What Is an iBuyer for Real Estate?

Posted by Round Table Realty on Tuesday, February 19th, 2019 at 9:32am.

A commercial for a popular iBuyer is making its rounds on television and radio.

“I was able to sell my home in less than 30 days with the help of <Company's Name>…”

If it sounds too good to be true, it probably is. Do a little bit of digging and you will discover that homeowners lose untold amounts of equity in their homes thanks to these companies. 

What is an iBuyer?

An investing company offers to purchase your home, sight unseen, for cash. Instead of cleaning your home, fixing up the little issues like cleaning windows and replacing light bulbs, staging the home, and rearranging your schedule around showings and open houses, you simply list your home for sale and then watch the iBuyer offer roll in. No pesky negotiating. No long-term limbo. No concern over whether or not your home sells in time for you to close on the next one.

And the best part? No Realtors taking a percentage of your sale! Dream come true, right?!

ibuyer real estate

Like all things “too good to be true,” this deal is too good to be true for a majority of people looking to sell their homes.

iBuyers begin by calculating the value of your home. They do this with consideration to recent sales nearby, the size and age of your home, and the trends in your area. Remember, they’ve never seen the inside of your home. They assign value based purely on numbers.

Then, the company calculates how long they think it will take to sell your home and deduct it from the value. They also deduct 3-5% of your home's value prior to making their offer. Finally, they add a full Realtor’s commission to that number. These are investors and so they aren’t willing to take big risks with their cash. Consider that they will likely offer you 5-10% less than the fair value of your Real Estate and also take a 5% commission (sometimes 7%) on the sale itself. Conservatively, if your home is worth $300,000, an iBuyer might offer you $280,000 and then take another $14,000 in commission. Your best case scenario is to walk away with $266,000 on a home worth $300,000.

You've just lost $44,000 in equity that was rightfully yours. 

These numbers, of course, are imaginary and don’t account for iBuyers taking a higher commission or making offers even further below the fair market value of a home if anything indicates to them the home could take longer to sell or might not fetch fair market value for other reasons. The price you're offered is not negotiable, nor can it be based on a personal value an individual might place on the location, size, or layout of your home. You get what you get.

iBuyers pay in Cash

If you accepted the offer, it will be delivered in cash within 30 days and very often times even faster. This is a huge benefit for someone who needs to move quickly without regard for how much equity they might lose in the transaction. But a vast majority of sellers are looking to sell in order to get that equity out of their Real Estate to invest in a new home. That’s why getting the most out of their homes is important, and why they choose to hire a Realtor who knows how to do that.

Like the difference between changing your own oil or taking it to a shop, Real Estate agents and iBuyers will likely not be in competition with each other. They serve two completely different markets. One market wants things done quickly with little regard for customer service or making a profit off their homes/saving money. The other market wants to gain top dollar for their home and also wants to work one-on-one with a person dedicated to ensuring the sale is fair and seamless. The first market will pay more for the convenience of being nearly completely hands-off, the other will make more money for hiring an expert to put in the time and energy into the sale.

As far as statistics, iBuyers are too new to know whether or not they’re going to stick around. At this time, 9 out of 10 consumers turn down their offer because it is too low. But that leaves 1 out of every 10 taking them up on their cash offers.

A real story 

Recently, a Round Table Realty agent was able to make a cash offer on behalf of a buyer for a property in disarray. At the closing table, the seller told our agent that she'd entertained several offers. "If you don't mind sharing, why did you choose our offer?" our agent asked.
"Well," she explained, "A few of the offers came from people who were trying to low-ball me. But one of the offers was actually from an iBuyer."
"Was that offer low as well?" our RTR agent asked.
"The lowest. It was $30,000 lower than yours. They also asked me to make a lot of repairs and when I explained I'm selling the property because I can't afford to make repairs, they suggested I get a new credit card to pay for the work and then pay off the credit card after the sale! I was astounded at how impersonal and almost rude the entire situation felt."

It's not an uncommon story. There is nothing personal about the process of selling to these online buyers. Too many people don't know that these offers are not only low, they're genuinely disregarding the humans behind the property. Unless you're in an incredibly time-sensitive situation with almost no regard at all for money, there's a good chance these iBuyers are not right for you.

If you are considering selling your home and you’d like to talk more about the pros and cons of using an iBuyer as opposed to a Real Estate agent, give us a call! We act as Single Agents, which mean our job is to steer you in the direction that makes the most sense for you! It's free to speak to a Realtor and run the numbers to get a clear picture of what's right for you and how to start your process! 

 

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