What are iBuyers and How Do They Work?

What are iBuyers and How Do They Work?The real estate business is always evolving, with buyer and seller needs and markets ever-changing. One of the most recent concepts in real estate sales is iBuyers. iBuyers are “institutional” buyers, looking solely at financial investment. These are companies that buy homes based on sales data provided by algorithms of sales in and around the area.

The concept began in Georgia and the Carolinas with OpenDoor, and Offerpad. The iBuyer concept is now in about 23 major metro markets, to include Colorado Springs and Denver. The large listing aggregation sites have also thrown their hats into the iBuyer ring include Redfin Now and Zillow Offers.

Convenience comes at a price and selling your home to an iBuyer is no different. iBuyer models vary, but according to Forbes and Market Watch, research indicates that owners are expected to take a discounted offer price + convenience fees of 5.4-9.5%. A MarketWatch investigation of multiple transactions involving iBuyers shows that their offers would net their customers, on average, 11% less than owners who choose to sell their homes on the open market where owners might expect to come 5-7% off their list price. Depending on the marketplace, this could mean $20,000 to $200,000.

iBuyer “instant offers” are often an initial price estimate. Zillow will then send an “inspector” to view the property before making an actual offer. After the inspection, this price is often further discounted, and then the convenience fee is added. It’s important that you thoroughly examine any offers you receive from an iBuyer.

Some iBuyer models include a discounted price for repairs; some assess the property once the owner has accepted their offer, and then “request”/require repair concession after the fact.

Examine iBuyer offersObviously this is a concept that has been successful for the corporations involved. In one year, one iBuyer model made the company $39.9M. There are still a number of alternatives to selling to an iBuyer, it pays to do your research before selling.

Once purchased, the iBuyer turns to a local discount real estate agent to re-list the property at a below-market price and commission. Potentially, this low-cost listing can affect market values in a community by creating new, discounted comparable sales.

Zillow Offers estimates that in their 19 U.S. markets, they receive a homeowner’s request for an offer approximately every 1.25 seconds. Of those, Zillow Offers accepts around 3% of all requests into their program.

When a homeowner is looking at the different models available to sell their home, here’s a brief list of comparisons between the open market model and the iBuyer model:

Local real estate professional provides personal service from start to finish

 

A local real estate professional provides:

  1. Personal service from start to finish – helping prepare the home for sale, helping the family get ready to list, personally assist in the negotiation of contract and inspection process, balancing requests from all sides, communication with all 5-10 involved parties, attending the closing to celebrate
  2. Local expertise on home values and expectations
  3. Relationships with other local real estate and service-related professionals
  4. Advocacy

What to watch out for with the iBuyer model:

  1. Excessive and/or hidden fees, additional fees after offer accepted
  2. Impersonal dealings with an institutional buyer
  3. Lower net to the homeowner
  4. PRESSURE of an instant decision
  5. Designed for the very legally and financially savvy buyer, willing to understand the ins and outs.

There is so much value in the local professional, however, some consumers are willing to pay for the convenience. Just beware of the actual overall cost. Initial offer may not be reflective all involved fees.

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