iBuyers have become very trendy nowadays. More real estate investors are working with iBuyer companies as the technology makes real estate transactions simpler and more convenient.
But what is iBuying? In this article, we will explore in-depth what iBuying is and provide you with reasoning to either utilize an iBuyer to sell your home or not. Here’s your guide to the iBuyer business model.
What Is an iBuyer?
iBuyers are companies that use technology to make an offer on a property for sale instantly. With an iBuyer, a real estate investor or homeowner will not have to hire and pay an agent to help them sell the property. The property seller neither has to list the property nor find potential buyers. Instead, the seller will only have to provide general information about the property such as age, condition, and location. The iBuyer will then conduct property valuation using data and mathematical algorithms and make an offer.
Related: How Technology Can Transform Your Real Estate Investment Business
Most iBuyer companies present the seller with a cash offer. If the seller accepts the offer, he/she will receive the money within days after the closing date they choose. Surely, selling your home has been made much easier thanks to iBuyers.
What Are the Top iBuyer Companies Out There?
More iBuyer companies are entering the market as more people are utilizing these companies to sell their properties. Here are the four top companies this year:
Opendoor
Opendoor was the first iBuying company to emerge in the market in 2013. The company has been thriving and has been operating in over 20 markets across the United States. Opendoor buys homes with an average price of $250,000 and charges a fee between 6.7% and 13% of the purchase price. The closing period for sales on Opendoor ranges between 10 to 60 days.
Knock
Launched in 2016 in Atlanta, Knock is another iBuyer company that allows investors to trade investment properties without having to deal with the open market. Unlike Opendoor, Knock is designed for real estate investors who are looking to sell an investment property and buy another simultaneously. Homeowners can also use Knock for this kind of property trade. Last year alone, the company sold homes for over 2,000 customers.
Zillow
Zillow, originally an online real estate database company, has branched into iBuying with the launch of its “Instant Offers” program in 2018. Zillow’s iBuying is now available in four markets in the US—Phoenix, Las Vegas, Atlanta, and Denver and aims to expand further into California. With Zillow Instant Offers, a real estate investor can choose a closing date between 7 to 90 days from signing. Zillow charges between 6% to 9% of the purchase price of a property. The fee includes any costs of repairs and any necessary adjustments made to the property after closing.
Offerpad
Offerpad was launched in 2015 and operates the same as Knock; it sells and buys properties simultaneously. Offerpad, however, tends to be a little pricier than the above mentioned iBuyer companies. In addition to the 6% fee that the site charges, there’s an additional 2.5% fee of the purchase price for the OfferPad experience.
Using iBuyers will certainly facilitate your home sale transaction. However, it’s clear that this service comes with a price. The fees that these iBuyer companies charge range between 6% and 13% of the purchase price, therefore, making them more expensive than if you were to use an agent to assist you in selling a property. If you have the extra cash to pay for such fees and no time to handle transactions, then iBuyer companies might be a good choice for you. Make sure to assess how the extra costs will impact your return on investment! You always want to end up with as high of an ROI as possible, so assess your options carefully.
Related: How to Sell Your House: A Complete Step-by-Step Guide
What Are the Disadvantages of Using an iBuyer Real Estate Company?
You may be wondering, “Should I sell my home to an iBuyer?” While selling a property to an iBuyer provides a real estate investor or homeowner some convenience, trading with iBuyer companies is accompanied by some concerns that can be detrimental to your real estate investing business or home sale. What should you be wary of?
Less Seller Protection
First, when you are selling to an iBuyer, the concern of who’s representing you as the seller arises. iBuyers employ real estate agents to draft the contract and its clauses, negotiate the real estate contract, and ensure the iBuyer is well presented. That being said, the real estate agent is protecting the iBuyer more than they are protecting you.
Moreover, the iBuyer chooses the title company where an escrow agent will close the transaction for you. Of course, the iBuyer company will choose a title company with whom they have worked and established good relations with.
So how can you be well represented if the iBuyer company chooses the real estate agent and the title company? In this case, we recommend that you resort to a legal attorney to go over the contract for you. Make sure you provide all the paperwork to your attorney and ensure your rights are well reserved.
You Get Less Profit Than If You Were to Hire a Real Estate Agent
Second, the iBuyer company will give you the least money possible, since they will be earning profit as well. This is the opposite of a real estate agent’s goal which is to get you the most money possible from a transaction. Not to neglect the transaction fees that these iBuyers will charge, therefore, making your transaction more expensive.
For the aforementioned reasons, we recommend that you look closely into iBuyers and consider the costs that you will have incurred from selling to one. If you decide to go the more traditional route of selling a property, you can list your home for sale via Mashvisor. That way you ensure that your property will obtain the highest purchase price and return on investment possible.
Visit the Property Marketplace now and create your property listing in minutes for free.
Bottom Line
While iBuyers may seem convenient for many real estate investors or homeowners, there are some disadvantages to consider. If you are considering selling a property to iBuyers, make sure to research the company you go with in order to fully understand everything that comes with this new kind of real estate transaction.
Related: The Ultimate Checklist for Selling a House