These days, home sellers have plenty of options. One of the newest is using an iBuyer real estate company to speed up the process.
iBuyers are popping up everywhere: What’s the difference?
The digital real estate brokerage Jovio defines “iBuyer” as:
“A company or investor that uses Automated Valuation Models (AVMs) to make instant offers on homes. It allows sellers to close on a property quickly. Once sold, the company then turns around and resells the home for a profit.”
Today’s iBuyer real estate companies include Zillow Offers, OfferPad, Perch, Knock, and Opendoor. Traditional brokerages are also beginning to offer some of the same services, including Redfin, Keller Williams, and Realogy.
Ivy Zelman, CEO of the housing research and investment firm Zelman & Associates, explains in her ‘Z’ Report that some traditional real estate brokers are also starting to partner with larger iBuyer companies:
“Keller Williams announced a partnership with Offerpad, aligning the largest franchise-based brokerage brand in the U.S. with the five-year-old iBuyer. The move follows Realogy’s partnership with Home Partners of America last year as an established brokerage player more directly providing an iBuyer alternative…
Likewise, in early July, Redfin and Opendoor announced a partnership, starting in Phoenix and Atlanta – aligning interests of the 13-year old, tech-enabled and value-focused brokerage with the largest and longest-standing iBuyer. Outside of these larger-scale alliances, Zillow’s strategy has been to work with local brokerages as partners on a market-by-market basis.”
Should you sell your house to an iBuyer? It depends
According to a recent Collateral Analytics study, revealing the disadvantages and advantages of iBuyers, this quick sale process may be a better choice if you’re a homeowner hoping to minimize uncertainty and maximize convenience:
“iBuyers offer quicker closings for sellers who would like to avoid the uncertainty of knowing when and if their home will sell. For motivated sellers who want a predictable sale date and need to move, perhaps a long distance from the current location, there is no question that iBuyers have provided a welcome alternative to traditional brokerage.”
The study also points out that this convenience can cost you:
“Traditional brokers fees generally range from 5 percent to 7 percent of the sales price… In addition to this cost, buyers typically pay some closing costs including lender related charges in the range of 1 percent to 3 percent.”
It’s the season for sellers: 44 percent of Americans may want to buy your house.* Find out why.
In comparison:
“iBuyers charge sellers a ‘convenience fee’ of 6 percent to 9.5 percent, some also charge the seller for fees typically paid by buyers at closing adding another 1 percent or more. Most iBuyers will inspect the home, assess a generous home repair allowance and negotiate a (an additional) credit to handle such repairs… Overall the total direct costs, ignoring repair credits, will run 7 percent to 10 percent for an iBuyer, versus the typical 5 percent to 9 percent combined seller and buyer costs with a traditional broker. Yet, that is not the end of the story or comparison.”
The study shows that, because iBuyers have extra expenses that exceed those of a traditional brokerage, they may charge even more to sell a house. This may include costs for:
- Carrying significant capital – An iBuyer is responsible for paying a home’s expenses from the time they purchase to the time they sell to a new homebuyer.
- Taking on more risk – A house that has an iBuyer’s For Sale sign in the front yard tells any passerby that the home is vacant. As the study indicates, this home may be easily targeted by criminals and vagrants.
- Adverse impact on home value – The study also details that, because iBuyers are using a computer algorithm to set their offer, they may miss some of the finer details, i.e., neighborhood challenges that could bring down a home’s asking price.
- Potential for declining housing prices – The study explains, “A downturn in home prices, not forecast by the iBuyer market analysts could be devastating as they ramp up their business platforms, particularly if the cost of capital increases. At the same time, downturns are precisely when the most sellers would want this option.”
The conclusion? After looking deeper into the iBuyer selling process, the study sums up that working with an iBuyer is likely to be more expensive than using a traditional realtor.
But there are sellers who may be willing to pay for the convenience:
“These preliminary empirical results suggest that sellers are paying not just the difference in fees of 2 percent to 5 percent more than with traditional agencies, and a generous repair allowance, but another 3 percent to 5 percent or more to compensate the iBuyer for liquidity risks and carrying costs. In all, the typical cost to a seller appears to be in the range of 13 percent to 15 percent depending on the iBuyer vendor. For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen.”
Pick the right lender, and you’ll still get home fast
As a nationally ranked mortgage lender with a local presence and over 30 years of industry experience, we know better than most that home sellers need to move quickly. We’re on your timeline: Count on our expedited in-house processing, exceptional attention to detail, and 100-percent commitment to on-time closings to get you ready to move into your new house in just 10 days. We can also refer you to a trusted, local realtor if you decide you need one. Find your loan officer and start searching for dream houses.
*“Why homebuyers and sellers are excited about 2019.” HouseLoanBlog.net, March 2019.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.