How Does iBuyers Work

By
Real Estate Agent with RE/MAX Executive Realty 91362

What Should I Know About iBuyers?

Anything that can make the home buying process more relaxed is an attractive prospect. One of the things iBuyers do is a promise to make selling your home a more straightforward and faster experience. They offer more convenience and provide more certainty when selling your home.

You may have heard about iBuyers, but what are they, how do they work and are they going to be right for you? It can't be all rosy with no downsides, can it? With most things in life, there are pros and cons, and that is certainly the case with iBuyer companies. The resource at Maximum Real Estate Exposure is a valuable resource to look over for many of your questions about iBuyers.

Let's take a look at iBuyer services so you can make an informed decision on whether it is right for you. Understanding how iBuyers work is vital in deciding whether the service will be worthwhile for you.

What's an iBuyer?

It is a business that makes you an offer to purchase your home. They use technology to estimate the value of your home, giving you an offer very quickly. The estimation is what's known as an automated valuation model that uses statistical analysis to come up with a value.

The iBuying method can provide sellers with an easier and more straightforward way to sell their home. It can be a great alternative to selling a home without a real estate agent as a for sale by owner or by using an entry only broker who provides flat fee MLS services.

If the seller is happy with the offer provided by the iBuyer business and accepts their proposal, the iBuyers will take over the property. A transaction like this could be completed in around two weeks, with the iBuyer marketing and selling the property after any repairs or improvements have been made.

Who Are The Major Players in The iBuyer Space?

There are a handful of national companies that are the most recognizable iBuyers. They are as follows:

  • Zillow
  • Redfin
  • Opendoor
  • Offerpad
  • Knock

Each of these iBuying companies works a bit differently. Make sure you vet them properly if you are planning on using their services.

How Do iBuyers Make Money?

You might expect an iBuyer to buy a property for a lower amount than it is worth and then sell it at a profit. This is what happens in home flipping, but this isn't the case with iBuying.

Instead of making money by offering a low price for the property, iBuyers charge a fee for their services. This is a percentage of the value of the home and is slightly more than you would expect to pay to real estate agents. Their fee can vary depending on how difficult they assess it will be to sell your home. iBuyer costs can be 7 or 8 percent of the value.

While the iBuyer business model often claims they are paying fair market value, that is often not the case. In many instances, they are paying below the actual value of the property. Much like Zillow estimates are inaccurate, so are automated valuation models.

Assessing the Value of Your Home

The iBuyer business uses machine learning and an automated value model to determine the value of your house. What happens is that data about similar home sales to yours is compared to your home with adjustments made to better assess the value. Local area considerations will also contribute to the value they place on your home.

The initial offer they give you is dependent on a representative's assessment of your home. They need to check that the information you have provided about the property is accurate, including the condition of the house. Any necessary repairs will be taken into consideration, as well.

As mentioned above, these estimations are often way off the mark - this is especially true when an iBuyer company does not set foot in your home. Anyone who thinks property values can be accurately determined without walking through a house is out of their mind.

There are so many things that go into valuing a home, including unique features, floor plan, condition, amenities, the lot, and a whole host of others.

Home Selling Convenience

iBuyer services allow you the chance to sell your home in a shorter period than traditional methods. The iBuyer method can be much more convenient if you need to move quickly. With a typical buyer, you may need to wait for them to secure their financing or delay the sale to meet their timeline.

Using an iBuyer company gives you an offer within a day or two, and you can pick the date when the closing takes place. This allows you to move just a couple of weeks after getting an offer from the company. This compares very favorably to ordinary sales through a real estate agency, which takes an average time of 60 days for a home to sell.

It has an advantage by reducing the possible stress the seller can experience as well. Since the offer is unlikely to fall through and you don't have to worry about finding a buyer either, the stress of not knowing and uncertainty is avoided.

You also miss out on many of the hassles involved in selling your home. There won't be the need to accommodate showings, have open houses, or negotiate with buyers to make repairs on the home. The process is simplified and offers more certainty to sellers.

Is Selling to an iBuyer Right For You?

It can make a lot of sense if you need to sell quickly or want to keep your inconvenience to a minimum. You can always fill out the forms to get an assessment of how much you will receive from an iBuyer, without an obligation to accept the offer. They will provide information about their costs, and this should show you if using such a service is going to leave you better off.

Selling your home with a real estate agent may offer the opportunity to receive more money, but does carry with it more uncertainty. The final decision comes down to your particular home selling situation and what is more of a priority for you.

Summarized Pros and Cons of Using an iBuyer

You have learned a little bit about how iBuyers work. Let's take a look at the summary of the pros and cons of this home-selling method.

Pros of Going Through an iBuyer

  • You won't have to spend any time preparing your home for sale or have any expenses associated with staging the property.
  • There will be no repairs needed on the property as the iBuyer will be purchasing it "as-is."
  • The closing can happen very quickly - great for those who are under any kind of financial distress.
  • There will be no showings on your home, avoiding that hassle altogether.
  • You won't have to waste your time with open houses.
  • There will be no negotiation process like in a standard sale.
  • There won't be a traditional home inspection process. Inspections are typically much less intrusive.
  • You will not have to worry about a buyer coming up with appropriate down payment funding, or wait for them to get a mortgage, or take a chance they won't get one at all.
  • There will be no real estate appraisal necessary to complete the sale as it will be a cash transaction.
  • The sale will not fall apart because the buyer lost their job or any other unforeseen event taking place.
  • Offers a potential way for homeowners to save money - look over your bottom line carefully as it isn't always the case.

Cons of Going Through an iBuyer

  • One of the significant downsides of the iBuyer model is paying higher real estate commissions – Ibuyer fees typically are seven to eight percent of the sales price and sometimes more. You will pay less than this from most traditional real estate agencies.
  • The automated valuations that iBuyers use do not always provide an accurate market value for your property.
  • Offers you get from an iBuyer are often under market value as they are in the business to make a profit. The offer you receive is often way under the value you would get on the open market using a local real estate agent. You will still have the same closing costs found in a regular sale.
  • A Real Estate agent can do the same thing as the iBuyer model. When pricing your home aggressively from the start, the chance of getting multiple offers is substantial.
  • The iBuyer buying method is only found in limited markets at the moment.

Summary of What to Think About With iBuying

There are some sellers that iBuying could be a godsend while for others, it makes no sense at all. As a homeowner, you need to figure out if this kind of service would be right for you or not. Make sure if you do go this route that you vet any iBuying company carefully. Look at their reviews and only move forward when you are comfortable doing so.

More Valuable Active Rain Media

  • Reasons not to buy a condo - if you have owned a home your entire life and decide to purchase a condominium, it could be a decision you end up regretting. See some of the most significant reasons why some folks end up hating their decision to buy a condo.
  • What are the costs of selling a home - do you know the closing costs a home seller will be expected to pay? Get helpful info, so there are no surprises when it comes to your financial obligations with selling a house. Learn all of your expected seller closing expenses.

Use these additional resources to make sound real estate decisions.

About the author: The above article on how iBuyers work was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-three plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

 

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

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Rainmaker
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MadisonMortgageGuys - Oconomowoc, WI
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Informative article on iBuyers Bill Gassett! Having a trusted real estate agent determine a selling price is almost always going to be more accurate than an AVM. Love your comparison to zestimates. That sums up AVMs perfectly!

Apr 14, 2020 08:16 AM #1
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