Over the last several years, the Phoenix real estate market has become a major hub for iBuyers. These companies, which employ opaque algorithms to determine property values and serve up a cash offer to sellers, often draw criticism for inflating real estate prices and pushing more property into the hands of the rich.
But they’ve continued to make gains nationally. In Maricopa and Pinal counties, they’re having more success than most other parts of the country.
Local realtor Greg Corbett has spent the last year tracking iBuyers in the Phoenix market. They have been successful in the area for a while, he says. But things really picked up this summer.
“In the last two to three months,” he told Phoenix New Times, “they have made a significant push into buying properties in Pinal and Maricopa counties.”
According to listing service data that Corbett provided, iBuyer sales this August in Maricopa County were ten times higher than in August 2020, jumping from under 200 to more than 1,100. And across Maricopa and Pinal counties, three iBuyer companies — Offerpad, Zillow, and Opendoor — now hold 12.5 percent of all active property listings. That's over 800 out of 6,500 overall.
Typically, iBuyers make cash offers to property owners with the intention of buying and quickly relisting the properties for a higher price, or selling them to large investors. The companies' offers look appealing, explains local real estate agent Ryan Nager, but are often deceptive.
“I think a lot of consumers don't understand how much their home value has probably gone up in their past year,” he said. “But Zillow does. Who has better data than they do?”
Zillow agrees that Phoenix is a major hub for the industry. According to the company's September report, iBuyers have now captured more of the market in Phoenix than in any other city. In the first quarter of 2021, the companies accounted for 3 percent of property sales in Phoenix. By the second quarter of this year, that figure had nearly doubled to 5.7 percent, according to Zillow's calculations — a different measure than the listing data, which evaluates the owners of properties on the market.
iBuyers are facing mounting criticism for their business practices and their impacts on the housing market, although the companies claim that they don’t actually drive up prices. iBuyers, Zillow argued in its recent report, “tend to buy and sell homes near the median sale price in a given metro area,” which increases “liquidity for relatively affordable homes that are often in high demand.”
Some independent experts have agreed, warning against overestimating the influence of such companies — arguing that they cluster in markets with rapid price appreciation and don’t warp prices themselves.
But Corbett says that’s not what he sees.
"These types of companies have unlimited budgets, and all they care about is market share," he explained. “They aren't necessarily looking at the bottom line of turning a profit on each house.” That leads to them paying inflated prices, he says.
One recent national analysis supports this: “iBuyers are paying record-high, above market values,” it concluded, “but they're also reselling them for more money than ever before.”
That analysis used the Phoenix market as a case study: The average iBuyer property in Phoenix is resold for 11.5 percent more than the purchase price — higher than the national average of 8.1 percent above purchase price. That’s about a $40,000 average profit, per sale. And many sales reap profits that are far higher — $100,000 or more.
Nager agrees that the reason the companies have clustered in the area is at least partly due to the hot housing market. “Phoenix is uniquely poised because it's been one of those top places for migration for the last several years,” he said. “They saw all of that before we did, I think.”
But he also thinks the companies are helping to drain housing supply. “They're looking in that sub-$500,000 market, typically looking in neighborhoods that are already established,” he said — a segment of the market in high demand.
There's still no end in sight for Maricopa County’s housing boom, which is forcing up rents across the Valley. Corbett says that he is running out of advice for the many prospective homeowners who are struggling to buy. "All we can say is, this is what you're up against," he said. "This is what you're competing against."