Imagine being able to sell your home without the uncertainty of listing the property or the worry of setting up for an open house. That’s the vision the emergence of iBuyers has painted in the market.
An iBuyer is a company that purchases homes directly from homeowners with cash while allowing the sellers much more flexibility than a traditional sale. The iBuyer eventually closes on the property and resells it themselves – for a slight profit – either after performing minor renovations on the property or without.
This is a welcome concept to sellers who are looking for a fast, sure-thing.
However, with anything that sounds too good to be true, there has to be some sort of “catch.” To this point, the skepticism lies in the price point. More specifically, there are those who are concerned with the value sellers are getting through iBuyers as opposed to selling their home on the open market either through a Realtor® or sale by owner.
With any big business, one would believe that the value would certainly be less because of the convenience and speed they are offering in return (and they want to make money, too). Well, that is indeed the case with iBuyers…but it’s not as big of a difference as you would think.
The offer price of iBuyers is often derived from a mathematical algorithm based on the area’s market traits. Some iBuyers can provide a seller with an almost immediate offer price, while others may bring a human into the equation by having them physically inspect the premises before committing to a price contractually – very similar to car dealerships that value your trade-in online. Also, just as a seller would pay commission to an agent to sell the home, iBuyers have a similar charge. While an agent may charge anywhere from 5% to 6% for commission, iBuyers come in slightly higher at around 7% of the negotiated price.
Mike DelPrete, a real estate tech advisor and strategist, recently conducted a study on this exact subject by analyzing more than 20,000 transactions made by Opendoor and Zillow, two of the largest iBuyers in the industry.
What he found was shocking to some, as the difference in market value was just 1.3% – a more specific number when looking at the difference in fees. That means on average, iBuyers charge roughly only 1.3% more than agents for their services, or a few thousand dollars; not tens of thousands like many would assume. That doesn’t amount to much money at all when you consider that iBuyers don’t have all of the hoops and hassles of a traditional sale.
For sellers, they are then left with the question of how much do they value the convenience offered by iBuyers? In the grand scheme of things, a few thousand dollars for a “sure-thing” sale maybe isn’t that much. Even though with enough time on the open market, a bidding war could open, and that difference could theoretically be higher.
For Realtors®, this show just how much of a threat iBuyers truly are. They offer the speed and convenience that most are seeking. While selling on the open market could fetch a higher bid, there is still the uncertainty of how long that would take or if there even would be a higher bid at all. For sellers needing to move fast, they’re going to be willing to trade off that extra money.
Realtors® need to acknowledge that these competitors are here and should understand how their business model works. Secondly, be honest with oneself while identifying what YOU do better than that competition. Then, practice how and what you plan to say if ever faced with an objection from a buyer or seller discussing this.
*Not intended as credit counseling, accounting or investment advice. Contact your financial representative for more information. Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend.
“Are IBuyers Ripping off Sellers?” HousingWire, 6 Dec. 2019, https://www.housingwire. com/articles/are-ibuyers-ripping-off-sellers/.