Zillow, Opendoor suspend homebuying activity in the wake of coronavirus

If you’re trying to sell your house right now, you may notice one potential buyer is conspicuously absent—iBuyers.

iBuyers, short for “instant buyers,” are algorithmically powered home flippers that have come to prominence over the last five years, particularly in markets where relatively uniform single-family homes are the majority of housing, such as Phoenix.

But Zillow, Opendoor, and their competitors in the space have suspended homebuying activity in response to a number of local governments shutting down nonessential businesses in hopes of curbing the spread of COVID-19. The measures make buying unfeasible in some markets where iBuyers operate. Both Zillow and Opendoor will continue to sell houses.

“We plan to restore Zillow Offers full operations once health concerns pass and local health orders are lifted,” said Zillow CEO Rich Barton in a statement.

iBuyers purchase houses for an algorithmically determined “fair market price” in all cash offers that close in a matter of days, allowing the seller to move much more quickly than in a traditional sale. The iBuyer then cleans and fixes the house to sell on the open market.

The convenience and flexibility of selling to an iBuyer will cost you a small premium in the form of a slightly higher fee than those charge by traditional real estate agents (a realtor will charge around 6 percent and iBuyers charge roughly 7.5 percent) and a slightly lower purchase price. But if you’re in a situation where you need to sell your houses as soon as possible, iBuyers are a good options.

With the spread of the novel coronavirus bringing the American economy to a halt, some homeowners suffering financial hardship might see iBuyers as an escape route from a mortgage that’s suddenly looking unaffordable. But that option won’t be there for the time being.

iBuyers don’t make up a large amount of any given market’s home sale transactions. Estimates range from 5 to 10 percent of home sales are to iBuyers, depending on the market. But with the housing market coming to a near stop, iBuyer could have played an important role in keeping the housing market liquid, making sure people who want to sell can sell, and people who want to buy can buy.

Housing transactions from countries that have been impacted by COVID-19 dropped precipitously as the virus spread. In 30 major cities in China, home transactions dropped almost 100 percent during the crisis. Seoul, South Korea, saw a 90 percent drop in home transactions in the first nine days of March. No major home sales data has been released since the pandemic hit the United States.

A recent Zillow study looked at housing during previous pandemics such as SARS and found similar drops in home transactions. However, the drop in transactions didn’t coincide with similar drops in prices. The easiest way to think about it is like if the housing market at large was simply put on pause.

If previous pandemics are any indication, the real estate market will likely return to normal in short order when the threat of the virus spreading subsidies—complete with tight supply, high prices, and probably iBuyers too.