What Affect Will Offerpad Have on Birmingham Home Values?

Will Birmingham Home Values Be Effected By The iBuyer Model?

Technology and Birmingham Home ValuesIn case you did not see it in the news Offerpad recently announced that their services are now available in the Birmingham, Alabama market. They are partnering with Keller Williams to offer the first iBuying service throughout the whole state of Alabama.

For those not familiar with iBuyers, they are a new type of real estate service that leverages technology to help speed up the process of buying and selling a home. One branch of the company is available to home sellers who want to sell their home quickly without needing to take the traditional steps that have always been followed.

With this new way of selling a home comes questions as to what effect it may have on the local real estate market. In this post, we’ll learn more about what iBuyers are and what if any impact they may have on Birmingham home values.

A Little About Offerpad

Who Is Offerpad? – Offerpad is a technology-based real estate company that has been around since 2015. They are based in Arizona but operate in over 800 cities across the nation.

They offer a quick and headache-free selling experience. Whereas in your traditional home selling model you would prep your home for sale by making repairs, painting and staging the home for sale Offerpad says forget about that. Their model is built around making the whole experience trouble-free.

They will buy your home as-is so you don’t have to do any of the prep work necessary to sell in the traditional model.

What Is An iBuyer? – An iBuyer is built around the “quick and hassle-free is a better” model. They offer a quick process that takes a lot of the typical headaches away. They will take a look at your home, make you an offer, and close the deal in a fraction of the time the traditional process takes.

My appraiser friend Jamie Owen, who writes the Cleveland Appraisal Blog, recently wrote about how iBuyers are similar to pawn shops. It was a good analogy and I highly recommend reading how he ties the two together.

How Does Offerpad Make An Offer? – In my opinion, the model is built around margins. They know what they can sell your home for and they know how much money they will need to spend on the property to get it into marketable condition.

Like the pawnshop, the only way for them to make money is to buy the home from you for a much lower price so that they can make a profit. The bad part about this is that you will not be getting top dollar for your home. There is a price for convenience and you will be paying it.

Like the Zestimate, many iBuyers will be using algorithms and automated valuation models to determine the value of your home and how much they will offer you. The only problem with this is that these methods may not use the accurate square footage of the home or consider things such as quality, view, and location.

How Do iBuyers Effect Home Values? – While a low sale price here and there may not substantially impact overall property values it can start to influence the market if these types of sales become more prevalent. There will probably be a certain price range and/or style of home that Offerpad knows they can sell easily so the impact of low prices may affect a certain type of home or areas of town.

It will be hard to ignore the sales when they make up a larger part of the available sales comparables. When they are used as comps they could potentially bring down the values of surrounding homes.

Things To Consider When Selling To An iBuyer – Before you consider selling to Offerpad or any other iBuyer there are several things you should consider:

  • You should know the accurate value of your home before you let any iBuyer make you a low offer. It may turn out that you can get substantially more for your home going the traditional route with only minor inconvenience.
  • Consider how much you will be making off of the sale. Even though these companies say they don’t charge a commission the fees they charge could be substantial and eat into your profit on the sale.
  • Know the cost of the repairs that your house needs. It’s quite possible that the iBuyer may inflate what it will cost to get your home in marketable condition to help build in margin and which increases their profit.
  • Do you want to be part of the process that erodes away at local property value? Your sale could end up as a comp for your neighbor’s house which contributes to it appraising low.

Question

Only time will tell as to whether the iBuyer model catches on. Have you participated in this type of transaction or do you have any thoughts? If so leave a comment below and as always thanks for reading.

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Comments

  1. Doreen Chaput says

    Very informative! I always gain some knowledge from your articles and like that you educate the public. I do agree this could effect home values but I see it could also be a benefit for those needing to sell their homes quickly before going into foreclosure. Unfortunately, many people get into difficult financial situations and the only out seems to be foreclosure or selling to an investor for a very, very low price.

  2. Tried to convince a young homeowner not sell to an ibuyer(I am not an agent) because she’s giving up so much equity in her home. Unfortunately it was sold for $190k to an ibuyer who has it listed for $268k. If it sells for list price, that’s good for the neighborhood but the young homeowner lost a lot of money. As long as the ibuyer doesn’t rent the home I guess I am ok with it in this instance but I would not buy an ibuyer’s home without an inspection and I can hire my own appraiser.

    • Wow, it sounds like the seller lost some money on that deal. Did the iBuyer do much work to the home before relisting? Sellers really need to think about this before they make rash decisions.

  3. This is a trend to watch. There are definitely a few tech companies working my market in Sacramento right now. They have less than 2% of the market for now from what I can tell.

    • Offerpad is the first of these companies to enter the Birmingham market but I have heard that others may be following them. We’ll need to keep a close eye on how things progress.

  4. Hi Tom! Great post! Thank so much for mentioning my article. I really appreciate it! It will be interesting to see what happens with this type of business model. You mentioned some great tips for helping a seller to make sure that they are making a wise decision regarding this type of buyer. We will have to pay attention to this type of transaction in our analysis as they are becoming a factor in the market. Thanks for a read, as always my friend!

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