Zillow will buy your house, but what sellers put in their pockets won’t likely make them happy. The iBuyer (internet buyers) popularity wave enters the second season here in Atlanta and the main players include Zillow, OpenDoor, OfferPad, Knock and soon, companies like Keller Williams and other national firms. There’s a huge upside to this for sellers; fast closings, simple contracts and few unexpected issues on the way to the closing table. The trade off however, is expensive. While the contact price might appear reasonable, the net (what the seller actually walks away with) is almost always significantly less than if the home were properly exposed and marketed. While most traditional firms charge 5%-7% to sell a home, iBuyer “fees” routinely exceed that level; in some cases by significant amounts.
What is an iBuyer real estate company?
iBuyer is the current name given to investment buyers who purchase or facilitate the purchase of residential property at a discount with the intent of quickly reselling at the market rate. Essentially, just the rebranding of an investor or home flipper. In short, home sellers trade cash for speed. Sellers are paid a below market price but closed in about two weeks.
How do iBuyer firms work?
The basic idea pitched is that sellers are “relieved” of the stress surrounding the sale of their home; these firms seek to focus on making it easy for the seller. That speed and ease comes at a price of course; the prices paid are below market. These firms either look to buy, complete very basic and cheap updates (think paint & carpet) and relist at or above retail or simply buy and flip to investors. In most cases, homes are contracted and the search for buyers begins immediately. Their best case scenario is to assign the contract directly to the next buyer; next best is to close and then immediately close with the next buyer. There is always a “worst case” scenario considered; ample discount is applied to any offer (along with fees comparable to standard firms) to allow for unexpected delays in moving the home.
What to expect from an iBuyer
The iBuyer model depends on buying as low as possible and selling high. Unless values continue to increase, that is a risk and can make for tough sledding. At this time in Atlanta, these firms are trying to establish brand recognition; relying on investors to continue to fund them, they are not self-sufficient. Many will fail, others will flip a few, rent a few and look to hold on as this model either proves itself or fails. Sellers should go in eyes wide; these companies do not pay retail. Usually an AVM of some sort (automated valuation model) is used (think Zestimate) along with a seller questionnaire and occasionally a brief inspection. Once an estimated market value is established, it is cut to reflect deferred maintenance and allow for profit; there are also fees charged ranging from 2-14% of the final price. The positive side is that the homes are sold without the typical contract hassles.
iBuyers and the Real Estate Market
iBuyers appeal to home sellers looking to trade price for time. If speed and ease is worth 25%-40% off the market value, then consider them. Just don’t forget the added fees between 2-14% that will be tacked on. iBuyers are typically backed by venture capitalists and investors; real estate has been on the radar since the crash.
This is not new to real estate and this type of arrangement works for a select few folks, most will not benefit from what these firms offer. Compared to “traditional” firms, there is no savings; in fact there is money that will be left on the table. The only thing an iBuyer firm offers is speed and simplicity (usually) of closing – in exchange for a lower price.
All options and business models should be explored before deciding to list a home for sale. In the end, the advantage of speed and simplicity offered by an iBuyer can often be achieved by an experienced real estate agent. That agent can almost always sell the home for a better price, matching or even beating the costs charged by an iBuyer. This model most competes with discount brokers; those that “list for less” and provide less; offering an “ala carte” menu of services (for additional cost). The real estate world is finally evolving, but like everything else it’s critical to understand the best option for each situation.