The affordable housing crisis in Los Angeles continues to worsen with each passing year and city officials have been struggling to come up with any meaningful solution. This month, however, the LA City Council has voted to pursue a new plan to help bring some relief to homebuyers. On November 12th, the city council agreed to a motion proposing that they look into ways they can stop tech and equity companies from buying and flipping properties––a practice known as “iBuying.” Nury Martinez and Nithya Raman co-authored the motion, arguing that iBuying is driving up prices, making homeownership impossible for many Los Angelinos.
This practice began in 2013, with the tech company Opendoor, and since then, others have followed suit, including Redfin, Rockethomes, and Zillow. iBuying is a little more complicated than a private citizen doing a simple fix and flip on their own. These companies use an algorithm to assess the value of a home to formulate an offer, quickly paying the owner in cash if it’s accepted. Some homeowners opt into iBuying if they need to offload property fast and don’t want to go through the traditional process of putting it on the open market. But, while the convenience is nice, the homeowner is essentially selling at a discount, meaning less profit for them, and more money for the iBuyer when they flip it.
Or, at least, it should mean more money for them, but that’s not how it worked out for Zillow who announced recently that they would stop iBuying altogether. Zillow blew a bunch of money on gobbling up property with the intention that they’d make it all back in the end, but it turned out the algorithm they used wasn't so accurate. They found that it was unable to correctly predict what the market in a given area would look like 3-6 months in the future. Homes they thought would resell for big money didn’t, and in the end, they’ve reported a $381-million loss in their third quarter.
Though Zillow is out of the game, there are still plenty of other tech companies and equity firms iBuying, and now the Los Angeles City Council wants to know how–or if they even can–put a stop to it. Their next step is to have the City Legislative Analyst and City Attorney look into it and report back on their findings. It’s possible that they might not have any legal recourse to stop them, but if they can, it might make the LA real estate market a little less competitive since there will be more supply to match the demand.
If you’re looking to sell your home, iBuying is certainly an option, but as we said, you won’t end up with the same kind of profit as you would working with a real estate broker who can negotiate the best deal possible for you. Right now, we’re still in a seller’s market, so if you have a little patience it will pay off in the end. Thinking of buying or selling a home in the Los Angeles area? Email us or give us a call at (323) 412-9060.
Posted by Ben Nicolas on