Convenience at a Cost: An In-Depth Look at iBuyers

Convenience at a Cost: An In-Depth Look at iBuyers

Posted October 16, 2019 in Real Estate

In 2019, the classic image of hammering a For Sale sign into your front yard to announce to passersby that your home is on the market looks slightly more dated than it used to. While it’s still common and effective, this typical portrait of a home for sale is only one of many ways a customer can list their home.

The newest version that’s swiftly gaining traction across the country is Instant Buyers or iBuyers. You’ve probably heard of some of them: Opendoor, Offerpad, Zillow Instant Offers, just to name a few. Pitched as an alternative to listing with a real estate agent, iBuyers purchase homes outright directly from customers. The convenience of iBuyers has turned many heads, but does that convenience come at a cost?

How Do They Work?

Before we dive into that, let’s talk about how iBuyers operate. Typically, sellers start by filling out an online offer request form with details of their home. If their home meets that particular iBuyers’ standards, the iBuyer will make an offer using an automated valuation model (AVM).

If the seller accepts the offer, home inspectors representing the iBuyer perform an inspection and create a list of repairs to be completed before the purchase is finalized. In most cases, the seller can either complete the repairs themselves or have the estimated repair costs taken out of the offer on their home.

Once that is negotiated and the offer is finalized, the transaction is complete. Just like that, a house has been sold and the former owner embarks on their next adventure.

Stress-Free Selling

Anyone who’s put their home on the market knows it’s a colossal task. A ton of work goes into getting the home ready to sell: cleaning, organizing, making repairs, and staging take a lot of time and effort. Not to mention the difficulty of getting the kids and pets out of the house for showings. Then there’s the biggest stressor of them all: Will my home even sell?

iBuyers remove all those factors. There’s no living around contractors making repairs. No stressful deep cleans so the house is spotless for yet another showing. And best of all, no worry if your home will sell. You can even set your own closing date since there’s no buyer to consider. iBuyers hinge their business on presenting a true model of stress-free selling.

The Cost of Convenience

If you’re waiting for the catch, here it is: homeowners who sell with iBuyers typically get less money than if they had enlisted a REALTOR® and sold on the open market. An investigation of multiple transactions by MarketWatch found that iBuyers customers netted 11% less than owners who sold their homes via more traditional methods. That can translate to tens of thousands of dollars.

Many iBuyer offers come in under market value for the home (some well under). Indeed, one customer cited in MarketWatch’s report said they felt lowballed by their iBuyer’s initial offer.

iBuyers also charge various fees, which can further reduce the amount a customer receives. Collateral Analytics found that most iBuyers charge sellers a convenience fee of 6% to 9%, with some charging additional fees that would normally be paid by buyers at closing, adding another 1% or more.

Conversely, selling with a REALTOR® incurs a commission cost of anywhere from 5% to 7%. With all fees and commission costs considered, iBuyer sellers can expect to pay anywhere from 7% to 10% in fees, while brokerage sellers can expect to pay 5% to 9%.

Bear in mind that repair costs also factor into iBuyers’ offers, and some customers reported feeling nickel-and-dimed by inspectors working for iBuyers. In their investigation, MarketWatch spoke with a customer who claimed he was being charged heavily for minor repairs.

Should You Use iBuyers?

We arrive at the ultimate question: should you sell your home through an iBuyer? The answer ultimately depends on your situation. If you need to move fast and already have your next destination set, iBuyers offer incredible convenience without the uncertainty of selling on the open market.

On the other hand, that convenience comes at a cost. Your home is an investment, and if your goal in selling is to get exceptional returns on that investment, iBuyers might not be your best option.

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