Why iBuying Can Be a Risky Business

Technology can be a great tool, but recent news in the iBuying sphere of the broader real estate industry is further proof that algorithms can’t replicate or replace the human touch. RE/MAX has always held this principle high – our strength is our people.

iBuying can been a contentious topic, for both consumers and industry insiders alike. An iBuyer, or an Instant Buyer, is a company that uses artificial intelligence to determine value and purchase homes, then resell them. According to an article from our RE/MAX colleagues to the south, “One out of every six homes purchased [in the U.S.] so far in 2021 was acquired by investors rather than end users.” In Canada, Ontario was recently in the spotlight as a playground for property investors, with a new Teranet report concluding that one in four homes for sale in the province was purchased by someone who already owns multiple properties. In Toronto, that number is one in three homes.

In markets mired by record low inventory, competition from cash buyers – such as investors and iBuyers – mean fewer opportunities for end users.

Furthermore, we’ve seen that unpredictability in the market has made iBuying a risky business. This, despite the United States’ housing market being one of the best in history. One can only imagine what might have happened in a down market. This also begs the question, if a real estate “expert” can err on housing valuations, what about average homebuyers and sellers who are being enticed by the low fees and “convenience” of DIY real estate platforms?

This isn’t to say iBuying services can never work – they can under certain circumstances. For example, in subdivisions where homes are very similar to one another, or when housing market conditions aren’t being impacted by other factors such as shifts in supply and demand, changes in the economy or, say… a global pandemic.

WATCH: How are iBuyers currently affecting U.S. housing markets? Industry experts join Nick Bailey, President of RE/MAX LLC, to weigh in on why real estate agents will remain at the centre of transactions, even as the concept of cash buyers continues to evolve.

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So, what does this mean for the Canadian real estate industry and consumers north of the border? It serves as a warning that market volatility is impossible to accurately predict using data alone. However, it’s certainly something that an experienced, human real estate agent can and should anticipate, and factor into their valuation process.

The departure of one iBuyer will give first-time homebuyers and families a better chance at ownership in a historically tight US housing market. It also supports something we’ve always known – nothing compares to the knowledge and experience of a professional real estate agent.