What Are iBuyers: What to Know About an Instant Buyer Including Pros and Cons

The Guide to iBuyers Explained

Have you heard the term iBuyer or instant buyer and wondered what it meant? iBuyers are confusing to those who have never heard the term.

Technology changes how we do business, and real estate is no exception. The Internet has already caused significant changes in the real estate sales process. Communications, photos, virtual tours – the list goes on.

Doing a real estate deal today is much different than in years past. But the changes are far from over, as evidenced by the rise of the iBuyer.

That’s right. There is a new way to sell homes, and it is growing in popularity among sellers and real estate agents.

It’s not necessarily going to take over all real estate transactions – there are still plenty of situations where the more traditional route is a better choice – but it is an option you should learn about if you are considering selling a home.

Some consumers who might find the iBuyer model attractive are those thinking about selling without a Realtor or seeking real estate investors who purchase homes like We Buy Ugly Houses. The iBuyer concept provides another alternative for consumers.

The more people hear about iBuyers, the more questions are asked.

It is not uncommon for a real estate agent to be asked, “What is an iBuyer?” or “How does an iBuyer work?”

From many years of experience as a Real Estate agent, sellers need to understand this type of transaction. More properties will be sold this way in the future. Homeowners will have more options when they have a timeline that needs to be expedited.

Let’s take a deep dive and explore the concept of Ibuyers.

What is an iBuyer?

An iBuyer or instant buyer is a company with considerable financial resources that uses an algorithm to price homes and make offers.

By selling your home to an iBuyer, you can receive a cash offer within 24 hours.

The company will decide whether your home is worth purchasing and how easy it will be to sell, then offer and give you cash for your home.

Ibuyers will then sell the house and attempt to make a profit. This is the iBuyer business model in a nutshell.

Opendoor started in 2013 and was the first significant player in the iBuyer arena. Other companies have since followed suit.

Unlike house flippers, iBuyers tend to stick to homes in excellent condition. Instead of buying low, renovating, and selling high, iBuyers focus on homes that only need a little work – if any – so they can sell them quickly and without much additional investment.

Since they have so much capital, they can focus on easy sales and volume to make money.

An iBuyer attempts to streamline the real estate process for sellers. If you want to sell your home, go to the iBuyer website, enter your address, fill out a questionnaire, and wait.

You will get a cash offer on your home about a day later. So when people ask what iBuyers are, this is the definition.

Many companies buy houses for cash. iBuyers is just a different model. The number of cash offers has increased dramatically over the last few years according to the National Association of Realtors. It is a substantial perk for many homeowners.

Essential Facts to Know About iBuying

1. An iBuyer is a company that uses technology to purchase homes directly from sellers, typically for cash.
2. iBuyers provides a faster and more convenient alternative to traditional home-selling methods.
3. These companies use algorithms and market data to determine the value of a property and make an offer.
4. iBuyers often make quick offers and aim to close on a property within a few weeks or possibly meet your timeline.
5. Some popular iBuyer companies include Opendoor and Offerpad.

iBuyers Offer a Quick Sale

Closing on a house is relatively instantaneous, hence the “i” in the name. If you decide to accept the offer, you can complete the sales process in just a few days. It’s a great option when you don’t want to go through the hassle of the home-selling process.

The thought of selling your home for cash in a few days is undoubtedly appealing, especially compared to the average sales time of 45- 60 days. But there is a catch, as always. You will probably not get the maximum offer for your home you might get if you sell by going the traditional route.

An iBuyer knows they are giving you multiple benefits by expediting the process, and they know they don’t have to offer big to win. They also buy numerous homes daily, so they have no interest in haggling. You will also undoubtedly be paying a hefty service fee on top of paying real estate agent commissions.

If you want to sell a house for cash with a quick closing date, that’s your benefit with the iBuyer process. It is one of the top reasons sellers choose this route. An iBuyer might be perfect for you – or it might not be. It is not suitable for everyone, so careful research is necessary.

Who Are The Top iBuyer Companies in The Real Estate Industry?

These companies are the industry leaders so far in the iBuyer arena.

Opendoor

Opendoor – To purchase your home, Opendoor will use an automated valuation system to develop its offer. The seller will be charged a 7% real estate commission, typically higher than a traditional company’s fee structure.

Home sellers will get instant cash offers from Opendoor. In terms of iBuyer real estate companies, they are a leader.

While they are considered one of the best iBuyer companies, careful research is always needed.

It’s worth noting that the Federal Trade Commission has cited Opendoor for engaging in practices such as inflating repair costs and offering lower home prices than sellers could obtain on the open market.

In 2022, the company was required to pay fines totaling $62 million to compensate affected customers following the determination that its claims were misleading.

Offerpad

Offerpad – With Offerpad, you will receive an offer within twenty-four hours. The owner can decide when to close, giving them much more flexibility.

An additional benefit of using Offerpad is that they will pay for your moving expenses when you move within a fifty-mile radius of your current home.

Offerpad is the only iBuyer company offering this moving perk.

Zillow Offers

Zillow Instant Offers – Zillow was a significant player in the online iBuyer space. However, they have since terminated their iBuyer real estate business due to substantial monetary losses.

Like the other companies, they offered instant offers based on their Zestimate of value combined with facts a seller provides and nearby comparable sales.

With Zillow Offers stopping their iBuyer program, other companies can capture potential instant buyer clients. With the Zillow iBuyer program becoming history, other players are now buying homes.

Redfinnow was another popular company buying homes but has gotten out of the iBuying business. The iBuyer market share has condensed, with these firms exiting the industry.

Keller Offers

iBuyer Keller Offers is a popular option for homeowners looking to sell their property quickly and conveniently. Keller Offers is a subsidiary of Keller Williams, one of the largest real estate franchises in the world. The company offers a streamlined process that allows homeowners to receive a cash offer on their home within days, eliminating the need for traditional listing and showings.

One of the main advantages of using iBuyer Keller Offers is the speed at which homeowners can sell their property. With Keller Offers, homeowners can receive a cash offer within 48 hours of submitting their property details. This can be a massive relief for those facing time constraints or needing to sell their home quickly due to various reasons such as job relocation or financial difficulties.

Another benefit of using Keller Offers is the convenience it provides. Homeowners do not need to worry about staging or making repairs, as Keller Offers buys homes in their current condition. This can save homeowners time and money that would have otherwise been spent preparing the property for sale.

Furthermore, iBuyer Keller Offers offers transparency and flexibility throughout the selling process. Homeowners can review, accept, or decline the cash offer without obligation or pressure. If they choose to proceed with the sale, Keller Offers handles all the necessary paperwork and closing processes, making it a hassle-free experience for homeowners.

Overall, iBuyer Keller Offers provides a quick, convenient, and hassle-free way for homeowners to sell their property. With its streamlined process, homeowners can receive a cash offer within days and avoid the stress and uncertainties of traditional home selling.

Knock

Knock – The concept at Know differs from the others in the iBuying space. For those who are buying and selling homes at the same time, Knock will purchase their new home on their behalf so they can move in before closing on their current home.

Knock will represent the owners in selling their homes on the open market for the most competitive offer. Once the existing home sells, Knock will transfer their new home into their name along with the mortgage.

Knock charges a 6% commission for their services. They also provide a 200+ point home inspection to help price the home appropriately. They also use advanced pricing algorithms and insights from their Licensed Local Experts like other iBuyers, so the client’s home sells as quickly as possible for an attractive price.

iBuyers Will Use an AVM to Value Your Home

One of the significant differences between an iBuyer and a traditional real estate investor is how they determine what to offer on your home.

They use an automated valuation model, or AVM for short. The AVM is an algorithm used to determine a property’s market value. An iBuyer may not even visit your home in person on occasion because they rely on their proprietary software and AVM.

Some would say this is modern technology at its finest, while others would say it’s a bunch of BS, much like Zillow and their unreliable house estimates.

Zillow home values should never be looked at as your home’s value.  Frankly, arriving at a property’s actual market value is impossible without stepping inside.

A real estate agent will do a comparative market analysis to determine the fair market value of your property.

There are far too many variables that can impact the value of a home. Determining home value is not as simple as trusting an algorithm. Nonetheless, this is precisely how an iBuyer will decide what to offer for your home.

How is an iBuyer Different From a House Flipper?

There is often confusion on how an iBuyer differs from a traditional house flipper. These are two different business models. House flippers, or traditional investors, try to buy low and sell high.

To execute this business strategy, a house flipper will target homes that need significant work, like a fixer-upper, or are somehow distressed. There are usually necessary repairs required.

Home flippers often remodel these homes by making significant renovations and returning them to the market to sell at substantially higher prices.

iBuyers work in just the opposite manner. They will seek out homes in excellent condition and make an offer within what many would assume to be “close” to the market value.

In many instances, they will make minor repairs before putting the home back on the market to resell it.

The iBuyer model seems more favorable in a strong seller’s real estate market where homes do not tend to stay on the market long.

They offer investors far less risk by avoiding mistakes such as underestimating the cost of renovations.

What You Should Know About Using an iBuyer

Here are some things to consider before you make your decision.

1. You Can Sell Your Home Fast.

A cash offer on your home in just a few days is impressive. Before iBuyers like Opendoor opened up for business, such proposals were rare.

But now, you can get a swift offer on your home and close in a few days. That means you can sell your house quickly. For instance, if your goal is to move immediately, you can unload your home with an iBuyer and get on the road.

There will be no waiting for loans from a lender.

2. You Can Buy a House and Sell Your Home Simultaneously.

Many home sellers want to sell their homes to buy another home – but that can be hard depending on the timing.

In a traditional home selling situation, you could try to buy with a home sale contingency – where your offer only goes through if your current home sells – but most sellers are not interested in working with such buyers, particularly if you are buying in a hot market.

You probably wouldn’t be interested in selling to such a buyer either, not when you can get offers from buyers ready to close now. Buying a house before selling your current home is often a challenge many folks face.

Certain iBuyers will allow you to use something similar to a trade-in. They will make a cash offer on a home you want to buy on your behalf and then sell your home and keep the money from the sale.

It works a lot like a trade-in on a car purchase. Extra costs may be incurred through the process, which the iBuyer will charge you for, so be aware of those.

As mentioned above, Knock offers this service.

3. Use an iBuyer, Somewhat Like a Bridge Loan, to Maximize Your Home Sale.

Some iBuyers will help you buy the home you want and then lease it until you sell your old house using the traditional process.

Selling to an iBuyer will often lead to a lower purchase price than you could make if you work with a real estate agent and search for the best offer.

Using an iBuyer to purchase your next home and then leasing it from the iBuyer ensures you get the home you want and get more out of your home sale.

If, for some reason, your old home does not sell after six months or so  – the time frame can vary by iBuyer – then the iBuyer will purchase it from you, and your lease with them will end.

4. You Will Probably Make Less Profit From Your Sales.

The convenience and speed of an iBuyer come at a cost – the final sale price of your home. iBuyers are not purchasing homes out of the goodness of their hearts. They are in business to make a profit.

Every iBuyer will charge you a fee for taking the home off your hands.

Their fees can vary but tend to average around 6 to 8 percent. One study conducted by MarketWatch found that sellers make about 11% less from their home sales by using Ibuyers than those who use the traditional real estate agent sales route.

There are costs associated with using a real estate agent to sell your home, too. Usually, you will have around 5 to 6 percent commission to use an agent – split between the buyer’s agents and seller’s agents.

Another study found that iBuyers charge around 13 to 15 percent more in fees than an agent, so the cost of using an iBuyer is higher than that of a traditional agent.

What you get with a streamlined process, you give up in the form of profit margins. It is certainly not the best option if you’re looking to make the most money from the sale of your home.

5. You May Not Be Able to Get an iBuyer to Purchase Your Home.

iBuyers are undoubtedly appealing, but they are also limited in the areas they serve. They only operate in specific markets right now. You may not be able to find an iBuyer who is making purchases in your city or town.

They will eventually expand to more areas as their services become more popular, but if you need to sell right now and are not in your area, you will have to go the traditional route.

iBuyers are also buying a particular type of property right now – homes in relatively good condition and within a specific price range. Because they are trying to simplify the process through computer algorithms and minimize their overhead, so they are sticking to the middle of the road.

If you have an unusual property or a property that isn’t turnkey, you will have trouble finding an iBuyer who will consider purchasing your home.

6. iBuyers May Not Recognize The Unique Qualities of Your Property – Leading to a Lower Offer.

If your home has unique features that will attract buyers and higher offers, you may not want to go with an iBuyer. As stated before, they use algorithms and valuation models – not human judgment – to price homes.

They may not consider certain features, such as the perfect hardwood floors in your historic Victorian home.

There is a strong chance that iBuyers will give you a lower offer than you could otherwise get from buyers – probably a lot lower – so you would be better off choosing the traditional home sale route for selling your home.

7. iBuyers Will Work With Real Estate Agents.

You may be working with a real estate agent you like when you discover that iBuyers are out there. No worries. iBuyers are glad to work with real estate agents; many will offer a commission to those agents on sales.

If you are considering using an iBuyer, you can talk to your agent about it and see what they think.

Your agent may agree that given your needs – such as the need to sell quickly for a move – an iBuyer would be ideal for you. They can facilitate the process and ensure you use the right iBuyer.

And if you are thinking of going to an iBuyer first, you should at least talk to a few agents first to see what they think your home is worth. That way, you can get some perspective on any iBuyer’s offer.

Pros and Cons of Using iBuyer

Let’s take a moment and summarize the pros and cons of going with an iBuyer program.

Pros

• The seller does not have to spend endless time preparing their home for sale or getting involved with expensive professional staging.
• You won’t need to make any repairs to their property. They will be buying your home as-is.
• It is quick and convenient – closings happen quickly, usually within a few weeks.
• The owner won’t have to go through numerous showings on their home.
• The seller will not have to waste their time with open houses.
• Going with an iBuyer removes going through an arduous negotiation process.
• The seller won’t have to endure a traditional home inspection process. Inspections are typically much less intrusive.
• There will be no waiting for a buyer to procure a mortgage or get an appraisal, as no lenders are involved.
• Homeowners will receive a cash offer.
• Sales won’t fall apart because a buyer lost their job or another unforeseen event occurs.

Cons

• Higher real estate commissions – iBuyer service fees generally are 7-8% of the sales price and sometimes more. This is much higher than what traditional agents charge.
• Automated valuations do not give an accurate market value for your property.
• The offer price you receive from an iBuyer will be below market value. Keep in mind the iBuyer needs to make a profit. The bid you will receive is often thousands less and sometimes tens of thousands less than what you would get on the open market. Sellers will still have the exact closing costs as in a traditional sale.
• Real Estate agents can do the same thing. If you price your home aggressively from the start, there is a strong chance you could receive multiple offers on the open market.
• The iBuyer purchasing method is only available in limited markets at this time.

When deciding whether going with an iBuyer makes sense, you must determine what’s more critical. Does making more money from your house sale rank at the top of your list, or does a fast sale and convenience outweigh your profit?

Only you can answer these questions.

Before moving forward with an iBuyer, make sure you read their reviews.

FAQs

Learn more about iBuying with these questions and answers.

Who Should Consider Selling Their House This Way?

Selling a house to an iBuyer can be a convenient option for homeowners who value speed and convenience in the selling process. Selling this way will not be suitable for everyone. Those who aim to sell their property quickly, without the hassle of staging, open houses, or negotiations, could benefit from working with an iBuyer.

Homeowners who need to relocate urgently, have inherited a property they don’t want to manage, or are facing financial constraints might find selling to an iBuyer a viable solution.

It’s important to note that each homeowner’s situation is unique, so it’s advisable to thoroughly research and compare offers from different iBuyers before deciding.

Can I Negotiate With an iBuyer?

Absolutely! While iBuyers typically offer a streamlined and efficient process for selling your home, negotiation is still possible. Once you receive an initial offer from the iBuyer, you can negotiate the terms and price.

This can include requesting adjustments based on the condition of the property or market conditions. The iBuyer will carefully consider your counteroffer and may provide a revised offer that aligns with your expectations.

It’s important to remember that iBuyers aim to provide fair and competitive offers, so negotiating within reason can lead to a mutually beneficial outcome for both parties.

Do I Still Need to Make Repairs Before Selling?

With the rise of iBuyers, the need for repairs before selling has significantly diminished.

These companies have extensive resources and networks of contractors and service providers, allowing them to handle any necessary repairs or renovations efficiently.

By eliminating the need for sellers to invest time and money into repairs, iBuyers offers a convenient and hassle-free option for homeowners looking to sell quickly. Therefore, in most cases, sellers are no longer required to make repairs before selling to an iBuyer.

What Should I Consider Before Choosing an iBuying Company?

Before choosing an iBuyer, there are several factors to consider. Evaluating the reputation and track record of the iBuyer in question is crucial. Look for reviews and testimonials from previous clients to gauge their customer satisfaction and reliability.

Consider the fees and costs of using an iBuyer service, as these can vary significantly between companies. It is also essential to assess the speed at which the iBuyer can close on a property, as some may offer quicker turnaround times than others.

Lastly, consider the level of transparency and communication provided by the iBuyer throughout the process, as clear and open lines of communication can significantly enhance the overall experience.

iBuyer Near Me

If the iBuyer reviews sound intriguing, you may want to find one near your home. The best way to do that is to search iBuyer near me on Google.

Final Thoughts

Without a doubt, there are upsides and downsides to the iBuyer concept. As a seller, you must determine if going down this path will be right for you or your family.

For some, it makes perfect sense. For others, not so much. Before you make any final decisions, it is vital to do proper due diligence. A real estate attorney reviewing any documents before signing would be highly recommended.

You may find that the best deal for your property does not include using an iBuyer. It is a different approach but will unlikely bring you the best price for your property.

Hopefully, you now have a much better understanding of how iBuyers work.

Summary

Article Name

iBuyer: What is it and How Does it Work?

Description

Many people wonder what is an iBuyer and how does it work. Get a comprehensive overview of what you need to know including the pros and cons of iBuyers.

Author

Bill Gassett

Publisher Name

Maximum Real Estate Exposure

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