The current sellers’ market has many people fast-tracking their plans and listing their homes ahead of schedule. While there is ample opportunity to reap benefits from this approach, it doesn’t work for everyone.
Some home sellers are working with iBuyer companies to quickly sell their home and move onto the next great thing. Here’s what you need to know about what iBuyers do, how the process works, and how to determine whether this approach is right for you.
What is an iBuyer Company?
An iBuyer company is an organization that buys and sells homes to make a profit. This service is not to be confused with a home flipper, which purchases low-value homes and renovates them to sell at a higher price.
Generally, an iBuyer company will purchase a finished home slightly below market value. While they may invest in touching up cosmetic features like paint and flooring, the renovations are minimal. Depending on the company, they’ll either outsource the touch-ups before relisting or make them contingent in the sale.
Working with an iBuyer is a great way to circumvent a drawn-out sales process, avoid realtor fees, and receive a cash offer. As with anything, there are pros and cons to iBuyers.
How iBuyers Are Changing Real Estate
While iBuyers don’t operate everywhere, they are making a significant impact in their targeted markets. Perhaps no one feels this impact as profoundly as realtors. One Zillow report showed that Opendoor— the original iBuyer— saw annual home sales increase from 471 homes in 2015 to 10,130 in 2018. During that timespan, iBuyer companies like Offerpad and Zillow also entered the market.
While these iBuyer companies are a drop in the bucket compared to the number of annual home sales (an estimated 5.9 million sales in 2018), they’re growing at an alarming rate. Real estate tech expert Mike DelPrete surmises that iBuyer sales make up more than 5% of Phoenix’s real estate market.
This shift in home selling behaviors is forcing many real estate agents to adapt. Many agents report having their clients ask about iBuying and reviewing those offers before committing to an agent. This phenomenon is comparable to the Property Guys’ for-sale-buy-owner case studies of the early 2000s. Agents are challenged with having to prove their value and educate themselves on this recent technology.
Some proactive agents are taking a more head-on approach by offering to navigate the iBuyer sales process for their clients. In return, they negotiate a small kickback from the iBuyer and a reduced commission from the seller. The agent will secure offers from various iBuyers and sometimes offer a tiered commission approach based on whether the seller chooses one of those offers or goes the traditional route. If you’re hesitant to handle a sale on your own, this approach is a viable option.
Why Should You Work with an iBuyer?
There are a few overarching reasons why you should consider working with an iBuyer. Here are some of the most compelling benefits.
You Need to Sell Your House Fast
If you find yourself in a situation where you need to sell your house fast, working with an iBuyer is worth considering. When you work with an iBuyer, you’ll often receive an initial offer within a few days and a final offer within a week or two following. Furthermore, you can choose the closing date that suits you as no one will be moving into your home immediately.
You are Selling and Buying Simultaneously
One of the most stressful aspects of selling a home and buying a new one is getting everything aligned. Many sellers find themselves without a home for a period or a limited window to get moved out of one house and into the other.
The other challenge with this traditional approach to selling a home is that there’s a domino effect if something goes wrong. If the closing on your new home is contingent on your old home’s sale and the buyer’s financing falls through, the deal falls apart. Someone else’s challenges may cost you the house you want.
When working with an iBuyer, you don’t have to worry about contingencies and financing mishaps.
Convenience Trumps Cost
The main downside of working with an iBuyer is that the offer tends to be lower than market value. For many homeowners, this potentially means leaving money on the table— a point any real estate agent will convey when given the chance.
However, for some home sellers, the convenience of not having to stage a home and wait to sell before moving trumps the potential earnings. The opportunity costs outweigh the monetary value of the home. Depending on the market, the difference in closing costs, staging, and home prep could even out.
How to Find a Reputable iBuyer
As iBuyers are largely technology-driven, you have the flexibility to shop around for the best offer. You aren’t required to accept an initial offer made by an iBuyer or the offer made following an inspection of your property. This no-obligation approach makes it easier to find a reputable iBuyer to purchase your home. That being said, you should always read the fine print.
While iBuyers are relatively new, there are a few established businesses in the market, including Opendoor, Offerpad, and Zillow. There are also a few newcomers to the market worth adding to your research list, such as Redfin Now, Offerdepot, and Knock.
The first thing to keep in mind is that not all iBuyers will be available in your area. Start by determining which iBuyers operate in your market before going any further.
Next, take some time to read reviews and client testimonials. These user reports can be a valuable source of information, but it’s worth taking them with a grain of salt. Every major iBuyer seems to have a mix of fantastic and terrible reviews, with reports of both fair offers and insulting low-ball offers. It’s important to remember that there’s a lot of variability from market-to-market and that users may not be objective when looking at their home.
The Process of Working with an iBuyer
As there’s no commitment when securing an initial offer from an iBuyer, it’s worth reaching out to multiple companies and comparing. Here’s the basic process of working with an iBuyer.
Filling out an Application
The first step in securing an offer from an iBuyer is filling out an application. This form will ask you information about where you are located and what kind of property you own. Depending on the iBuyer business, the application could ask for information regarding:
- Your zip code
- Lot size
- Square footage
- Age of home
- Ownership status
- Occupancy status
- Outbuildings
- Purchase history (i.e., if it’s a bank repo)
- Recent upgrades
- Notable physical issues
It’s important to be as accurate as possible when filling out the initial application. Failing to disclose notable physical issues now will alter your initial offer after the required inspection.
The Initial Offer
Once the application is filled out, you can expect an initial offer within a few days. This offer will be driven by an algorithm based on the information you provided and is subject to change.
Depending on the iBuyer you’re investigating, the offer may also include a breakdown of how your home’s value was calculated, associated fees, and how much you stand to profit.
There will be a time limit on your initial offer, which is often 5-10 business days after you receive it. This period gives you ample time to consider if you want to continue the process or explore other options.
If you aren’t interested in following up on the offer, you can let it expire. Otherwise, you’ll accept the initial offer and move onto the inspection process.
The Inspection
The home inspection is an in-person assessment to determine if there are any notable repairs to be made. This process is similar to traditional home sales, in which an inspection is a common contingency. However, an iBuyer home inspector will also pay closer attention to cosmetic details like dated flooring or rooms that need a fresh coat of paint.
As mentioned before, iBuyers aren’t home flippers; they aren’t interested in a major renovation project. The purpose of the inspection is to determine that the home is as advertised and to put together a home repair credit request.
Most iBuyer companies cover the cost of the inspection. Be sure to read the fine print when agreeing to this process.
The Final Offer
After the inspection, you’ll receive a final offer that will include a repair list. Depending on the situation, you may be able to handle the repairs yourself and show proof of the upgrades or accept the deduction and let the iBuyer handle it after you move out. The route you take will ultimately depend on your timeline, skill level, and desire to move on.
Many sellers who work with iBuyers report negative feedback during this process, as they feel the repair credit is too high. However, for every negative report, there tend to be positive ones as well. Again, feel free to compare companies and decline the final offer if you find it unreasonable.
Closing
If you accept the final offer, you can choose a closing date that works for you. Generally, the date can be as quick as a week away or up to 90 days. Again, the range depends on the iBuyer company you choose to work with.
Many iBuyers are flexible with their closing dates. So, if an issue arises and you need to change the date, you can submit a request. After the closing process is complete, you’ll receive your money within five business days and move on with your life.
How to Prepare Your House to Sell to an iBuyer
While the primary benefit of working with an iBuyer is mitigating the costs associated with selling a home, a little work can go a long way. To get the best possible final offer, consider addressing these simple upgrades before the final inspection.
Upgrade Dated Fixtures
One of the features noted in the home assessment will be the fixtures in your home, from old faucets to lighting. If you have any significantly dated fixtures, consider upgrading them to a newer model. Feel free to bargain shop for something generic as you won’t be in the home.
Update Older Flooring
Replacing old flooring is one of the most significant drivers of the repair credit. In many cases, it’s better to replace cracked or dated flooring with something new and unweathered.
Touch up Paint and Trim
If you choose to do nothing else, add a fresh coat of paint to the walls and the trim as it’s guaranteed to show up on your final offer as a repair credit request. Keep in mind that when the iBuyer adds this cost, it will be calculated at a higher rate than handling it yourself.
Address Landscaping Issues
Finally, address any outstanding landscaping issues before the inspection. Clear old gardens and tangles, and remove any plants that may be growing on outbuildings or impeding the structure of your home. For example, if you have moss growing on the shingles of your shed, this could be considered a notable physical issue.
Planning for iBuyer Fees
iBuyer fees vary from business to business but are often comparable to realtor fees. This often comes as a shock to sellers who expect to pay significantly less than they would for a realtor.
iBuyers tend to charge 6-9% in service and closing fees. One thing to consider here is that closing fees are often up to 5% of the selling cost, so this commission could balance out.
Conclusion
Before you commit to selling your home with a realtor or iBuyer, make some cost comparisons, and determine which option will be most profitable. You’ll also need to consider your timeframe and any financial hangups you have that could impede a sale.
Selling your home to an iBuyer is a viable option for selling your home quickly and easily.