What Is An iBuyer And Why Selling To An iBuyer Is Risky

There’s no doubt technology has made the world we live in easier and more convenient. From global communication to medical devices to agricultural inventions, tech is indeed making life better.

The real estate industry is no exception, enjoying the perks of tech advancement over the years. The ability to list homes online via the MLS is just one way tech has been helpful for real estate.

What Is An iBuyer?
A Person With Questions About Selling To An iBuyer

iBuyers Enter The Market Scene

Technology has paved the way for “iBuyers” to show up on the scene, changing the way some sellers are doing business. Essentially, iBuyers, where the “i” stands for “instant”, are companies that pay cash for homes. They make an offer based upon comps and computer algorithms that take an educated guess on how much a home will sell for.  

Of course, such iBuying companies are quite knowledgeable about the real estate market. Each projection is made using various factors like location, how old the home is, and price.

Their selling point is that they’re providing a service to sellers that’s more convenient, simpler, and faster than the more traditional way of listing the home with a realtor. If you think about not having to worry about the time frame to sell, staging it, cleaning it for every showing, etc., it does sound rather appealing.

Popular iBuyers

The most well-known iBuyer companies are Offerpad, OpenDoor, Zillow, and Redfin. Though not common in many cities, these companies have shown up well in large cities like Atlanta, Phoenix, Raleigh-Durham, and Las Vegas. There are plenty of other iBuyers out there and more coming onto the scene often. After all, there will always be people who will go for convenience – no matter how much more it costs them.

How iBuyers Work

Traditionally, someone who wants to sell their home chooses a realtor and that realtor lists the home on the market. That realtor will get around 6 percent of the selling price. iBuyers compete to eliminate the realtor as “middleman”. They observe your home online and determine an estimate of your home’s value using their knowledge, comps, and algorithms. Then, they make an offer. No realtors involved.

iBuyers may approach the seller with an offer. Or, you as the seller can fill out a form on the company’s website and request that they make an offer on your home. Typically, you’ll hear back from them within one or two days with an offer.

If you accept their offer, they are essentially buying your home outright with the assumption that they’ll be able to turn around and sell it so that they make a profit. They’ll take care of marketing and selling the home. You get to know exactly how much you’re getting quickly and can move out right away.

While it may sound great, and certainly convenient, not everyone is sold on the idea. iBuyers may make the selling process easier for sellers, but are sellers really getting a better deal overall?

Should You Sell To An iBuyer?

If you’re wondering if you should sell your home to an iBuyer, it may boil down to whether or not you want the convenience of it – and you’re not afraid to come out a bit short profit-wise. Essentially, iBuyers are providing a convenience service, allowing sellers to sell their home fast and easy. But that comes with a cost.

Work the numbers and see what’s best for you in your particular situation. If you receive an offer from an iBuyer, don’t just take their word that they’re going to give you the best deal. Crunch those numbers and see if you’re really selling at a discounted price, essentially costing you some money.

5 Reasons Selling To An iBuyer Is Risky
The Potential Money Loss When Selling To An iBuyer

Seller May Lose Out On Money

As a seller, you may lose money or not make as high a profit as you could if you sold your home through a realtor. Many times, convenience comes with a price. However, though it might seem like you’re getting a great deal, you could be losing out on some money.

A Marketwatch investigation studied the transactions where iBuyers purchased 26 homes. The study found that the sellers made an average of 11 percent less than if they would have sold their home the traditional way through a realtor. This could equal tens of thousands of dollars lost out on. For example, on a home that’s priced at $250,000, that’s $27,500 in a loss. If sellers are not careful, they could be kicking themselves later.

Inspections Are Not Always Spot On

The initial cash offer from an iBuyer is contingent on an inspection that checks out.  The thing about inspections though is that some inspectors working for iBuyers create a very long list of repairs or upgrades that need to be made. Ultimately, this could increase the price of the home the iBuyer is willing to pay.

However, if sold traditionally with a realtor, that list of repairs from an inspector may be much shorter. In one interview Marketwatch did with a seller who was working with an iBuyer, they said they felt “nickel and dimed”. The reason is because of the long list of petty repairs that they had to take care of before the property would be transferred.

Hidden Fees

Selling a home to an iBuyer might be convenient, easy, and fast. However, be careful, because you could ultimately be paying more than you think. The reality is that there may be some hidden fees when it comes to iBuyers. While these fees may vary from company to company, they can add up and eat away at the seller’s profit.

It’s common for iBuyers to charge between 11 and 15 percent overall for their services. Anywhere from 6 to 9.5 percent of that is called a “convenience fee”. They may tack on another 1 percent fee at closing for various fees. The rest of the fees come from potential higher than necessary home repair allowance, which is ultimately subtracted from the selling price.

This means someone selling their home to an iBuyer could potentially be paying a 7 to 10 percent “convenience fee”. However, if they went with a realtor, that number could be lower, between 5 to 9 percent. And, the iBuyer could tack on more fees depending on how the inspection goes.

Not That Many iBuyers

iBuying is still newer and there aren’t iBuyers buying in every locality. If the more experienced iBuyer companies aren’t in your area, but there’s a small, inexperienced company, you may run the risk of a company not doing right by you – intentionally or unintentionally.

Loss of Control

As a seller, you don’t have as much control working with an iBuyer as you would with a realtor. The iBuyer company makes their offer and you’re not likely going to be able to negotiate with them at all. When you have a realtor and a buyer makes an offer, there’s usually some wiggle room. Not having that kind of control or negotiation power can become frustrating.

Another Option Besides Selling To An IBuyer?

There is another option if you do not want to sell to a iBuyer or go through a real estate agent; sell your home to a cash home buyer. Like an iBuyer, there is no need to spend money on costly repairs. Sell your house as-is to a cash home buyer, but unlike an iBuyer, someone will come to assess your house in person. By meeting face-to-face with a cash home buyer company, you have the advantage of building a rapport and understanding who you might conduct business with.

Don’t take the risk, do your research, and choose the best option for you. With a cash home buyer like Element Homebuyers, the process is easy. Simply request an offer online or call in. Make an appointment for an Element Homebuyers’ representative to come to assess your house and make a fair cash offer. If you decide to take the offer, choose your closing date and prepare for a fast close. It really is that easy. 

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