Stefan Peterson
Stefan Peterson, chief data officer and cofounder of Zavvie, a company that analyzes iBuyer offers, Boulder, Colorado. Zavvie.com
Bottom Line: They’re fast, but you typically end up with a much lower sale price.
Selling a home can be a long, complicated, excruciating headache. There’s the seemingly endless procession of showings…haggling over price…worrying whether a buyer’s financing will fall through…and much more to contend with.
What if, instead, you could easily sell your home in a matter of days?
A growing number of tech-oriented companies known as iBuyers—ranging from a startup called Abodewell and five-year-old Opendoor to discount real estate brokerage Redfin and online data giant Zillow—are offering to cut through the hassles by quickly buying homes themselves. Based on a few details you provide online, an iBuyer may make an offer within a few days and close on the deal within a few weeks. You can accept or decline the offer. If you complete the sale, the iBuyer then tries to resell the home for a higher price, just like when you trade in your used car.
Problem: When you sell to an iBuyer, you likely will end up sacrificing much more of the potential sale price than if you used a traditional agent—so whether it’s right for you depends on your priorities.
Here’s what you need to know about iBuyers if you or a loved one might sell a home in the years ahead…
The concept behind iBuyers is not entirely new—there have long been “home flippers” and businesses with ads saying, “We Buy Homes.” Those buyers typically make lowball offers on distressed properties or to sellers in need of quick cash, and they may fix up the home substantially before trying to resell it. iBuyers instead target homes that are in good condition, and they tend to make more competitive offers than flippers do, though typically less than the home would fetch on the open market.
The leading iBuyers are Opendoor (Opendoor.com) and Zillow Offers (Zillow.com/offers, from real estate website Zillow), but there are plenty of other companies rushing into this market as well, including Offerpad (Offerpad.com)…RedfinNow (Redfin.com/now)…Abodewell (formerly Amne, Abodewell.com)…Perch (Perch.com)…RealSure (RealSure.com, from the company that owns Coldwell Banker)…and Keller Offers (KW.com, from Keller Williams).
Collectively, iBuyers currently account for less than 1% of all US home sales. They can be found in 22 metro regions, mostly in the Sunbelt. Metro areas with at least one iBuyer include Atlanta…Austin, Texas…Charlotte, North Carolina…Dallas/Fort Worth…Denver…Houston…Jacksonville, Florida…Las Vegas…Los Angeles…Minneapolis/St. Paul…Nashville…Orlando, Florida…Phoenix…Portland, Oregon…Raleigh-Durham, North Carolina…Riverside, California…Sacramento, California…Salt Lake City…San Antonio…San Diego…Tampa…and Tucson, Arizona. The field is expanding rapidly, with new companies continuing to enter the market, so perhaps 10 to 15 additional areas will have iBuyers by the end of 2020.
Selling to an iBuyer is faster, more convenient and more certain than selling a home the traditional way. An iBuyer usually makes an offer sight unseen within 24 to 48 hours and lets the seller select the closing date. Many sales close in around 30 days, and some in as little as 10 days. There are no worries that a buyer’s financing will fall through because iBuyers—many of them backed by big investors—don’t depend on outside financing.
All of this can make iBuyers an attractive option to a seller who needs a rapid or certain sale—perhaps because the seller already has made an offer on a new home—and/or for whom the traditional showing and selling process might be too difficult.
The downside is that selling to an iBuyer means leaving money on the table. Sellers typically net 5% to 10% less when they sell this way rather than through a real estate agent, due to a combination of higher fees and lower selling price, which means $12,500 to $25,000 less on a $250,000 home.
Here’s a closer look at the three ways that selling to an iBuyer is likely to cost a seller money, compared with selling on the open market…
Initial offer. The typical iBuyer offer is around 3% less than the home would sell for on the open market. This varies, however—there have been offers 20% below market…and even offers above market.
Fees versus commissions. An iBuyer typically charges a “service fee” of between 7% and 9% of the home’s value (occasionally more), compared with the 5% to 6% commission typically paid to real estate agents when homes are sold the traditional way.
Repair costs. Before the deal is finalized, the iBuyer will have the home inspected, then lower its offer to account for the cost of the repairs that it claims are necessary. (Sellers also have the option of hiring contractors to do these repairs, but few bother to do this.)
Traditional home buyers have homes inspected and ask for concessions as well—but the repairs that traditional home buyers request tend to cost between 1% and 2% of the home’s value, compared with around 4% with iBuyers, which might send in several inspectors to catch every flaw.
Even if your home is in an area served by iBuyers, it might not meet the eligibility requirements. iBuyers generally are interested only in homes that meet the following qualifications…
They are not too old. If your home is more than 30 years old, iBuyers are likely to pass—they don’t want to deal with the typically larger repair challenges.
They are worth between $100,000 and $500,000. iBuyers tend to avoid the low and high ends of the market. (The upper limit might rise to perhaps $700,000 in markets where real estate is very expensive.)
They are in the suburbs. iBuyers might not officially rule out homes that are downtown or out in the country, but when you map the properties they buy, the results tend to look like a donut shape surrounding the downtown.
They are freestanding, single-family homes. Condominiums are sometimes eligible, too, but not usually. An iBuyer even might avoid homes that are subject to complicated homeowners’ association rules.
They are not distinctive. Expect iBuyers to pass if your home is equipped with solar panels, located in a floodplain or has some other pricey feature or notable quirk. They want commoditized homes for which it is easy to gauge value, not unique properties.
If you are selling a home, there’s no reason not to request offers from iBuyers that are active in your area, assuming that your home meets their eligibility requirements. There is no initial cost or commitment, and the process takes just a few minutes. Alternative: You can apply for offers from multiple iBuyers all at once through my company, Zavvie.com, also at no cost.
Before accepting an offer, contact a real estate agent who has extensive experience selling homes in your neighborhood, and ask him/her to estimate how much your home would fetch on the open market. If a fast sale is a priority, also ask how quickly your home is likely to sell—in a hot market, you might be able to sell a home nearly as quickly on the open market as you would if you sold to an iBuyer.
Real estate agents almost always are willing to provide estimates during an initial consultation with no cost or commitment. When you compare the iBuyer’s offer with this agent’s estimate, remember to calculate the fees and the repair demands that will reduce either offer.
If you decide to accept an iBuyer’s offer, the most likely complication is the “prep and repair” estimate. iBuyers tend to be very aggressive with repair demands. However, there might be some room for negotiation with these repair demands, especially when they clearly are excessive.
If the iBuyer won’t budge, you could hire a home inspector or contractor to produce a report or repair estimate and send this to the iBuyer…hire a real estate agent to represent you in the negotiation process with the iBuyer (agents often will work with people selling to iBuyers for 1% or 2% of the sales price)…and/or threaten to walk away from the deal and see whether the iBuyer relents. If it doesn’t, you always have the option of selling your home the traditional way.
