Denver Colorado is becoming the testing ground for the new Ibuyer frenzy with new players entering every day. Is the ibuyer program just hype or will it actually “radically alter” how real estate is bought and sold in Denver and the front range?
What is the ibuyer model
It seems like every day there is a new entrant into the category from Zillow to Redfin to open door to countless others. The general model is to buy houses at a slight discount (less than 5%) in uniform neighborhoods, do minor repairs and resell at a slight profit. The goal is that volume will equate to profits as they can operate more efficiently than others in the market. The new ibuyer is an update on the old model started by webuyuglyhouses, homevestors, and others to buy houses fix them up and resell. The largest difference is todays players are national companies with huge pockets, and very low costs of capital, that can take risks on perfecting their models and work in a low margin environment.
Why is the Ibuyer focusing on Denver real estate?
Denver has become ground zero for the new ibuyer model as housing prices are less expensive than the coasts and it is also a “fast” moving market at lower price points. This enables the ibuyer to get into and out of a property relatively quickly. Furthermore, Denver is a young city so market participants will be more open to the concept as they have grown up buying everything online.
Will the ibuyer be successful in Denver real Estate?
This is the million-dollar question. Currently I would not say that any of the ibuyers are successful. They are at best break even to a slight loss. The point now is not to “hit it out of the park”, the objective is to figure out how the model can be successful. I would compare this to Amazon buying whole foods. I doubt Amazon has made any money on Whole Foods, but it has become a testing ground for their retail strategy (pick up in store, rewards program, etc…). The same concept is occurring in the ibuyer market with various entrants trying to figure out how to make the new model work
Will the ibuyer radically alter Denver real estate?
I doubt the ibuyer will radically change real estate in the next 5-7 years in Denver. It is a difficult model to perfect with countless variables in each house which makes this extremely hard to scale. The ibuyer will focus on uniform markets and prices points and might have some relative success but I don’t think this will drastically alter real estate in Denver or throughout Colorado on the whole.
Should you use one of the new I buyers to sell a Denver property?
It depends. If you are in a desirable price point under 500k and in a uniform market where the houses are consistent then it might be worth giving them a shot. By the time you pay realtors commission, you might come out about the same without the hassle of selling your house.
Summary
I doubt the ibuyer will drastically alter real estate in Colorado just yet. When thinking about the ibuyer, buying real estate is a very personal/emotional event for most. There are tons of questions and hand holding especially for first time buyer. A real estate purchase is not something most people do frequently and the implications of getting it wrong are difficult which will push buyers to use a real estate agent. The sell side is where the ibuyer could make substantial inroads in very uniform areas. Although there will be some slice of the market that gravitates to the new model similar to the discount brokerage, I don’t see a tsunami where in the next 5 years the majority of houses are bought online without using a realtor.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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