While real estate is the largest asset class in the world, it is still a very fragmented segment. With different laws in different regions, various property types (i.e. commercial spaces/buildings and residential/townhouses) and inconsistent transactional processes, market fragmentation has prevented real estate from growing. to adopt the technology as quickly as other sectors – until now.
Over the past decade, we’ve seen several digital companies and startups use algorithms and technologies to solve specific problems in the home buying process. For example, open door was founded in 2014 to make buying a home more efficient – or as they say “reinventing life’s most important transaction”. Likewise, companies like Zillow and Truly launched in 2005 and 2006 as “property search engines” to help buyers more easily find a home online.
While each of these digital companies successfully solved a problem in the market, other pain points still existed. And now we’ve seen most of those early digital innovators, along with new startups and more traditional players, like Keller Williams (via Keller Offers), are expanding their reach with technology to become early iBuyer leaders.
iBuyers are real estate companies that perform the buying and selling of a home digitally. These companies are advancing the market and closing fragmentation gaps by using technology to digitize and simplify multiple aspects of the real estate value chain to create a better customer experience. And, while iBuyers still represent less than 1% of total home sales, they are a transformational force seizing the opportunity to eat away at the real estate market, which in the United States alone is worth approximately $40 billion.
So what technologies and trends are iBuyers using to solve market fragmentation?
Embedded solutions and APIs
Data usage is one of the key elements of iBuying. iBuyers use the data to create unique but scalable pricing structures for things like appraisals, where they can appraise homes without having to send an individual appraiser, like a traditional buyer. For this strategy to work, iBuyers need to know all the elements of a sale in advance to price the purchase.
Proprietary analytics and external data sources, backed by a microservices architecture that connects them all through APIs, can power recommendations and ratings optimized for any part of the sale – rating, tax, credit score, loan rating, insurance rating, title and closing costs.
That said, with tight margins of about 5%, time is short, which means human value creation (retrofits large or small) is typically abandoned in favor of an algorithmically determined window dictating when to buy or return. To reduce transaction risk, bespoke add-ons are important. iBuyers can defend their assets against property damage, acts of God, defects of title, liability lawsuits, burglary and vandalism, while adding additional margin.
Fully digital transaction flows via online dashboards and portals
To make homeownership more accessible to the general public, iBuyers are unlocking new opportunities through alternative financing strategies that leverage technology and an all-digital deal flow.
An “all-digital transaction flow” means that title, payments, escrow, etc. all take place in an end-to-end customer dashboard or portal, which is often connected to their bank account and mimics a “banking solution”. Having everything in-house allows iBuyers to reduce closing costs for buyers and sellers, offer real-time, 24/7 customer support, and provide unique financing solutions for buyers.
For example, companies like shared houses allow future buyers to rent their future home, EasyKnock helps homeowners tap into their equity without too many lender restrictions and Ribbon opens the door for buyers with different all-cash solutions to make offers. These dashboards provide a more convenient experience for customers and act as a single source of truth, bringing together everything they need to know about their purchase in one place.
They also allow iBuyers to better understand customer behaviors through data.
Big data to deliver contextual relevance
With the massive amount of data available to iBuyers, they can better understand a customer’s buying journey and behaviors to integrate contextually relevant offers to customers that would otherwise have traditionally been outsourced.
For example, an iBuyer can use data to understand different elements of a home that could impact the type of insurance a buyer might need. But, by reviewing data on home history, neighborhood, and home condition, an iBuyer can offer the most relevant insurance directly in the dashboard and to the customer.
The related findings of a report driven by PYMNES showed that people are very interested in the insurance packaged by their primary financial institution when buying a home. Additionally, nearly a quarter of US consumers are very interested in obtaining residential warranties in the same way. The study found that the protection offered in this way is more convenient and can be digitally tailored to the buyer’s needs.
The beauty of iBuying’s digital approach provides buyers with a fully online experience, an easy-to-use interface, and new financing constructs that are developed to meet the needs of the modern homebuyer.
Andy Bodrog is Director of Partnerships, Property at Cover Genius.
This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.
To contact the author of this story:
Andy Bodrog at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]