iBuyer slow down could mean lower home prices in Tucson

Internet-based home buyers, who entered the Tucson market two years ago with eye-popping cash offers, are powering down.

Known as iBuyers, companies such as Opendoor and Offerpad have slowed down on purchasing homes in Tucson for touchups and resale.

And, Redfin has closed its iBuying division, citing rising interest rates.

“To prosper in a housing downturn that could last at least through 2023, we have to simplify our business,” Redfin CEO Glenn Kelman said in a statement. “We’re closing our iBuying business, RedfinNow, because maintaining a profit with rising interest rates would make our offers on homes insultingly low.”

Local Realtors and analysts consider it welcome news.

“Most of them were using algorithms across all market and real estate is local,” said Jodi Koch, president of the Tucson Association of Realtors. “Realtors are excited that these iBuyer platforms are stepping away.”

The biggest benefactor is the home buyer, who will no longer likely have to compete with multiple cash offers.

Stories of making 15 to 20 offers on homes — only to have them all rejected for cash — may be a thing of the past.

And home sellers are expected to adjust their expectations which could help bring down the cost of a resale home.

Days on the market is up to 35 currently, Koch said, compared to last year when it was three days.

“We’re seeing a lot of price reductions as sellers realize the market has shifted,” she said. “I don’t want to say it’s going to become a buyers market because of the shortage ... 35 days is still a very, very short time because we still have a lack of inventory in Pima County.”

Koch said the lack of housing and rising interest rates will make the price of a resale home more realistic.

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“It’s not going to be a crazy market anymore,” she said. “I see 2023 as more stable and that homeowners and buyers need to — more than ever — reach out to a Realtor.”

The price of homes bought by iBuyers have been reduced as the companies try to move inventory that was paid for by their investors.

Some of the biggest players in the Tucson market in the past couple of years took major hits to their profits.

Nationally, Redfin reported a net loss of $90.2 million in the third quarter of 2022, compared to the same quarter in 2021.

Offerpad had a net loss of $80 million in the same timeframe and Opendoor reported a net loss of $928 million in 2022 versus 2021.

“They weren’t savvy and they were playing with someone else’s money,” Koch said. “Now they’re stuck with a ton of inventory and selling for it for way below what they paid for it.”

While some home sellers might miss the quick, easy cash, the overall market won’t miss iBuyers, said Jim Daniel, a local housing analyst with R.L. Brown Reports.

“The (iBuyers) were partially responsible for the run-up of properties by bidding against each other,” he said. “It’s not surprising that they’re struggling.”

And, although interest rates are up significantly, a $30,000 reduction in the price of a home could help offset the rate increase, Daniel said.

“Overall, it’s a positive thing,” he said. “It’s going to help normalize the market.”