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Using iBuyers in Today's Real Estate Market

Spectora 10/2/19 10:31 AM

iBuyers are getting more popular in many major real estate markets across the country. This adds yet another option for sellers to consider when putting their home on the market.

What are iBuyers?

iBuying is short for instant-buying, because it is a quick transaction without in-person contact and for all cash. iBuyers are online real estate companies that only have online agents. They don’t come to your home physically and look at it before they buy it. 

The big players in this space are Open Door, Zillow Offers, Redfin and Offerpad - but there are various smaller companies that are making their way into the market too. 

What Does This Mean for the Future of Real Estate? 

iBuyers make the transaction completely online with the homeowner and typically do that in a shorter time frame than traditional agents would be able to. They also are able to offer all cash to sellers to entice those that are wanting to sell quickly.

These companies make a profit by purchasing the homes below market price and then reselling them within 60-90 days or holding in a rental portfolio.

How this will impact the overall real estate market is unclear. The initial reaction is that it could further increase demand and lower supply by introducing more cash buyers, reducing the number of homes that are sold to individual buyers.

Should Sellers Use an iBuyer?

The emergence of iBuyers has grown rapidly within the past year and has the potential to make a big impact in the world of real estate. As a seller you have to think about your own goals to determine if using one of these services is right for you.

Here are some pros and cons of iBuyers to help you decide which choice is best for you. 

The Advantages

1. Convenience

  • People who don’t want to deal with in-person interaction can do everything online.
  • Everything can be done from the comfort of the home, no need to go to offices. 
  • You can get cash for your home right away, no waiting for buyer mortgage approval and counter offers.  

2. Quick Turnaround Time

  • Most iBuyers will make an offer and close within 10-14 days.
  • Traditional real estate transactions take about 30-45 days to close, not including the time it took for the house to be on the market, discovered, toured and to accept an offer.

3. No Inspections or Renovations 

  • Most people make updates to their home before they list it to increase the property value and incentivize buyers.
  • iBuyers will judge the house based on pictures of it and then make an offer, they don’t do an inspection.
  • If there are things that need to be fixed they will reduce the offer price and then fix it themselves before reselling.

The Disadvantages 

1. Transaction Fees

  • They charge a lot in fees, typically around 7% of the price of the home, but sometimes up to 13%. (realtors typically charge 6%)
  • That is much higher than the cost of closing and commission for traditional real estate sale. 

2. You Get Below Market Value 

  • iBuyers strategy is to offer below the market value of a home 
  • When they buy it at a lower value than it is worth, they can turn around and sell it quickly for a bigger profit, meaning that they make a lot of money off each home in a quick amount of time. 
  • Homeowners typically get about $15,000 less from an iBuyer than they would from another buyer.

3. Real Estate Agents Can Do the Same or More

  • If you choose the right agent for you, they can sell homes quickly too. Some markets sell quickly anyway.
  • Agents have good advice and can help you negotiate a fair price
  • An agent can help you find a new home 

Do Your Research

Ultimately, the decision is based on your timeline and goals as a seller. 

If you need to sell your house quickly, then an iBuyer might be the right choice for you. Just keep in mind that you will likely get an offer for less than your home is worth. The fees might eat into profits as well.

Real estate agents are more reliable and can help you get a better price for your home if you are willing to take a little bit more time to find the right buyer.

Take your time & consider all the factors when deciding how you want to sell your home. Historically speaking, most tend to go with the traditional model of using a local real estate agent.

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