An otherwise routine home sale in North Seattle this month signaled a notable arrival in the local real estate market.
RedfinNow, the house-flipping arm of the Seattle-based digital brokerage, bought a two-bedroom house in Greenwood in December and listed it for resale in late January. This week, in its first completed Seattle deal, the company accepted an offer on the house.
Redfin became the first major company with a model known as iBuying (“i” for “instant”) to expand to Seattle. Along with other prominent companies like Opendoor and Zillow Offers, RedfinNow buys and sells homes in other cities around the country, including Phoenix, Dallas and Sacramento, California.
The platforms offer a mixed bag for sellers.
Typically, homes sold directly to the iBuying companies bring in less money for the seller. The companies pitch that as a trade-off for the convenience of skipping the usual listing and selling process.
RedfinNow bought the 1941 home on Evanston Avenue North for $515,000 in December, upgraded some interior fixtures like cabinets and listed it about a month later for $519,950. RedfinNow has accepted an offer on the house, but the financial details are not yet public. Attempts to reach the previous owner who sold to Redfin were not successful.
The house was foreclosed on in 2008 before the buyer who sold it to RedfinNow purchased it in 2009 for $140,000, according to county records.
Companies with iBuying platforms argue they are different from traditional flippers because they pay close to market value for homes, instead of relying on buying low to cash in on rising property values. In King County, for example, one conventional flipping company bought properties at an average 22% below assessed values before renovating and reselling them at a markup, according to a Seattle Times analysis last year.
RedfinNow makes sellers an initial online offer after analyzing the home, then has the house inspected and makes a final offer. “That number doesn’t change, so there are no last-minute shenanigans that has been some of the history in other parts of the market,” said Quinn Hawkins, vice president of investments and renovations at Redfin.
Still, the iBuyer business is built on buying at a low enough price to turn a profit, said Norm Miller, a professor at the University of San Diego who has studied iBuyers.
Typically, iBuyers take a fee of about 6% to 9.5% off the value of the sale, compared to about 5% to 7% for typical home sales, plus the company usually lowers its offer based on needed repairs or upgrades, Miller said.
Homeowners are most likely to turn to a service like RedfinNow when they need to sell quickly or in a slow market.
In Seattle, a competitive sellers’ market could encourage homeowners to stick with the usual process. Real estate brokers have described bidding wars and houses commonly going quickly for considerably above asking price. In early January, the median Seattle-area house went under contract in eight days, compared to 18 days a year earlier, according to Zillow.
“I’d be surprised if there’s a whole lot of business out there unless they’re making really good offers,” Miller said, “and they can’t afford to do that and stay in business.”
Zillow told shareholders in a report last year it was operating Zillow Offers “within the expectations we set for ourselves at the per-home level to make or lose an average of 2% return on homes sold before interest expense.”
Redfin argues the pandemic could make the expedited process more attractive to more buyers.
Sellers juggling a move, plus work and school from home, may be looking for convenience, Hawkins said.
“Even though Seattle is a really hot market, you still have to do the prep work,” plus listing the house and spending a month on the closing process, Hawkins said. Selling quickly can also help homeowners have cash on hand to buy their next house in a competitive market, he said.
RedfinNow’s launch in Seattle will test the market here, though likely at a small scale.
RedfinNow has so far purchased at least seven houses in Seattle, Auburn, Burien and Bellevue, according to the King County assessor. The company will make offers on town homes and single-family homes built after 1910 and worth up to $1.6 million in Seattle and in some areas on the Eastside, Hawkins said.
In Phoenix, the city most saturated with iBuyer sales, 1.5% of home sales went to those buyers in the third quarter of last year, down from 5.3% a year earlier, according to Redfin. (The iBuying companies paused buying and selling when the pandemic hit before restarting later in the spring.)
In a report to investors, Redfin did not say how many homes it bought and sold but claimed RedfinNow, which started in 2017, saw a “407% increase in the number of homes sold” from 2018 to 2019.
Zillow, which began buying and selling homes in 2018, told investors it sold 4,313 in 2019 at an average price of $316,500 each.
It’s not clear when other companies may start buying and selling in Seattle.
Zillow Offers buys and sells in the Portland area, which includes Vancouver, Washington, but has not announced plans to expand to any new cities in 2021, said spokesperson Emily Heffter.
Opendoor has not announced planned expansions but “is working towards doubling its markets in 2021,” a spokesperson said.