By Mario Toneguzzi

The real estate industry is facing plenty of disruption these days because of technology and innovative ways of doing business. The initiative getting the most buzz is the iBuyer, which has been well-established in the United States by firms such as Zillow and Opendoor.

“Currently these companies are crushing it,” says Ed DePrato of Sweetly in Edmonton, who is launching his own iBuyer brokerage. “They’re dominating the market. They’re already controlling more than 10 per cent of the available inventory in the cities where they operate.”



Ed DePrato
Ed DePrato

He says, “What iBuyer does is save the consumer all of the costs and headaches and hassles normally associated with being for sale. When you’re selling your home, the goal is to be sold. Being for sale is no fun.

“With an iBuyer there’s no interruption in your life. You simply go onto a website, answer a series of questions . . . It takes about 20 minutes and you can add a bunch of pictures if you want, pictures that help us understand the condition of your home. You can even submit information on what makes your home unique, what makes it more valuable or more desirable. Once we get that information we consider that information and weigh it against anything else for sale or sold recently in your neighbourhood and we come up with a value and make you an offer online – all without ever seeing your property.”

If a seller decides to accept the offer, they can set the closing date. The buyer isn’t moving into the home because it is simply buying it to re-sell the property. DePrato says his company’s fee will be eight per cent of the value of the property.

DePrato says this online way of doing real estate is the wave of the future because people are so used to doing everything online these days, from buying clothes and food to booking travel.

“Heck, we even find love online,” he says. “It’s a way for people to trade in their home just like they would trade in a car.”

Properly, a Toronto-based real estate technology startup, launched an iBuyer program in Calgary last year, and recently announced that it has secured funding to expand to Edmonton and other Canadian cities. The company says in a news release that it is “buying or selling a home nearly every day and growing rapidly.”

“There’s been a lack of innovation around real estate in Canada, but that’s changing with Properly,” says Gavin Myers, general partner of Prudence Holdings. “Investing in Properly was a clear choice because they’re providing the services homeowners want – convenience and transparency – while eliminating the pain points of selling a home.”

Properly offers a price match guarantee, which means if the home sells for more than Properly’s offer, “the majority of the upside is refunded to the customer,” the company says. “Properly’s service provides certainty, convenience and transparency, eliminating common issues associated with a home sale – inconvenient home showings, costly repairs, uncertain timelines and the risk of the offer falling through,” the company says.

Ross Kay of Ross Kay Realty Consultants in Burlington, Ont. says the iBuyer concept is simply a guaranteed sales initiative like many other ones in the market today.

“It’s just a scam. They’re trying to make the legacy brokerage model look as if it’s not legacy any longer when all they’re doing is rehashing old technologies, old approaches that have been around for four decades,” says Kay.

“Any guaranteed sales program, which is just what an iBuyer is, is structured so that the brokerage really cannot lose money. You’re not really giving them a market value price. Traditionally market value means the Realtor will try to sell your house for more money than what the neighbour sold for. Historically, that’s what market value has meant in organized real estate. Each new property you try to get a higher price. In the iBuyer program, it’s based on the old prices,” says Kay.

Cliff Stevenson, co-owner of Re/Max First Calgary and currently vice president of CREA, says the No. 1 reason for the proliferation of iBuyers on the market is convenience.

“There’s an argument to be made that the selling process can be challenging from a logistical perspective and preparing your home, doing repairs, maintenance, setting it up with your Realtor for showings, accommodating showings… The house could be on the market for quite awhile. There’s a convenience element for it for sure,” says Stevenson.

“There’s also a timing element for some people. Some of these iBuyer programs are able to complete the transaction relatively quickly for sellers – if somebody needs to get out or needs to know their number today and get out right away and move on somewhere else. The iBuyer option may work for them because they’re now having a very quick process as opposed to something that could take some time.”

But the main disadvantage, says Stevenson, is that a seller is not taking advantage of the pool of buyers on the open market.

“You don’t have exposure to the broad market to understand what your potential market value truly is,” he says. “But the other thing is that consumers have proven over the years that the advice they receive from a real estate professional is a huge part of the transaction. They want advice. They’re looking for ways to strategize the selling process. There’s an absence of that in many of these iBuyer models and you don’t have a trusted advisor like a Realtor to navigate through the process. You’re sort of on your own.”

CREA president Jason Stephen of Royal LePage Atlantic in Saint John, N.B., says the attraction of iBuyer programs is that it can be seen as an easier process for home sellers.

“The downside is at the end of the day, does somebody really know they’re getting full value for their house?” says Stephen.

“It’s like any real estate transaction. There’s risk and reward…My only concern is that homeowners should really understand what the true market value is on their house because they could be leaving a lot of money on the table. That’s why we point people to seeking advice from a professional Realtor. One of the jobs of a professional Realtor is to make sure that the transaction is easy and smooth but it’s very complex.”

In Atlanta, Ga., a traditional real estate brokerage is competing with the iBuyers with what it calls an instant offer comparison tool. The brokerage gathers instant move offers from companies such as Opendoor, Zillow and Offerpad, and then compares them to the estimated cost of a traditional sale using their company.

“We treat instant offer companies just like any other buyers and, in limited cases, an instant offer may be the best option for the seller,” says Craig McClelland, vice president of Better Homes and Gardens Real Estate Metro Brokers. “But in other cases, the convenience fees aren’t worth the lost equity. We pull together the information on the homeowner’s behalf, so they see the entire picture. That way, they can make an informed decision on how to sell what’s generally their most expensive asset.”

8 COMMENTS

  1. Not a great option for anyone that wants to obtain the highest price the market will bear. An experienced Realtor can easily help their client prepare and market their property to get the most exposure possible in order to get the highest price possible and then advise and make sure everything goes smoothly all the way to completion. If you want to Pawn your house and leave a ton of equity on the table here’s a great option.

  2. There is so many holes in this entire article, this is one of the most dummied down attempts at writing a bit about a very complex transaction I think I’ve ever read. I only hope that regulators have some say in all this, because this sounds like a very predatory service…you gotta be a special kind of stupid and clearly need protecting if your willing to give up 8% of your homes value in a service fee. DePrato is quoted as saying it saves the consumer all the costs, headaches and hassles associated with selling a home…!!?? iBuyer collects a whopping 8%, so on a $400,000 sale price that’s $32,000 in fees, comparatively, a full service Realestate Broker’s fees are going to in around ~$14,000…6% on the first $100,000, 4% on the second $100,000 and 2% on the remaining $200,000 of sale price.

    • Hello! This is Ed DePrato… To be clear a Realtors commission is just 1 component to the overall total costs to a seller when selling a home. In addition to commission, statistically according to the Edmonton MLS sellers who are successful (less than 1/2 are) will discount their asking to sold by 3.1%. Also, most sellers wait more than 60 days to sell. So depending on the size of your mortgage and the value of your home you’re likely paying more than 1% for ownership related expenses too. We take on those expenses in our fee of 8%. So really, our service fee is about the same as the total cost to you as a seller. And in exchange we allow sellers to choose their own possession day (we aren’t moving in like a traditional buyer), and you achieve a certainty of sale without ever showing your home.
      Currently we will be buying only homes valued from $280,000 to $500,000 but when we expand to higher priced homes our fee will be less; similarly for lower priced homes our fee will be slightly higher. Hopefully this helps you understand the difference.
      Ed

      • Hi Ed, you are avoiding one thing “the price”. In your reply you said a seller will discount the listing price with 3.1% and that is probably true but let me ask you a simple question: I am a home owner and after talking with my ahi and looking at comparables I list my home for 300,000. After 3 weeks on MLS I cancel the listing and I come to you – are you going to buy my house for $300,000 (listing price) minus your 8% or you will come up with your own price from where I still have to pay you 8%? If you will say that you don’t pay listing price then you should not use that statistics about listing to sold discount.

        • Hi Dan. Thanks so much for asking your question and leaving your example. Once we know what the value of the home (in our professional opinion) we base our offer on that amount – so if we agree that $300,000 is the actual market value then our offer would be from 78-86% of $300,000. We can’t tell you that the market will pay exactly $300,000… The resale price might be less or it can be more if we have competing offers. But we’ll support our valuation with actual comparable information to support our opinion of the value. Once we resell the home (for $300k, 295, or maybe 305…) we apply our fee to that sale amount and send the balance back to you as our seller.

          Hope that helps, but if you have other questions please feel free to post them here and I’ll reply for the benefit of all readers.

          Thanks!

        • Hey Dan,
          Just one more thing. This article mixes our solution with that of Properly. While we don’t know this company, their offers are for them to comment on, and I hope they do. Their site suggests that if they buy the home for any less than what they resell it for, the company will pay back 50% of the increase to the original seller. That’s materially different than the Sweetly solution… I mean, if you sell your $300,000 home for $200,000 with that comforting promise of 50% back then you only net $250,000 for your $300K home… That’s not what Sweetly is doing – just to be clear. Also, we are real people, from Edmonton. We aren’t using any arbitrary algorithm to valuate property – we do that the old fashioned way.

  3. I like how Ross Kay of Ross Kay Realty Consultants in Burlington, Ont has characterised these “Wolves in Tech clothing” (aka disrupters a la AirPnP, UmBer etc) that appear as “money-saving, consumer-liberating” alternatives at first, but then problems develop operating in the REAL post-IPO world. The rising market in Cdn cities may provide a niche for these Flippers, but once the up-trend is established and a seller knows they will get 101% of Market Value in 5-7 days ….

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