iBuyers: Liquidity in Real Estate Markets?

81 Pages Posted: 24 Jun 2020

See all articles by Greg Buchak

Greg Buchak

Stanford University Graduate School of Business

Gregor Matvos

Northwestern University - Kellogg School of Management

Tomasz Piskorski

Columbia Business School - Finance and Economics

Amit Seru

Stanford University

Date Written: March 30, 2020

Abstract

We study the growth of “iBuyers,” real estate companies with online acquisition platforms that buy and sell residential real estate, to provide novel evidence on the effects and challenges of making housing markets more liquid. iBuyers act as liquidity providers, buying low and selling high, and carrying properties on their inventories for only a short period of time. Consumers sell their homes at considerable discount to iBuyers averaging 3.6% relative to comparable homes sold through a standard way. This suggests that, like prominent online mortgage originators, iBuyers use technology to provide households with convenience rather than simple cost savings. Compared to other sellers with similar homes, iBuyers list the properties they acquire at higher prices, adjust listing prices more frequently, and are more patient in their listing behavior. While they sell their properties at a premium averaging about 1.6%, these premia are greatest off-season when other players are less active in the market. We next focus our attention on the limits of the iBuyer business model and barriers to their market penetration. We show that iBuyers predominantly target homes that can be fairly accurately priced algorithmic-ally and that can be relatively quickly resold. These findings can be rationalized within a search-based model of house trading that illustrates that iBuyers comparative advantage allows them to add liquidity to the parts of the market where it is relatively less valuable. Despite these limitations, we document that iBuyer entry has increased geographical mobility, the ability for homeowners to move to smaller properties, and housing market liquidity.

Keywords: Fintech, Proptech, iBuyers, Real Estate Market, Housing, Liquidity

Suggested Citation

Buchak, Greg and Matvos, Gregor and Piskorski, Tomasz and Seru, Amit, iBuyers: Liquidity in Real Estate Markets? (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3616555 or http://dx.doi.org/10.2139/ssrn.3616555

Greg Buchak

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
6507214004 (Phone)
94305 (Fax)

Gregor Matvos

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Tomasz Piskorski

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Amit Seru (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

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