What if you could sell your house without scrambling to stow your kids, pets and valuables at a moment’s notice for showings — or channeling your inner Martha Stewart to make repairs and stage an open house?
What if you could receive a cash offer for your current home?
And, what if you could seal the deal in as little as 10 days?
If you think that kind of sale sounds too good to be true, you’re not alone.
In a recent research study that described those attributes of a relatively new, high-tech sales option known as iBuying, 55% of respondents had a negative perception of the concept. They thought there had to be a catch.
According to the National Association of Realtors, iBuying is responsible for a small but significant and growing number of cash sales. Of the 23% of homes purchased with cash, 2% of properties were bought by iBuyers.
Selling your home to an iBuyer isn’t for everyone. The option isn’t even available in some markets. Offers aren’t always as strong as what a financed buyer would pay. And, it isn’t free — there are fees involved.
However, if you find yourself daydreaming of a convenient and quick sale, it might be worth taking a look at whether selling to an iBuyer is right for you.
What is an iBuyer?
An iBuyer — also known as an instant buyer — is a tech-enabled company that purchases properties online, often sight-unseen. Not to be confused with home flippers, iBuyers typically buy homes in good to fair condition, make only light repairs, and turn over a higher volume of homes on thinner profit margins.
“An iBuyer is essentially a company or corporation that will purchase your home directly,” explains Edward Kaminsky, a top real estate agent in Manhattan Beach, California. “The iBuyer pays you close to market value — or maybe slightly less — but you avoid the hassle of having to put your home on a traditional market.”
As an agent with 34 years’ experience, Kaminsky views iBuyers as a modern twist on wholesalers.
“In the past, wholesalers were individuals, who bought a property and sold it quickly to a homeowner or to a contractor for remodel,” Kaminsky says. “Today, these iBuyers tend to be more corporations funded by large capital groups.”
Who are the major reputable iBuyer companies?
Among the top iBuying companies are RedfinNow, Opendoor and Offerpad. Zillow Offers was a major player in the market until November 2021, when Zillow shut down its iBuyer operations. Review our full guide on the top iBuyer companies in the business for more details on each program.
Are there other options?
Yes, there are other ways to sell your house quickly. With Simple Sale, for example, HomeLight provides an all-cash offer for homes in almost any condition. Our platform enables you to sell your home as quickly as 10 days rather than what can be weeks or months.
You can skip staging and repairs, and sell without agent commissions, or upfront selling costs. Answer a few basic questions about your home’s condition, how much work it needs, and your selling timeline to get started with Simple Sale today.
Where did the iBuyer concept originate?
When the first iBuyer company — Opendoor — emerged in the mid-2010s, iBuying was the logical extension of real estate tech’s ability to evaluate homes virtually. The model also reflects society’s growing expectation to access 24/7 on-demand services.
iBuying was an opportunity to revolutionize an age-old, angst-filled home selling process fraught with uncertainty.
In the survey from 1000Watt, 70% of sellers found the process stressful or very stressful. Approximately 44% said the most stressful element was having strangers in their home at showings and open houses.
Other common pain points for sellers include the length of time it takes to receive an offer, waiting for the buyer’s financing to be approved — and if it’s denied, repeating the cycle of showings and open houses — and the possibility of having to make repairs or price adjustments based upon home inspections and the appraisal.
So, it’s no surprise the same survey found 50% of the respondents showed interest in selling to a credible company for a cash offer as opposed to a buyer with financing.
And, in fact, 77% of respondents would be “probably” or “maybe” willing to take 5% to 10% less for their home to avoid the hassle of a traditional sale.
iBuyers fill that void by leveraging technology to approximate a home’s value, frequently partnering with local agents to verify the information and sell the property.
Are iBuyers different from house flippers?
Kaminsky says iBuyers are similar to flippers in the sense they intend to buy the property and sell it quickly. However, “An iBuyer plans to make some quick surface changes — such as paint, carpet, staging — and hopefully sell for a profit,” he says.
“Most flippers plan to dramatically improve the property with a full remodel before they put it back on the market.”
Because they intend to make few improvements before heading back to market, iBuyers concentrate in the mid- to upper level price range and seek homes that are in good to excellent condition.
Instead of getting properties at a discount and selling them at a higher price, iBuyer profits generally come from the volume of properties they are able to buy-and-sell quickly and by charging sellers a fee for the service.
Why sell to an iBuyer?
iBuyers bring more speed and certainty to a complex and traditionally stressful process.
Even though there are fees for the convenience, the ability to skip house showings and zoom straight to closing is priceless to some sellers. Here are some of the main motivations to choose the iBuyer method.
Reason #1: Your priorities align with what an iBuyer can deliver.
Kaminsky frequently explores the possibility of an iBuyer sale in early meetings with his clients. “That would be a conversation with the homeowner where you identify what is the most important part of the process for moving and selling for this client,” he says.
Kaminsky recalls a recent client who bluntly said, “I don’t need to get every dollar out of the home. I just want to pack my stuff, get out of here, and know my check is going to be there when I’m done packing.”
Cheesette Cowan, a top real estate agent in Florida, often approaches iBuyers immediately after listing a house on the market. For many of Cowan’s clients, the biggest advantage is the ability to get a quick offer.
Reason #2: You need funds from your existing home to buy a new one.
Having cash immediately available can help a seller more easily coordinate the purchase of their new home. Some iBuyer programs are specifically designed to help sellers trade-in their home, similar to the way they would trade-in a car.
Reason #3: You’re selling a house from a distance.
The iBuyer route is also convenient for homeowners who are selling from out of town or have tenants living in their properties, as there’s no need to juggle showings or worry about a water pipe bursting while the home sits vacant for an extended period of time.
Reason #4: Your house isn’t ‘move-in’ ready.
Inspections are usually less of a hassle when selling to an iBuyer. “Generally, an institutional buyer is just looking to make sure the home is safe and a good fit for who will be living there,” says Cowan.
HomeLight’s Simple Sale platform, for example, provides cash offers for homes in almost any condition. By contrast, many traditional buyers want a turnkey home. According to a survey from Coldwell Banker, 80% of Americans say they would prefer to buy a move-in ready home over one that requires renovations.
In summary, you might benefit from an iBuyer sale, if you:
- Live in an area where iBuyers are operational
- Need to move quickly due to a relocation, divorce, urgent need for cash, or another circumstance
- Prioritize your privacy, time, and convenience over huge profit
- Have a home that has been recently updated and is in good condition
- Have health concerns — particularly with COVID-19 and other highly transmissible illnesses — and want to avoid people entering the home for showings and open houses
- Have made a contingent offer on another home and need to sell quickly
- Understand what your home is likely to sell for in a traditional sale
Do iBuyers negate the need for an agent?
It might seem that selling your home to an online buyer would eliminate the need for a real estate agent. Fortunately, you don’t have to enter the brave new world of high-tech real estate alone.
In fact, engaging a top sales agent can be an integral part of the process.
“Seeking the advice of a professional real estate agent to understand the difference of what an iBuying company would deliver and what the market would deliver is important to know before making that decision,” Kaminsky says.
iBuyers are increasingly partnering with agents, too
Having worked with iBuyers over the past two years, “With platforms such as HomeLight’s Simple Sale, agents help coordinate the sale with the sellers,” he explains.
An affiliated agent inspects the property on a walk-through, takes photographs and helps analyze its value, so the company can determine its offer. These services may cost nothing to the seller, as iBuyers often provide referral fees to agents in exchange for connecting them with sellers.
Once the iBuying company owns the property, with certain programs the agent may retain the listing to get it sold and make a commission.
What are some common questions other sellers ask?
Kaminsky finds his clients’ main concerns about the iBuying process are:
- How much am I getting?
- What are my selling costs?
- Can I sell it ‘as-is’?
- Can the iBuyer back out?
The offer submitted to sellers depends on how the company analyzes the property and what their profit margin needs to be. “You could get different offers from different companies,” he says.
The contract dictates whether the iBuyer has the option to cancel the sale and under what circumstances. Some iBuyers sign a contract early and do an inspection after they’ve created a contingency that allows them to get out of the contract if necessary. Others do the inspection ahead of time and execute a contract with no contingencies and a closing date within seven to 21 days.
Kaminsky encourages his clients to review at least three offers. He also recommends seeking the advice of your accountant because different scenarios may have tax or other financial repercussions depending on your situation.
How do iBuyers determine the value of your home?
iBuyers use real estate pricing technology called Automated Valuation Models (AVMs) to calculate the value of a home and then generate an instant offer.
According to CoreLogic, an AVM is a “computer-driven mathematical formula that uses basic property characteristics, local market information, and price trends to arrive at an estimated value or value range.”
It’s the same type of technology that is often used to calculate loan financing options, taxes, and insurance.
iBuyers typically buy homes in newer, traditional housing tracts where houses are similar in age and size, which makes it easier for their computer algorithms to estimate the value of a property.
“This means they usually limit their buying to houses valued between $100,000 and $500,000 that are not in foreclosure or in need of a short sale, and have lot sizes that are less than half an acre,” says Robert Taylor, a seasoned real estate investor in California.
However, in Kaminsky’s California market, iBuyers may consider homes with values up to $2 million.
What fees do iBuyers charge?
In exchange for purchasing your home, most iBuyers charge some kind of service fee, often to the tune of 5%, rather than a commission you’d pay for a real estate agent’s services.
As of this writing:
- RedfinNow charges 5% to 13% service fees, an estimated 1% in closing costs and 0%-3% for estimated repairs.
- Opendoor says service fees for new offers will not exceed 5%, as of Sept. 30, 2020. The company estimates sellers will pay 1% in closing costs and 0%-2% for seller concessions.
- With Offerpad, sellers are responsible for a 5% service fee and estimated closing costs of 1%.
- With Simple Sale, we never charge a service fee (though some transaction fees may apply). Requesting a no-obligation offer is completely free.
iBuyer program details can frequently change. Please visit the iBuyer’s website for the most up-to-date information on each individual program’s fees.
What are the basic steps sellers take in the iBuyer process?
Although the specifics may vary, the process will generally go something like this:
- The seller visits the iBuyer’s website and enters their home’s address, provides some other basic information about the property, and submits a request for an offer.
- The iBuyer confirms receipt of the request and typically sends an offer to the seller within a few days.
- The seller evaluates the offer, often consulting their real estate agent or a financial advisor for input.
- If the sellers accept the offer and move forward with the sale, the iBuyer schedules an assessment of the home.
- The iBuyer may request price concessions to compensate for any necessary repairs (although the iBuyer may not actually make those repairs).
- A final price is assessed for the home, after deducting the iBuyer’s service fees. If the sellers are working with a real estate agent, there may be some negotiations during this step.
- Once the price is agreed upon, a closing date is scheduled.
What are the pros and cons of using an iBuyer?
The iBuyer model attractive to sellers who prioritize:
- A quick, near-instant offer, rather than waiting for a buyer for an unknown period of time
- Eliminating staging or prep the home for showings
- Fewer back-and-forth negotiations
- Easier, less exhaustive inspections
- Certainty of a cash sale (no need to wait on a buyer’s financing)
- Faster closings
- Flexibility in move-out dates
- More contactless home sale in the age of COVID-19, and
The iBuyer model doesn’t work as well for sellers who:
- Lack iBuyer availability in their areas
- Desire a high level of service throughout the transaction
- Want to get the highest price possible
- Are unwilling to allow added costs for requested repairs
- Are disappointed if the buyer doesn’t appreciate their home’s charmsIt’s good to have options for selling your home. Since the mid-2010s, iBuyers have provided another alternative to the traditional process. For some sellers, it’s a great match, and for others, listing with a top real estate agent still makes the most sense.
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