iBuyers in Canada

If you follow real estate news, I’m certain you’re aware of Zillow. South of the border, this massive $2+ billion in revenue company provides consumers with online real estate listings. To say it’s popular is an understatement – the Canadian equivalent would be Realtor.ca. Until recently, it turned a profit by selling leads (i.e. potential buyers’ and sellers’ information) back to Realtors. It was essentially an advertising company, until recently it entered the space of real estate brokerages with its iBuyer program.

iBuyers are essentially companies that buy your home as is and at market value, less a convenience fee. It’s a big deal in the US market.

In Canada, this system is in the nascent stages. You’ve likely seen some of the flyers show up at your door, postcards supposedly handwritten and from your “neighbour”, looking to buy your home regardless of its condition and, of course, offering you a way to cash out without the hassle of going to the open market. There are also people and businesses that offer this wholesale buying as a way to build inventory for their house-flipping businesses.

What we haven’t seen, yet, is the entry of institutional money coming in and vacuuming up homes for flipping and renting.

There’s a market for this, and we’ll likely see this trend expand in the coming years.

At first blush you’d think – who would be desperate or crazy enough to want to sell their home at, very likely, a deep discount to what they could get in the open market today? Especially in today’s market, where it’s virtually impossible to not sell your home in a matter of days or weeks. Surely these folks aren’t missing the headlines – It’s a Hot, Hot Seller’s Market!

But if evidence from the US market is any indication, there will always be a subset of the market that doesn’t want to publicly sell, or go through the hassles of preparing their homes for sale.

Is it fear of COVID? Maybe.

Embarrassment of having people come through their homes that they’ve neglected? Possibly.

Perhaps it is a reaction to the real estate industry entirely, a do-it-yourself ingenuity.

Or is it that some people just really value their privacy – that the convenience of selling without the sign, the photos, and the traffic through their home is appealing enough?

Whatever the reason, there is some big money betting on this segment of homeowners who will take a potentially lower dollar for their home in exchange for being able to walk out the door and move on – leaving their “troubles behind”.

Back to Zillow. In the end, they didn’t last in the iBuyer game, citing issues with paying too much for the homes they bought and not being able to renovate and turn them over for a reasonable profit in time. The typical risk that investors take on when they are looking for opportunities in the real estate market – just to the power of 100.

That doesn’t mean it’s not a viable market. There are several other massive Wall Street-backed players determined to make this a profitable business.

Over the past 35 years that I’ve been in this business, we have had clients that for various reasons needed to sell fast and without hassle. Some of those sales happened during down markets where buyers were king, and there was a lot of creative marketing around getting buyers to choose your listing over the other 10 or 20 competing homes available.

Selling a home at wholesale prices makes sense in a buyer’s market, and leaves me scratching my head when it’s done in a seller’s market.

There’s been a lot of research, mostly American, that indicates consumers find the instant offer appealing. It might have something to do with the instant gratification era we live in.

My sense is that it’s all about the marketing.

With our aging population and real estate prices as high as they are, a growing segment of the market may just find the simplicity of iBuyers appealing.