New Trend Alert: Meet the Power Buyers
iBuyers have exploded in popularity in the past few years. This new type of competition in the real estate industry includes Zillow Offers, Opendoor, and Offerpad. iBuyers use AI to almost immediately value a prospective seller’s home. If the customer is content with the valuation given (and they pass an inspection by the company), they can sell their home immediately. The entire process usually takes around two weeks, compared to the many months (or years) that a home can sit on the market. This aspect of iBuyers can be very appealing to sellers, but within the real estate industry, iBuyers have disrupted the traditional selling process and attempted to eradicate the need for real estate agents.
In comes the Power Buyers, new companies in a budding industry seeking to fix the flaws within the iBuyer model. Traditional iBuyers focus solely on sellers. By targeting sellers exclusively, they aren’t attaching any financing to the product offering. There aren’t competitive mortgage commissions with most iBuyers. Power Buyers, on the other hand offer a BUY BEFORE YOU SELL business model. Instead of gathering up inventory and selling it down the line, they assist their clients in the buying process as well.
Here’s How It Works
First, in most business models, Homeowners fill out an online application. After this, the Power Buyer uses the same iBuyer AI technology to automatically calculate the value of the property. If customers are satisfied with that evaluation, they can choose to continue the process.
Here’s where Power Buyers differ from iBuyers: the sellers can use the money from that evaluation to make an all-cash offer on their next home before their original property has even sold. The Power Buyer will loan the money from the evaluation to the seller, who can use it to purchase their next home. Once the seller has moved, the Power Buyer will list the home and attempt to sell it on the traditional market. Most Power Buyers purchase the home after a certain period if it doesn’t sell.
Sellers have the advantage of moving into their new home before their old one sells. They don’t have to take on two mortgages at once either. Once the seller’s home is sold, they can buy the new one back from the Power Buyer. Power Buyers profit by taking a certain cut, similar to a brokerage or real estate agent. They also profit from homes they sell on the market.
The Mortgage Advantage
One advantage of Power Buyers is that they are a Fintech (financial + technology) company. Because of this business model, they can attach mortgage commissions of 70%, which are highly competitive. Traditional iBuyers usually offer mortgage commissions around 1-2%, making Power Buyers a much better choice for sellers.
The real estate market is experiencing a high-demand, low-inventory crunch. The focus is on buying right now and Power Buyers capitalize on this current trend. They can attract both buyers and financing, allowing for their exceptionally high mortgage commission. iBuyers are currently losing millions of dollars every single year by buying up so much inventory and holding onto it. Power Buyers can be more selective and choose properties that will be successful in the market and lead to actual profits.
The Top Power Buyers
Dozens of cities across the U.S. in states like Colorado, Georgia, North Carolina, and Texas have begun seeing start-ups using the Power Buyer model. The three biggest include:
· Homeward
· Orchard
· Knock
All three of these companies use the BUY BEFORE YOU SELL business model. In 2020, Orchard and Homeward both grew 150% and their predicted growth by the end of 2021 is expected to be over 300%.
The Agent’s Role Within the Power Buyer
Unlike many iBuyers, Power Buyers tend to work with real estate agents, instead of against them. Some allow sellers to use their own personal agent, while others offer company-issued agents. Customers are seeking to buy and sell, and Power Buyers rely on agents to use their knowledge of the local market to connect sellers with relevant properties. Power Buyers are not seeking to make the agent obsolete. Instead, they integrate the agent into the Power Buyer model and cement the need for local expertise.
The Future of Power Buyers
Power Buyers are expected to continue growing in popularity and finding new, innovative ways to solve industry problems and connect with more sellers. It’s also anticipated that Power Buyers will continue to rely on agents for their knowledge of local markets. But as technology becomes more integrated into real estate, it’s essential that every real estate agent knows how to utilize digital tools to stay competitive in the changing market.
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