The real estate market is affected by multiple factors: the money supply, employment, demographics, and the Federal Reserve System to name a few. These determinants have long histories with the buying and selling of property. However, in recent years, technology inserted itself among market variables in the form of iBuyer online platforms. How do these companies change the equation? Do their streamlined procedures make successful closings more likely or less so? And finally, can these companies entirely replace the traditional broker/agent? Such questions warrant a closer look at these internet-based enterprises.
How Do iBuyers Work?
These programs, such as our recently launched iBuyer platform and Zillow’s Direct Offers make instant cash offers on properties that are submitted through the platform. Through a combination of internal computations, proprietary models and data, market cap rates, comparable sales/leases and price per square foot computations, in junction with owner-supplied information, input from real estate service providers (architects and zoning attorneys), and on-site inspections, we come up with an offer in as little as 48-72 hours.
Advantages Over Traditional Brokerages
iBuyers are a potentially attractive option for sellers because they have the certainty of selling their property to qualified buyers who have the wherewithal and financing to close. They might not be getting top dollar (a good comparison would be selling your car back to a dealer versus a private-party sale), but sellers could be out of their properties faster thus saving money on holding costs (time is money). Other advantages to the iBuyer process include less aggravation and hassle, limited showings and foot traffic, and most importantly the savings on transaction costs (commissions).
It ends up being a zero sum game for many sellers or at least a much more fluid and improved sales process. Many times in commercial real estate, it is more valuable to have a qualified buyer and be direct with them rather than selling for a few percentage points higher, especially when you do not have to pay a commission.
Our iBuyer system is principal to principal, which is advantageous to both buyers and sellers as it saves dramatically on transaction costs and issues can be resolved directly between parties versus using an intermediary. Another added benefit is that you receive an offer in as little as 48-72 hours upon submitting the information document requests, this will help you better understand your valuation versus a broker or auction house who uses blind bids thus making it very uncertain where the sales price will end up.
We provide an open and honest valuation process, there is no over promising and under delivering that many sellers have grown accustomed to via dishonest players. Don’t get me wrong, there are many fantastic brokers out there who sell in high volumes and understand their market, but for every one of them there is a handful of not-so-competent brokers looking to get a listing agreement signed by promising the sky, then trying to beat you down to a lower price and accept an offer. It has all happened to us before and since you have 6-12 months of exclusivity, you may end up accepting the offer that did not meet your expectations since you have no other options.
The best part about the iBuyer platform is that it’s a no cost, no obligation, non exclusive arrangement, which is the biggest competitive advantage and compliment we receive from users.
The COVID-19 Impact on iBuyers
Recently, the iBuyer players have all called off their programs given the coronavirus pandemic, however, there are still a few companies that remain. Our company, Point Acquisitions, is one of those companies. The reason we are able to survive is that we partner with high net worth individuals, family offices, private equity vehicles, and other strategic partners including, but not limited to, real estate funds and large owner/operators. Thus, not everything that comes through the platform is something we hold on our balance sheet, unlike Zillow that bought all the residential properties on their own account, sometimes averaging 5,000 properties a month.
Commercial real estate trades at much lower volumes than single family residential properties. We also hedge our balance sheet by using strategic partners in all asset classes. Once we understand our user’s buying criteria (aka “buy-box”), we match plausible leads that come through our platform which fits their buy-box, then we work to joint-venture with them to purchase the property.
We are compensated by receiving non managing equity shares so we can retain upside and ownership in the deal, thus growing our portfolio in a diversified set of asset classes in an exponential manner all while achieving a risk balanced portfolio.
What Does The Future Hold?
Once the pandemic eases up, we feel there will be a high volume of distressed trades that we will capitalize on via our iBuyer program. The best opportunities come in times of uncertainty and we are confident after speaking with our many partners and buyers that the next couple of years will be a great buying opportunity, just like the years 2009 to 2012 had amazing opportunities.
Currently, we have strategic partners who collectively manage over 2B in AUM. Our iBuyer partners together own 20,000 multi family doors, operate more than 100M SF in industrial space, own over 10M SF in Net Lease retail space, own 20 hotel properties, and control over 1M SF in entitled land for future development. Please feel free to contact us to join our platform as a strategic partner, buyer, or seller. It is truly the wave of the real estate future.