Why is Intermediating Houses so Difficult? Evidence from iBuyers

We examine frictions in dealer intermediation in durable consumer goods markets through the lens of “iBuyers,” technology-driven entrants that facilitate transactions via online platforms and algorithmic pricing. iBuyers provide liquidity to households by bypassing the lengthy household-to-household sale process and earn a positive gross spread. However, their intermediation is limited to relatively liquid and easierto- value homes. We build and calibrate a dynamic search model with intermediaries facing adverse selection to quantify the economic frictions in this market. The central trade-off is that while providing liquidity requires fast transactions, this leads to less accurate valuations and exposes intermediaries to adverse selection. iBuyer technology offers a limited middle ground, enabling fast transactions with limited information loss, but it works best for liquid, easy-to-value homes. We then use our model to explore intermediation in durable goods markets, adjusting key asset and market properties based on (i) informational asymmetry, (ii) market liquidity, and (iii) the benefits of search driven by subjective value dispersion. Illiquid and hard-to-price assets, like homes, experience less intermediation, especially if underutilized during the process. In contrast, the greater homogeneity and easier pricing of goods like cars, along with their higher liquidity due to mobility, may help explain why intermediation in these markets has historically been higher.