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Homeowners who want to sell quickly and skip the hassle of showings, repairs and wading through a lengthy closing can speed up the process by using an iBuyer. These speedy sale platforms — the “i” stands for instant — are typically large tech companies that purchase homes from sellers directly. They can make an offer on your home, often in all-cash, in as little as 24 hours. They can often schedule closing dates to suit your timetable as well. But, if this all sounds too good to be true, be aware that iBuying transactions come with some drawbacks as well. Read on to learn more.
What is iBuying?
The iBuying approach to selling a house has roots that predate the internet. Years before real estate websites came along, companies would put signs up offering to pay cash for homes and then flip the properties for a higher price, making a tidy profit. Today these companies can be easily found online, following the same general approach: making quick cash offers for homes and reselling them.
“The iBuyer is typically a company whose business model is to buy properties from homeowners, do minor, usually cosmetic repairs, and then sell at a profit,” says Rick Sharga, executive vice president of market intelligence for ATTOM Data Solutions. “For the home seller, the benefits are speed — the transaction typically happens very quickly once the offer has been accepted — and certainty, as the deal closes immediately, as opposed to putting a property on the local multiple listing service and waiting for offers.”
This approach can be very attractive to sellers who need to close a sale quickly, whether for lifestyle or financial reasons. But it’s not always as simple as it sounds.
How iBuying works
The iBuying process itself is very straightforward. In most cases, a seller provides some basic information about their home, or sometimes even just a street address, and within a short period of time, the iBuyer makes an offer — sight unseen.
Jade Lee-Duffy, a San Diego–based Realtor with Reali, says that iBuying companies use algorithms to base their valuations on a property. “Then, an iBuyer makes a cash offer, sometimes as quickly as within 24 to 48 hours,” she says. “This process is meant to streamline buying and selling property, essentially cutting out the middlemen of banks and real estate agents.”
The convenience of this process, however, comes at a price for sellers. Because iBuyers need to make a profit, they typically purchase homes for much less than their estimated market value. “Keep in mind iBuyers are not going to pay premium prices for homes, so the offer will most likely be low,” says Ralph DiBugnara, president of the real estate video series Home Qualified.
In addition, while an iBuyer’s offer is made sight unseen, if the seller accepts, the next step is typically a professional home inspection. If any unexpected or costly issues are discovered during the inspection, that will likely impact the initial offer. “It could cause them to lower the offer, or cancel it,” says DiBugnara.
The growth of iBuying
Even though iBuying has thrived in recent years amid the highly competitive housing market, it still represents a very small share of the overall real estate market. In 2021, for example, iBuyer purchase activity doubled compared to 2019, according to data from CoreLogic. Yet, as of 2022, iBuyer sales still only accounted for about 1 percent of total home purchases.
“iBuying represents a pretty miniscule percentage of overall home sales, but is becoming a more accepted practice and happening in more markets across the country,” says Sharga. “It’s likely that the number of homes bought and sold using this process will continue to increase.”
The iBuying process is different from a traditional home sale in many ways.
In addition to closing more quickly than a typical transaction, which involves real estate agents and lenders and scheduling hassles, there are fewer uncertainties associated with iBuying.
“There are [less] little headaches from a seller’s standpoint: no showings, no open houses and fewer potential contingencies to deal with,” says Bill Gassett, a RE/MAX Realtor and owner of Massachusetts-based Maximum Real Estate Exposure.
Most importantly, the speed with which the deal goes through means the seller gets their money that much faster — crucial for those who need cash quick or need to relocate in a hurry.
The flipside, however, is that a seller will net less money when working with an iBuyer.
In addition to the lower offer price, you will likely get hit with fees that can add up to the same amount you would have paid in real estate commissions. The fees may even be higher than a traditional agent commission: iBuyers usually charge a fee that amounts to 6 to 8 percent of the purchase price, says Gassett.
Sellers also get less personal service or one-on-one attention when working with an iBuyer. “There’s a lot less contact with a specific agent,” says Lee-Duffy. In iBuying, much of the process is done online. In a more traditional transaction, a real estate agent spends time consulting with the homeowner before, during and up-to closing the transaction.
Just four companies have accounted for the lion’s share of iBuying business: Opendoor, Offerpad, Redfin and Zillow. Combined, these companies have made up more than 95 percent of iBuyer purchases since 2017, according to CoreLogic.
Opendoor racked up the largest share of iBuyer purchases overall. Since 2017, 56 percent of such purchases have taken place on that platform. Offerpad came in third. Zillow, which claimed second place in the CoreLogic study with a 24 percent share of total sales, has since shuttered its iBuying business. And as of November 2022, fourth-place Redfin has shuttered its iBuying business, RedfinNow, as well.
If you need to sell a home quickly, iBuying can be a good option. Compared to the traditional home-sale process, iBuying is far simpler and quicker. This approach also gives sellers the convenience of closing on a timeline they dictate. However, all that convenience comes at a price. Sellers who choose this approach are not likely to pocket as much money as they would through a traditional sale.