IBuying after Covid-19

Authored by:
Paul Hagey
June 2020

When the economy experiences stress and uncertainty, as it has done massively during the Covid-19 pandemic, all business models face challenges, but newer models usually face big challenges they have yet to establish secure profitable operations.  

With the economic stress accompanying the recent pandemic, T3 Sixty evaluated the prospects of the iBuying business model – in which companies purchase homes directly from homeowners and then sell them – by looking at the nation’s most prominent iBuyers, Zillow Offers and Opendoor, as the coronavirus freeze begins to thaw. For additional background on the topic, read T3 Sixty’s deep dive on the proliferating iBuyer business model in the 2020 Swanepoel Trends Report chapter, “The iBuyer Revolution: Redefining the Real Estate Transaction.”

In response to the health uncertainty coronavirus plunged the country into, many if not all iBuyers stopped purchasing homes for approximately six to eight weeks from mid-to-late March to early-to mid-May, when they started purchasing again in some markets. Many continued selling homes in their inventory, where allowable.

When Zillow Group and Opendoor paused buying homes in mid-March, they owned 1,860 homes and 3,800 homes, respectively.

With the addition of new markets and an increase of activity in existing markets, Zillow’s Homes segment (a division of Zillow Group) approximately doubled its revenue from the third quarter 2019 to the first quarter 2020, when it did $769 million (Zillow Group’s iBuying service Zillow Offers accounts for the vast majority of the Homes segment’s revenue).

The model, however, does not yet generate profits. Zillow’s Homes segment showed an earnings before interest taxes and deductions (EBITDA) loss of $75 million in the first quarter 2020, and $4,478 on each home it sold in the quarter. It projects much less revenue and an EBITDA loss of approximately $75 million for the second quarter. (Opendoor does not share its metrics as a private company).

In mid-April, Opendoor laid off 35 percent of its staff, approximately 600 employees, to withstand and survive the Covid-19-caused downturn. Although Zillow Group did not announce any furloughs or layoffs, the company announced on May 12 that it sought to raise $1 billion in public offerings of its stock; presumably at least some of that cash would go to fuel and shore up its iBuying efforts.

While offering an attractive service to sellers, the practice proved unprofitable before the economic freeze and faced significant stressors during it, butboth Zillow Group and Opendoor remain optimistic about the iBuying model, while even adapting parts of their models.

Jeremy Wacksman

“We’re even more bullish on the customer product market-fit than ever,” says Zillow President Jeremy Wacksman, who oversees Zillow Offers in this role. In addition to the certainty, convenience and simplicity the service offers sellers, he says, the model, because it minimizes contact sellers have with agents, inspectors, appraisers and buyers, addresses a big, new concern: safety.

Nate Harbacek

Opendoor has a similar stance. “Our conviction [in the viability of the model] has never been higher,” says Nate Harbacek, Opendoor’s head of corporate and business development.

Both companies, and other iBuyers, have begun purchasing homes again in their markets based on the ability to do so safely and based on local market dynamics that suggest a return makes sense.

IBuyers Return

 Zillow OffersOpendoorOfferpadRedfinNow
Markets Live*97143
Total Markets2421143
*As of June 4, 2020. Sources: Zillow Offers, Opendoor, Offerpad, Redfin

Covid-19 stressors on iBuying

The iBuyer business model faces greater risk than many other residential real estate brokerage models, as they buy, hold and sell homes at large scales. As such, it requires great amounts of capital to operate. Any economic downturn – such as the one caused by Covid-19 – places immense financial stress on the model.

IBuyers use pricing algorithms and in-person inspections to establish offers on homes and set their fees. Because they own the homes, the companies face a risk when the market rapidly downshifts as it did during Covid-19, as homes in their portfolio may sell below the range their algorithms predicted.

In addition, many iBuyers use capital and take out loans to purchase homes, which carry costs. Other holding costs, such as maintenance expenses, also come into play. In some cases, the terms under which they borrow money to purchase homes require they repay the loans in full if a home remains unsold for a certain length of time.

Technology + processes

In response, iBuyers have tweaked their business models. With the emphasis on limited social contact, the coronavirus lockdown has accelerated the demand for a digital transaction that has steadily grown over the years. Real estate consumers, too, became more accustomed to virtual ways of buying a home, such as relying more heavily on video tours, 3D tours to check out homes and self-touring options.

Zillow Offers and Opendoor, and other iBuyers, had already introduced extensive self-touring options for homes they owned in several of their markets.

As a response to Covid-19, Zillow Offers also reduced the number of human visits to a home it purchases from three to one, just the initial inspection. It now conducts the final inspection virtually. It also leans on its 3D virtual tour technology to ensure all homes it lists have that feature.

On homes it prepares an offer for, Opendoor now does the inspections digitally, said Opendoor’s Harbacek.

Pricing and fees

The iBuying business model builds the cost of risk and market dynamics into their fees and offer prices.

Both Wacksman and Harbacek said Zillow Group and Opendoor would shift their fees and offer prices to reflect some of the increased uncertainty and risk that accompanies the market as Covid-19’s impact remains and with the dampened appreciation or home price declines their models project for homes.

“Certainty has a value,” Harbacek said. Opendoor adjusts its offer and fees to optimize the margin it tries to achieve on each home it purchases, he added.


In early May, Opendoor announced Home Reserve, an offering that expands its operation to that of an iFunder – a company that helps streamline financing for homesellers and buyers by purchasing homes on buyers’ behalf, providing guaranteed cash offers and other practices – beyond that of solely an iBuyer.

With Home Reserve, Opendoor works with sellers to purchase their next home on their behalf with cash. Then, its brokerage wing lists their current home. Opendoor covers the costs of the new home for 120 days. If the existing home does not sell within 90 days, Opendoor will buy the home. Home Reserve is live in Opendoor’s Phoenix and Raleigh-Durham, North Carolina, markets and the company has plans to roll it out to additional markets this year.

Under its brokerage wing, Opendoor collects the buyer’s agent commission on the purchase of the new home. It also charges the seller 6 percent of the purchase price as its listing brokerage. In addition, it can capture the clients with its ancillary mortgage and title services.

Harbacek says Home Reserve was already in development before Covid-19. It mirrors some of the other newer iFunders cropping up who streamline financing for consumers without purely buying their homes, but tying a buy-and-sell transaction together and sharing more of the risk of buying with their consumer client.

Buying, but also listing

Consumers now have two choices when working with Opendoor: sell their home to the iBuyer under the model the company has basically run since its launch with Sell Direct or engage Opendoor as a buyer’s broker for their new home and a listing broker for their existing home with Home Reserve.

Another prominent iBuyer, Offerpad, which operates in 14 markets, announced that it would begin offering consumers brokerage services as well as an offer to purchase their home.

Of course, Zillow Offers launched with this two-pronged option for consumers: balance a Zillow purchase offer against a listing presentation a Zillow advertiser prepares for them.


Both Zillow Offers and Opendoor report that demand for their services remain as high as before Covid-19 froze the country. It appears the iBuying model proliferation will continue, and more sellers in more markets will choose between an iBuyer offer for a certain transaction at a set price or follow the path of a more traditional brokered sale.

T3 Sixty – Trusted business advisors and management consultants.

Part of the T3 Sixty family of companies.

© T3 Sixty 2023. Enabling Intelligent Change.
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