them because they aren't going away. BUT, I'm also here to say, iBuyers do not make sense in the Denver and Colorado Springs housing market right now.


WHAT IS AN iBUYER?

Zillow, Redfin and Opendoor are all iBuyers. Basically, companies that have more money than God that utilize technology and artificial intelligence to buy and sell properties are iBuyers. Like many other big companies, they are utilizing technology and scale to drive down prices (supposedly.)


Advantages to using an iBuyer

So, why would someone use an iBuyer? The main benefits to using an iBuyer are 1.) convenience and 2.) *commission costs.


iBuyers are convenient. Aside from paying you quickly and limiting any haggling, they allow you to rent back the place for 60 days. This is a great benefit in the Colorado Springs or Denver real estate markets because a common issue for people is timing. Home buyers in Denver or Colorado Springs need to sell the house they live in to afford the next house, but they need somewhere to live in the mean time. iBuyers solve that issue. (Although to be fair, anyone that buys your house can let you rent it back for up to 60 days, but the problem is- they also probably need somewhere to live.)


The other supposed advantage to iBuyers is the commission costs. A lot of them advertise reduced commissions. HOWEVER, these groups ACTUALLY charge a higher over all commission, they just call it something else: Opendoor calls it an Experience Charge (7.5% total for the seller because the seller pays all the agent costs), Zillow calls it a Credit (7% for the seller because the seller pays all the agent costs).

In Denver, the commission for the buyer is 2.8% and for the seller it is 2.8%. The seller pays for both commissions though, so it's a 5.6% total commission (6% total commission in Colorado Springs). So, in a market like Denver's where the average single family home is $625K, here's what the seller will pay:


$35K to use someone local (like me or James!);

$47K to use Opendoor; and

$44K to use Zillow.


Disadvantages to using an iBuyer

Well, did you read that last paragraph? They are actually considerably more expensive. In the Denver market, if you were selling an average single family home, it would cost you...


$12K more to use Opendoor

$9K more to use Zillow than a standard real estate agent (like James or me!)


Another reason you wouldn't use an iBuyer is the service. I know. I know. There are a lot of sort of dumb people in real estate and sometimes you look at the commissions and think whaaaat did I get for that?


Fact: 15% of Colorado real estate agents do 85% of the transactions. That means of all the real estate agents you know, there's a very small pool doing it regularly, and they know what they are doing:


they have relationships;

they know how to structure a contract to win the property;

they know how to market your place for a sale;

they work nights and weekends; and

they know how to explain their value add so you don't feel confused about how much they get paid.


The average days on market right now for a Denver property is 5. (5!!) If you are working with an unmotivated and/or new real estate agent (like an iBuyer agent that takes a low salary), you are going to have a hard time acquiring a property. You are also going to likely lose lots of money on the sale (because they aren't motivated to see it get the highest price because they are salaried.)


Sometimes I lay in bed at night wondering why automation and technology haven't taken over my job yet. Aside from the fact that using an iBuyer is not a good deal yet, I also think it's because buying and selling real estate is emotional..


It's a lot of money;

you likely feel vulnerable;

you don't want to shell out $400K blindly; and

you want someone to say "don't buy this fixer upper if you want to stay married because it's an effing money pit, general contractors are impossible to nail down and your two visions are far from being aligned."


FINAL THOUGHTS

They are going to figure out the iBuyer model one day and it is going to take my job, but it hasn't yet because it's not good for the end user at this point. I'll be keeping an eye out for it, and buying stock shares in the mean time, but for now a traditional agent is still a much better deal for buyers and sellers in these markets.



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Denver, CO 80218

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ERIN SPRADLIN

719.491.4949

erin@erinandjamesrealestate.com

JAMES CARLSON

720.460.1770

james@erinandjamesrealestate.com