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Understanding iBuyers  and the “Instant Cash Offer” 

iBuyers or “Direct Buyers” are companies such as Opendoor, Offerpad, and Zillow, that use computer algorithms to provide sellers with a quick cash offer to buy their home.

The actual market share of iBuyers remains small, but large advertising budgets have helped them to get noticed. This has left many of our clients curious about them and how they work.

Let’s review how the iBuyer Process Works, and the Pros and Cons of Selling and Buying from iBuyers.

 

HOW DOES THE iBUYER PROCESS WORK

Each company has it’s own methodology, but the basic premise is the same.  A seller or seller’s agent completes an online questionnaire about features and condition of the property, and some may request photos.

Next, the iBuyer uses the collected information to determine if your home fits their investment model.  They usually look for a single-family home they can “flip,” and that is moderately price. Usually, the property does not require major renovations to relist for sale.

iBuyer’s use an algorithm to determine their purchase price and will email the seller an offer within a few days.  The offer is usually contingent upon an in-person visit and inspections.  Look for the company’s service fee, it is typically between 7% to12% of the purchase price.

Once a seller accepts the offer and its service fee, the company comes to the home to complete an in-person visit.  The trained representative usually will ask for a price reduction to cover any items they found deficient.

After the iBuyer purchases the property, updates and repairs are made as quickly as possible and home is placed on the open market for sale.

 

PROS AND CONS OF SELLING TO AN iBUYER?

The largest benefit of selling to an iBuyer is convenience and for some homeowners the reduction of stress and disruption of preparing and listing the home.  Many homeowners like the predictability of a cash buyer, and the flexibility of selecting the closing date.

However, these conveniences can be costly.   The objective of an iBuyer is to make a profit, think of iBuyers as the Pawn Shop of houses, only you can’t get your home back.  iBuyers goal is to make a profit by providing you quick and easy cash.  Usually, their purchase offer is below market value and when you add the service fees of up to 12% and then take the deductions for updates and repairs you may net a lower amount than those that list the traditional way.  But you do receive the convenience of a planned transition and you know the date you are receiving the funds.

In fact, a MarketWatch investigation found that transactions involving iBuyers or Instant Offers net the seller 11% less than if they would have sold their home with an agent on the open market.1. 

 

PROS AND CONS OF BUYING FROM AN iBUYER?

Buying a home that has been flipped by an investor is a lot like buying from an iBuyer.  The home will usually be clean with fresh paint, modern finished and because no one is living there you don’t have to work around the seller’s schedule to tour the home.

Speed is an important part of the iBuyer model so like other “flipped’ properties sometimes renovations are rushed and profit margins are thin.  This does not leave much negotiating room for a reduced price or additional repairs.  So, after the buyers payment for inspections, little recourse for any issues uncovered may be available.

That’s one of the reasons we always recommend viewing properties with an agent.  During the tour a real estate professional can point out any “red flags” at the home, provide background information about the neighborhood, and help you assess its comparative market value.  With this information you don’t waste time and money in a high-risk or overpriced property.  While it may seem convenient to have the home vacant, it provides an easy way for squatters and others to enter the home illegally. So be safe when touring homes that allow buyers to access the property via a smartphone app. While it may seem convenient, it provides an easy way for squatters and others to enter the home illegally.5

Most iBuyers (and traditional sellers) pay a buyer agent’s commission.  Take advantage and use it as an opportunity for you to receive the guidance and expertise of a real estate professional … at no cost to you!

 

PROTECTING YOURSELF IF CHOOSING TO WORK WITH AN IBUYER?

Working with an iBuyer seems “quick and easy” but, it can present other challenges. For example, they may present a strong initial offer and then provide a long list of costly updates and repairs once they complete their inspection, in addition to their service fee.  Traditional buyers are incentivized to make a deal work, iBuyers have their profit margins and can easily walk away if you don’t meet their demands.

You need an advocate to represent you.   Having a professional agent on your side can be especially important when negotiating with an iBuyer. Remember, they employ trained, sophisticated representatives, and a team of lawyers who are focused on maximizing their profits, not yours.

Overall, the new technology is exciting, as it helps to streamline the real estate process, and some clients can benefit from working with an iBuyer. But there is—inevitably—a cost to the convenience. After all, most iBuyers eventually list the properties they acquire on the open market, which is still the best place to find a buyer if you want to maximize the sales price of your home.

 

EXPLORE YOUR OPTIONS

We can help you determine the best path to buy or sell your home.  Let’s meet and discuss more about iBuyers and other options currently available in our area.  Contact us to schedule a free, no-obligation consultation!

 

 

 

Sources:

1.MarketWatch -[Text Wrapping Break]https://www.marketwatch.com/story/selling-your-home-to-an-ibuyer-could-cost-you-thousands-heres-why-2019-06-11

  1. Inman -[Text Wrapping Break]https://www.inman.com/2019/09/11/police-arrest-couple-found-squatting-in-opendoor-home-with-their-kids/

 

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