If you are considering selling your home, you have probably wondered about Opendoor, Offerpad, and 72SOLD. These companies offer instant cash to sellers with simple, quick transactions.
Does the old phrase "If it is too good to be true, it probably is" apply to iBuyers?
All About iBuying
iBuying (Instant Buying) is a relatively new approach to selling homes.
Selling your home requires several steps. You must make repairs, stage your home, negotiate with buyers, and overcome obstacles. Selling your home takes time, effort, and work.
iBuyers streamline the sale transaction. A seller goes to a website and fills out information about their home.
Typically within a day, sellers receive a cash offer on their home. The transaction generally closes within a few days if they agree to the offer.
Are iBuyers too Good to be True?
Too good to be true?
The ease of having a quick sale usually comes at a price when using an iBuyer.
Selling to Offerpad, Opendoor, or any of these companies means sellers generally receive less money for their investment than they will working with a real estate agent who helps sellers with repairs, staging, and negotiation.
Currently, iBuyer transactions account for less than 2% of all home sales.
How Do iBuyers Make Money?
iBuyers have three primary revenue sources - service fees, closing costs, and resale margin.
iBuyers usually charge a 5% service fee to sellers.
Closing costs comprise loan fees, title insurance, and other miscellaneous services. iBuyers bundle all these costs together and are generally 2.5%.
The resale margin is the difference between what the company pays for a home and what they sell it for; this ranges from 4% to 12%.
iBuyers Zillow and Redfin, who recently shut down their instant buyer services, both had net losses of over $600 million in 2021, and other iBuyers' profits have been slim to nothing.
How Can Sellers Benefit from Selling to iBuyers?
The primary benefits iBuyers present to sellers are speed and convenience; both come at a price.
The average American home spends over 40 days on the market; selling to an iBuyer is a fast process that happens within a few days.
Selling a home traditionally involves repairs, staging, keeping it clean, and holding showings and open houses.
Using an iBuyer, these hassles are eliminated for home sellers.
What are the Disadvantages of Selling to iBuyers?
Lower profit and limited availability are the main disadvantages of using iBuyers.
iBuyers are a business. Businesses can only operate by making a profit. Therefore, sellers using iBuyers generally make less money from their investments. Homeowners are selling their homes at discounted prices.
Realtors take pride and work hard to get top-dollar for their client's homes. They price competitively, create a strategic marketing plan, negotiate offers, overcome hurdles, and put out fires to get sellers the most from their client's investments.
Because iBuying is relatively new, not all iBuyers operate in every city or town.
Many iBuyers will only purchase homes that meet specific criteria, such as homes in good condition and within a particular price range.
iBuyers usually don't consider distinctive home characteristics that add extraordinary value to the property, such as historic homes with flawless original wainscoting, local amenities, or incredible views.
Sellers may leave money on the table when skipping the traditional selling route and choosing iBuyers. One significant benefit of using a local Realtor is their knowledge of community information on areas of regentrification, city council proposals of future developments, and rezoning districts which may add value to properties.
The Bottom Line
iBuyers may be a good option for sellers with a sense of urgency that are not overly concerned with making the most money possible. However, if getting top-dollar for your home is a priority, there may be better options than iBuyers.
