“Looking to move? We will pay instant cash for your home! Call ……”
You might have seen that kind of offer on a billboard or a homemade sign posted to a telephone pole.
The concept has been around for years. Want to sell your home fast? There’s usually someone willing to buy it — as long as you’re willing to take less than market value.
The latest take on this type of house flipping is called iBuying — an automated, online method of selling your home quickly. Many companies in the online real estate industry, like Opendoor, Redfin and Offerpad have jumped in the iBuyer game, with mixed results.
What Is an iBuyer?
iBuyers – also known as “instant buyers” – are companies that will offer to buy houses for cash using an algorithm that helps them determine price and how easy your house will be to sell.
The iBuying model is based around these companies making a quick profit. They often look for homes that need little or no renovations so they can quickly sell the house without having to invest extra dollars.
Homeowners who are interested in selling usually just need to fill out a form on the iBuyer’s website, then simply wait 24-48 hours for a cash offer.
What to Expect When Selling to an iBuyer
If you’re looking to sell a home, and considering using major iBuyer companies like Redfin or Opendoor instead of a local real estate agent, here are a few things to consider.
Depending on which company you use, fees can range anywhere between 5% to 10% of your final sales price. That’s $10,000 to $20,000 on a $200,000 home. Those fees do not include taxes and closing costs.
Most iBuyers focus on homes in the $100,000 to $600,000 range. They also avoid buying houses built before 1960, though some may purchase homes that were built before then. They also avoid properties with short sales, foreclosures, in flood zones or that require major renovations.
iBuyers typically focus on metropolitan markets. If you live in a smaller town, your accessibility to an iBuyer may be hit or miss but iBuyers have expanded coverage in recent years. In 2021, Offerpad expanded to 1,500 locations in 21 different U.S. markets.
iBuyers will offer you at or close to “fair market value” to buy your home and pile fees on top to make sure they make a profit. If you choose an iBuyer, be aware of that opportunity cost.
When real estate markets are hot — as they have been through 2021 to 2022 — you could potentially make more by working with a real estate agent who will list at or above fair market value and maximize your profit.
What to Expect When Buying From an iBuyer
If you’re looking to buy a home from an iBuyer, here’s what you need to know.
In a traditional sale, you have to request a viewing through a real estate agent and may wait a day or two before touring the property. Since an iBuyer owns the home, prospective buyers can schedule viewings quickly, with little hassle, before making an offer.
iBuyers tend to focus on homes that need minimal repairs. That means, on the buyer’s end, these homes should be in great shape. It’s still a good idea to get a home inspection just to make sure you’ve covered all your bases.
iBuyers tend to prefer quick, easy sales without the hassle of negotiating repairs, price and other contingencies, which may work in your favor in the age of bidding wars. What you see is what you get for that price, which is why the listing price might be a bit higher for an iBuyer house. Also, any repairs the company decided to make have already been done and further repairs you request may not be approved.
Streamlined Loan Process
Larger iBuyers, such as Keller Wiliams, OpenDoor and Offerpad, have their own loan services programs that you can use as a buyer. This “one stop shop” feature allows for faster approvals and closings for a more streamlined mortgage process.
Pros of Using an iBuyer
Some benefits of using an iBuyer include:
iBuying is convenient. Unlike in a traditional real estate transaction, when selling to an iBuyer you don’t need to worry about staging and glamming up the curbside appeal. You don’t have to worry about giving up your Sundays to open houses or leaving every time the real estate agent wants to show. You simply sell your home to the iBuyer, and they take care of the rest after you’re gone.
The uncertainty of selling a home is one of the most difficult aspects of the process. You don’t really have the cash to buy a new home until you sell your old home, right? But you still want to look for that new home to get an idea of what’s available.
And what if you find that “perfect” house before you’ve sold your old house … what, then? This is even more complicated if you’re making longer moves to different states or across the country. An iBuyer takes all those variables out of play. The iBuyer makes an all cash offer, which is usually good for at least a week, you accept or reject it and move on.
You know you’re going to get an offer. You know when you’ll get an offer, and when you’ll have to move. You know exactly when the movers need to arrive. You don’t have to worry about the purchaser’s refinancing falling through. You don’t have to oversee a bidding war or haggle with the buyer’s agent (though you can negotiate with the iBuyer). The iBuying process is very clear cut and takes a lot of stress out of the selling process.
Cons of Using an iBuyer
Some reasons you might want to reconsider using an iBuyer:
Uncertain Sales Price
iBuyers use algorithms, called an automated valuation model, to determine a house’s value. They’ll tell you they offer “fair market value,” but it’s hard to really know if that’s true.
In Zillow’s case, they actually overpaid for a lot of homes during the pandemic, but that seems to have been an exception in the iBuyer business model. iBuyers will want to purchase your home at lower cost so they can turn it around and make a profit quickly. So, usually, you’ll be accepting a lower offer than if you sold through a real estate agent.
You’ll need to be in a real estate market an iBuyer is interested in, and you’ll also need to have the right type of home an iBuyer wants. The “right” type of home is dependent on the market and what qualifies as a typical home in that area. iBuyers tend to focus more on larger cities, so if you live in a rural part of the country you may be out of luck.
With an iBuyer, you’re trading convenience and speed for the possibility of a lower offer, paying more fees, and taking another hit if your house needs repairs. One study said that iBuyers typically charge a service fee of anywhere from 6% to 9%, which is several percentage points higher than licensed real estate agents charge. Also, after you accept an iBuyer’s offer, they’ll do an assessment on your house. Any repairs needed could be taken out of the final sale price.
Should You Use an iBuyer Instead of a Real Estate Agent?
That’s a question only you can answer.
Though Zillow has closed its iBuying program, other iBuyers like Opendoor, Offerpad and Redfin are still out there going strong. You’ll likely enjoy the convenience an iBuyer offers, but that will come at a price.
Do your research and weigh the pros and cons to determine if an iBuyer is right for you. Selling your home is one of the biggest financial transactions you’ll ever make, so make sure you know what you’re getting into — whether you use a traditional real estate agent or an iBuyer.
Robert Bruce is a senior writer for The Penny Hoarder.