It is time to sell your home, which means there are several decisions that will need to be made including what transaction type will work best for you. FSBO (for sale by owner), hire a licensed real estate agent, or work with an iBuyer? Most home-sellers consider the first two options; however, it may be worth considering an iBuyer. It is important to know all of your options before listing your home. Let’s discuss how iBuyers differ from the traditional home selling process and when to consider a direct cash offer for your home.
What is an iBuyer?
iBuyers are technology-driven property companies that use automated valuation models to determine a home’s value and make a purchase offer, often within 24 hours.
An automated valuation model (AVM) is a computerized appraisal that looks at what similar, nearby homes are worth and combines that information with the specifics of your home to estimate its value. If you’ve ever checked a home’s Zestimate from Zillow, for example, or been able to refinance your home without hiring an appraiser, then you’ve seen an AVM at work. Mortgage lenders and other real estate companies use AVMs all the time.
iBuyers are putting these models to a new use to buy properties, fix them up and resell them for a profit. It’s very similar to what real estate investors who flip properties do.
iBuyers don’t think of themselves this way, though. Opendoor, one of the market-leading iBuyers, says on its website that it is not a “home flipper” because the company does not buy distressed properties to fix up and resell. Most iBuyers do prefer properties that are already in good shape.
Opendoor, founded in 2014, was the market leader by late 2021, with more than four times as many homes for sale as Offerpad, and operations in 44 markets. Along with buying your home, the company says on its website that will help you make a cash-backed offer to purchase your next home.
Offerpad, founded in 2015, is the second-largest iBuyer. It aims to buy, renovate and sell homes within 100 days. The company operates in 21 markets as of late 2021. Its business model is also based on providing mortgage and title services, and allowing homeowners to list through its platform.
Zillow Offers was an iBuyer that operated from 2018 through November 2021, when it shut down because its algorithm underperformed. It struggled to predict future home prices accurately, and the company overpaid for too many homes. It also couldn’t entice enough homeowners to sell.
RedfinNow and Keller Offers are two more players in the iBuyer market, but they have a much smaller presence.
RedfinNow buys homes in 18 markets, and its presence is strongest in California and Texas.
Keller Offers will buy your home for cash in 22 major markets in the West, Midwest, South and Southwest. It also has a program that will help you renovate your home to sell it, or renovate your home and stay put—an option that currently differentiates it from its competitors.
How is selling your home to an iBuyer different from a traditional sale?
When you sell your home to an iBuyer, many of the traditional aspects of selling your home are skipped. For example, you don’t need to stress about preparing your home for sale. You’ll be able to forgo tasks like staging your home, upgrading your curb appeal, or scheduling any maintenance on your home. Additionally, you don’t have to find a listing agent to sell your home.
In a traditional sale, you’ll have to put your home on the market before receiving any offers. To receive an offer from an iBuyer, it can be as simple as requesting an offer from their site by providing required photos and information about your home. Your offer is typically based on your home’s value and the information you provide. iBuyers use a combination of that provided information and a home valuation to generate your offer. Depending on the company, the offer may be received in just a few days. An iBuyer provided the benefit of closing at your convenience. Whether you want to close as quickly as 10 days or as long as 90 days, it can be what works best for you, unlike in that of a traditional sale. This can be especially helpful if you’re trying to buy and sell at the same time and want to avoid a second mortgage or gap financing.
What are the costs of selling a home to an iBuyer?
If you’re considering selling your home to an iBuyer it’s important to know how much it can cost compared to a traditional home sale. When you sell your home on the market, the seller typically pays both the buyer’s and seller’s agents’ commission. Commission costs can vary from 4.5-7% of the final sale price of your home. You may also be expected to pay closing costs which can range from 2-5% of the home’s sale price. However, you may spend more to sell your home if you make pre-listing repairs and upgrades, hire a stager, or professional cleaning service.
On the other hand, selling to an iBuyer can cost anywhere from 6-14% of the final sale price. However, there are several reasons for these costs. Many iBuyers will offer you an initial price for your home, then deduct fees and closing costs. Depending on the iBuyer you work with, these fees may be selling fees, convenience fees, and repair fees and can range from 5-13%. These fees can fluctuate based on housing market conditions or how many repairs are needed on your home. When you sell your home to an iBuyer you’ll also be expected to pay closing costs just as you would in a traditional home sale as you prepare for closing, which covers title, escrow, and taxes. These costs are typically 1-2% of the final sale price.
Why sell your home to an iBuyer?
There are several reasons why you may want to quickly sell your home using a iBuyer rather than sell your home in a traditional sale. Let’s take a look at some of the common reasons why selling to an iBuyer may be a good option.
· You are relocating: If you’re relocating to a new city and need to sell your current home quickly, selling to an iBuyer may be a good option. You can sell your home fast without the hassle of going through the home selling process while you’re in the middle of a move or living in another state.
· You have inherited a home: If you’ve recently inherited a home, it’s possible you don’t have the resources to maintain the home or don’t want to turn it into a rental property. If you’re planning to sell an inherited house, selling it quickly to an iBuyer might be the right option.
· You have an investment or rental property: If you’re struggling to find a new tenant to occupy your investment or rental property, a quick cash transaction might be the solution you’re looking for.
· You need to access your home’s equity ASAP: Depending on your financial situation, it may be necessary to access your home’s equity fast. If this sounds like you, then accepting an all-cash offer from an iBuying company might be the right choice.
· You need money for a down payment: If you’re moving, it’s possible you need to tap into your current home’s equity to make a down payment on a new home. In this scenario, selling your home to iBuyers might be the best way to make a stronger offer on your next home.
Keep in mind that these are just a few of the reasons why selling your home to an iBuyer may be the best route to take. You should always consider your personal circumstances and seek the advice of a real estate agent or financial professional if you’re not sure.
Are there cons of selling your home to an iBuyer?
When you’re deciding on the best way to sell your home, there can be some reasons why selling to an iBuyer may not be the right fit.
· An increase in cost: As previously mentioned, the costs of selling to an iBuyer can sometimes be more than what you’d pay in a traditional home sale. If you’ve recently updated your home or aren’t in a rush to sell, listing your home on the MLS may be a better option.
· iBuyers are not in every market: While selling to an iBuyer may be the best option for you, it’s possible that they may not operate in your area. Not all iBuying companies buy homes in every market, so it’s always important to check for iBuyers in your area before settling on the idea.
· Miss out on a potential bidding war: You lose the ability to incite a bidding war on your home if you sell your home to an iBuyer. This may be a con, especially in a seller’s market where bidding wars are more common and there are more buyers than homes for sale. If you’re not in a rush and want to sell your home for as much as possible, working with an experienced real estate agent may be a better option.
· Your home may not be eligible: Depending on the iBuying company you work with; they may have different qualifications your home must meet in order to receive an offer. These eligibility requirements may be a minimum home value or depend on the current condition of your home.
Key takeaways about selling your home to an iBuyer
Selling your home to an iBuyer may be the right fit if you need to sell your home quickly, you require access to your home’s equity, or you just don’t have the time to prepare your home for sale. Whether you choose to sell your home to iBuyers or in a traditional sale, it’s important to weigh all the pros and cons and your own personal situation to make your home selling process a breeze.