What are ‘power buyers’ in real estate?

The real estate market is (still) hotter than ever. 

While that’s great for home sellers, many buyers have struggled to break into the competitive market. This is especially true for first-time homebuyers and homeowners who lack the liquid capital to put a down payment on a new home.

Enter power buyers. 

These property tech companies have carved out a space in the real estate industry to enable buyers to compete in the hyper-competitive market. But how do they do it?

Power buyers vs. iBuyers

Power buyers are companies that level out the playing field in a hot real estate market by leveraging their own capital. They can increase the purchasing power of homebuyers by arming them with services like cash offers, bridge financing, and trade-in programs. 

The term 'power buyer' was coined by Mike DelPrete, a real estate-tech strategist and scholar-in-residence at the University of Colorado Boulder, who wanted to differentiate power buyers from other real estate business models like iBuyers.

What is an iBuyer?

iBuyers, or “instant buyers,” are companies that use algorithms and other digital technologies to buy and resell homes quickly, speeding up a traditionally elongated process. They rose to prominence in the mid to late 2010s and make money from service fees, which are typically 5% to 7% of the sale price.

iBuyers often entice sellers with cash offers and fast closing times, and operate without real estate agents, but there can be a cost to the convenience. iBuyers typically offer a lower purchase price than if the house had been listed on the MLS. The rate can vary by market and year, but an analysis of 2021 iBuyer offers found that iBuyers offered as much as 104% of fair market value for homes to as little as 99.4%. In today's competitive market, many sellers are able to sell their homes well above market rates.

After making some light repairs on a home, iBuyers will list and sell the property for more than they paid.

What do power buyers do? 

While many people are satisfied with traditional agents, the unprecedented market has created frustration, confusion, and difficulty for many prospective homebuyers. Power buyers provide a solution in the face of record-high home prices and low inventory. These companies upend traditional real estate models by unifying the tasks and transactions for homebuyers and sellers. Not only do they simplify a notoriously complicated process, the services offered by  power buyers also give their clients and customers an edge.

Common power buyer services

• Become a cash buyer: Power-buyer companies can help you become a cash buyer by using their own money on your behalf.
• Buy before you sell: Sellers can purchase and move into their new home before selling or even listing their current home, avoiding the hassle of a double mortgage or renting in between selling and buying.
• Guarantee a home sale: Sellers don’t have to worry about their house sitting on the market for long. Many power buyers guarantee the home sale within a certain time period, or they will buy the house from the seller at a predetermined price.
• Arrange a sale-leaseback: Homeowners can sell their home to a power-buyer company to unlock the equity in their home. Sellers then lease it back from the company, while they look for a new home.

Common power buyer comes include Knock and Flyhomes.

Why would you want to work with a power buyer?

The seller has all the power in a hot market with high demand. Unless you’re an investor with ample liquid capital, you will likely have a hard time competing with the offers of other buyers. The National Association of Realtors reported that in February of 2022, nearly five offers were received for every property sold.

Power buyers can help by transforming you into all-cash buyer. This is one of the principal services of power buyers and one that comes with many advantages in today’s competitive market.

Find out why cash offers are better.

You might benefit from working with a power buyer in real estate if it's a seller's market, you're juggling listing your home while trying to find a new one, or if you’re simply looking for a streamlined and integrated service.

Power buyers, like Orchard, can help you become a cash buyer, buy before you sell, and list for top dollar on the market — guaranteeing a sale — all for the same fee as traditional agents.

As you look for a real estate agent and begin your home buying or selling process, consider booking an appointment with a power buyer to see what services they have to suit your needs.