Why “iBuyers” Are Failing (But Real Estate Agents Stand the Test of Time and Shifting Market Conditions)

The term “iBuyer” probably isn’t something you think about until and unless you’re thinking about selling your house. But once you start thinking about it, there’s a good chance you’ll come across one of these companies who typically position themselves as innovators who are disrupting the real estate industry by offering an easier, less costly approach to selling a house. They use technology and algorithms to make an instant offer on your house, and promise a quick and easy process to close on the sale of your house in a matter of days.

While the market was “hot” over the past couple of years, most of them seemed to be thriving. There are still some out there who are functioning, but with the market suddenly shifting, many of them are either shutting down their operations entirely, or are at least pulling back on how many houses they’re buying. So, you might have a tougher time finding one who’ll buy your house if it’s an option you hoped to pursue.

Why are they failing?

A recent article on TheRealDeal offered some objective insights into some of the reasons why iBuyers are on the brink of demise, including:

• They were trying to treat homes as a commodity.
• Many of them rely on investors who have lost patience and faith in their business models.
• They relied on selling related in-house or affiliated services—like mortgages, title, and escrow—in order to be profitable.
• While they factored in some potential economic changes, they weren’t prepared for a major shift in the market like we’re seeing now.

The article also mentioned that real estate agents will joyfully claim, “I told you, this would never work.” To be fair, many agents have been saying that all along, but not necessarily in a smug manner. They just know how complex the process is to buy and sell real estate, and could easily see how they were approaching the business wasn’t going to be sustainable.

Why agents stand the test of time and changing markets…

iBuyers aren’t the first industry “disruptors” to come in and try to change the industry with technology. There have been many companies and business models that hoped to do so, only to fail. And every single one of them comes in pretty much bragging that they’re going to end the need for real estate agents.

Yet every single time real estate agents come out the other end of these threats doing things the way they’ve always done them, while using technology in a way that enhances their services and process.

To suggest that agents shouldn’t be proud of doing that, and that they should be cheerleaders for companies who come into the industry belittling and berating what they do for clients is a bit much to ask. The reality is, they are in the trenches and just understand what many of these companies fail to recognize time and again, such as:

• Houses aren’t commodities. There are so many differences from one house to another, and one area to another, it’s hard to buy and sell them in a simplistic, large-scale manner.
• People aren’t commodities. In many ways, buying and selling houses isn’t about the brick-and-mortar product, so much as it is helping the people who are buying and selling them. It’s a complex, stressful, and emotional process and is often a person’s biggest asset or purchase in their life. Every single person and situation is different, and every house sale has several people involved in it.
• They are self-reliant and self-driven. Oh, what an agent could do with a huge pile of cash from investors like tech start-ups often get! Many of the “disruptors” come into the market functioning with the use of capital they haven’t earned, and often operate at a loss. When investors lose their patience and faith, there goes the business. It’s out of their control. On the other hand, agents have to rely on their own money, patience, and faith to persist in this business, which they have full control over. They learn how to use a limited amount of money to build their business over time.
• They don’t rely on selling you related services. While agents may have services that their brand offers or is affiliated with, they aren’t relying on clients using them to earn their income. (They actually can’t receive compensation when you use an affiliated service.) So they may offer you affiliated services to make your process smoother or easier, but they aren’t using them like many of the tech companies do as a means of making profit and being able to survive.
• They’re always prepared for a market shift. That doesn’t mean they like it when a market shifts, but they’re certainly used to having to weather the changes. In fact, what many people consider “hot” or “good” market conditions are often the toughest for real estate agents. The past couple of years were no picnic for agents, despite the fact that many people probably considered it a great time to be one. In fact, there’s probably never a market that’s “easy” for agents; they all have their challenges.

Those are just a few of the reasons why agents are able to stand the test of time and changing markets, and why, as they state in TheRealDeal article: “The evidence proves that there’s more people using agents now than ever before. We’ve had billions of dollars come into this industry [to disrupt it through technology], but the gravitational field of the traditional industry and agents and expert advisors is really strong.”

The Takeaway:

Buying and selling real estate isn’t something most people want to (or should) do with a few quick clicks on their laptop. It’s a complex, emotional, and high-ticket purchase or asset that they need an expert advisor and advocate helping them with.

While agents are constantly being threatened by “disruptors” who are trying to change the industry by offering a short-lived tech solution, they stand the test of time and changing market conditions by incorporating tech that enhances their service and product, while embracing the challenges of a complex industry.