Skip to main content
the listing

Anshul Ruparell, founder and CEO of real estate company Properly.Galit Rodan/The Globe and Mail

A series of moves by U.S.-based property technology companies suggest Canadian real estate watchers may soon have to familiarize themselves with an approach to residential home-selling and investing known as the “iBuyer” model.

Popularized by Opendoor Technologies Inc., founded in 2014, an iBuyer is a company that uses algorithmic price modelling to assess the value of a home in order to make a seller an instant offer without the fuss associated with a traditional real estate listing. In recent years the appetite of these companies has grown with some markets in the U.S. sun belt seeing 5 per cent to 11 per cent of the homes sold going directly to iBuyers, who typically make some improvements and flip those homes back onto the market for higher prices.

But the iBuyer narrative had a major plot twist in early November when one of the major players, U.S.-based real estate listings platform Zillow, announced it was shutting down its Zillow Offers division and laying off 2,000 people. Zillow reported the division may end up costing it US$569-million in write-downs and left the company holding onto thousands homes it may have to sell at a loss. Analysts at KeyBanc Capital markets estimate two-thirds of its listings are now worth less than what it paid for the homes, averaging 4.5-per-cent below the purchase price.

For Toronto developers, ‘the idea of a perfect site is gone’

The Piccaluga brothers’ colourful contribution to Toronto now mostly painted over

The sudden collapse came even after Zillow’s own data (released over the summer) showed iBuying was setting new records in 2021: more than 15,000 homes worth close to US$5.3-billion were sold to iBuyers in the second quarter, doubling the totals from the previous quarter. By August, the share of all U.S. homes sold to iBuyers passed 1.5 per cent, a new high for the industry.

“What happened here with Zillow’s iBuyer business imploding, is definitely a Zillow problem,” said Mike DelPrete, a tech entrepreneur and investor who has closely watched the “proptech” market in recent years. Essentially, even though Zillow was buying 100 houses a day before its crash, a litany of execution issues meant operating margins lagged behind rivals Opendoor and Offerpad Inc., who were better able to cash in on a hot housing market that saw prices rise across the United States in 2021.

“These companies [Opendoor and Offerpad] were making tonnes of money because they’d pick up a home, and sell it a month later and make tens of thousands of dollars on it. … They have flirted with profitability this year,” Mr. DelPrete said. “But Zillow stands out like a sore thumb: it just hasn’t improved its core economics; it’s losing much more money and never even approached profitability.”

At the same time, Opendoor has announced plans to hire 100 engineers in Canada after buying Toronto-based digital renovation service Skylight in September.

But the company is being tight-lipped about any expansion in Canada.

“Our goal is to serve anyone looking to move, but we have no plans to share about Canada at this time,” said Ian Wong, co-founder and chief technology officer at Opendoor.

Among the Canadian roles in Vancouver and Toronto are “MLS ingestion engineer,” which requires a person to dig through the digital real estate listing systems for transaction data that is necessary to build pricing models. While Opendoor has hired close to a thousand new workers in the last year, there are currently no “ingestion engineer” jobs posted for any of its 44 local markets in the U.S.

“I wouldn’t expect to see them expanding their operation to Canada anytime soon, the market opportunity in the U.S. is huge and there’s plenty of fish to fry,” Mr. DelPrete said. “Expanding internationally introduces all these new issues. … I don’t know why they’d want to tackle that.”

There are no pure iBuyer companies currently operating in Canada, though in 2018 a company called Properly launched in Calgary with an iBuyer business plan. Despite securing a $100-million debt vehicle from Silicon Valley Bank and raising $44-million in venture capital earlier this year (the syndicate of investors included executives from both Opendoor and Zillow) Properly’s current business plan could be described as iBuyer-lite.

“We’re a new type of real estate brokerage,” said Anshul Ruparell, co-founder and chief executive officer of Properly.

Mr. Ruparell said the iBuyer model it tried when it launched in Calgary was pressured by a pre-pandemic real estate slump, and found the convenience factor wasn’t enough to endear Canadians to the higher-than-normal transaction fees necessary to ensure its margins. The company’s new plan is a home-buying innovation it calls “Sale Assurance”: a contractual agreement to buy a home at a market rate that allows the seller to tap into their home equity in a sort-of super-sized bridge loan so they can put an offer on a new home. Properly’s team of 30 real estate agents then goes out and sells the house – with the standard 5 per cent commission – and returns any sale profits above the initial contract to the seller.

“We effectively provide the customer with a contract, regarded by the banks as a firm sale,” he said, and then the company has between 90 days and 150 days for its team to sell the home, after which if it hasn’t sold it commits to buying the home themselves. Mr. Ruparell said that after several months of operations in the Toronto-area Properly hasn’t yet had to buy anything itself.

In the U.S., the iBuyer companies make no such promise to keep fees low or refund excess profits, indeed those features are the crux of the business.

“Does it [iBuying] add new housing supply? No. Does it make financialization greater? Yeah. Is it likely to be met – right or wrong – with policy barriers? Yes,” said George Carras, founder of Toronto-based real estate business incubator R-Labs.

Mr. Carras said that if iBuyers come north, Canadian home owners and hopeful buyers could find themselves in the middle of a struggle between the big capital that funds iBuyer platforms, and policymakers looking to preserve affordability.

“This is clearly addressing a need to expand their investible universe into that [residential real estate] asset class,” Mr. Carras said, of the large institutional investors who have relatively few options for large-scale participation in lucrative residential real estate. “As far as policy stuff goes, the policy response to market events tends to be a blunt instrument, but it’s clearly spelled out in the [federal] Liberal housing plan.”

Indeed, of the first lines of that campaign document was a pledge: “You shouldn’t lose a bidding war on your home to speculators.”

The example of Zillow shows that even without regulatory pushback the iBuyer business is not for the faint of heart.

“iBuying is hard; buying and selling real estate at scale is really difficult,” Mr. DelPrete said. “It’s tempting to say technology can go in and solve it, but there’s no replacing people at the end of the day.”

Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.

Report an error

Editorial code of conduct