Instant offers have become increasingly popular with certain sellers in the real estate industry. This trend is giving sellers the option to get a quicker offer – but often at a high cost. Before making such a substantial financial decision, it’s important for today’s sellers to be aware of the significant trade-offs being made when selling their home to iBuyers.
WHAT IS AN iBUYER?
iBuyers are large, well-funded companies that provide “instant offers” to purchase homes in all cash, providing the seller flexibility on the closing date and allowing sellers to avoid the traditional listing process. These companies, such as Zillow Offers, Opendoor, and Offerpad, receive detailed information about the property from the seller and extend an offer within 1 to 3 days.
If a seller accepts an offer and sells the home to an iBuyer, the iBuyer then takes on the responsibility to make repairs, list, market, and resell the home to a new homeowner. Though this process is more timely and convenient, it poses a severe loss for the seller. In order for the iBuyer to make even a small profit, the iBuyer cannot purchase the home for actual market value – meaning the seller gets short-changed on their biggest financial investment.
CONVENIENCE VS. COST
Be aware of these trade-offs sellers are prone to when accepting instant offers from iBuyers.
CONVENIENCES
- No showings
- Less repairs
- Quick offer process
- Guaranteed closing if offer is made
COSTS
- No representation
- Higher rates for repairs
- Selective offering on property-types
- Significant profit loss at closing
Example of ibuyer transaction
vs. traditional transaction
Home Sold for $400,000
iBuyer's Instant Offer
Source: Collateral Analytics Research
Working with an agent
Potential Loss of $32,000 when sold to ibuyer
According to Collateral Analytics Research, the typical cost to a seller can fall in the range of 13% to 15% dependent upon the iBuyer. Meanwhile, the average commission for a licensed agent falls in the range of 5% to 7%. For example, this means selling to an iBuyer, as opposed to selling in a traditional market with the help of an experienced agent, could mean the loss of $32,000 for a home sold at $400,000.
Aside from the amount of money that is lost at closing with an iBuyer, due to the recent impact of COVID-19, iBuyers are currently not presenting offers in every market. Among the offers they are presenting, iBuyers often resist making offers on unique properties such as condos, higher-priced homes, properties in gated communities, out-dated properties or properties in need of numerous repairs.
