iBuyers Bought High and Sold Low

The last few years saw a big rise and fall in the “iBuyer” business model, where companies like Opendoor Technologies Inc. and Zillow Group Inc. used their scale, data and pricing algorithms to get into the market-making business for houses. The iBuyers would offer to buy houses instantly, for cash, with not much in the way of due diligence, which was all very appealing to sellers; they would then have a big inventory of houses that they could flip to buyers. Instead of buyers and sellers meeting each other in messy imperfect markets, the sellers could all sell to the iBuyers and the buyers could all buy from the iBuyers and the iBuyers could intermediate every trade and earn a spread for providing liquidity.

This is in many ways a clever idea, though it also has some important difficulties that the iBuyers have not entirely solved, and we have talked about it a lot around here. One obvious thing to say about this business model is that it is lucrative if house prices are generally increasing (you buy a house, the price goes up, you sell it) and bad if house prices are generally decreasing (you buy a house, the price goes down, you sell it). And in fact iBuying was good for a while and then bad; Opendoor and Zillow have taken a bath on it, and Zillow shut down its iBuying group in late 2021.