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What is an iBuyer and Should I Sell My House to One?

what is an ibuyer

Some companies are offering a technology-based alternative to the traditional real estate sales process, and it’s changing the way homes are bought and sold in the United States. They’re called iBuyers, and they’re gaining steam among home sellers who are focused on speed and convenience in a real estate sale.

In this article, we’ll cover:

What are iBuyers?

IBuyers are companies that use technology and cash-buying strategies to buy and sell homes. The “i” in iBuyer stands for “instant,” and the premise of the iBuying experience is that it saves time and hassle versus the traditional real estate sales process.

The term iBuyer is relatively new, but the basic concept behind it has been around for years. “IBuying just gives consumers direct access to buyers that have always been a part of real estate markets — cash buyers,” said Nick Bailey, chief customer officer with RE/MAX.

Because they also sell homes, iBuyers may be compared to house-flipping businesses. However, iBuyer companies reject that notion, noting that they don’t focus just on fix-up properties like most house flippers and are more interested in getting fair market value than maximum profit.

How does the iBuying process work?

The iBuying process typically begins with a homeowner submitting an online request for the company to make an offer on their home. Here’s a step-by-step look at how to navigate the iBuying process:

  • Input property and contact information. Include your address and details about your home’s amenities, size, condition, etc. You’ll also enter in basic contact information so the company can deliver its offer via email.
  • Get your offer. Using a proprietary computer algorithm, the iBuyer estimates your home’s value. For example, Offerpad guarantees a written cash offer within 24 hours. Some companies may include additional perks in their offers, such as free local moving services and flexible closing date options.
  • Schedule a home inspection. A home inspector visits your home to evaluate its condition and report back to the iBuying company. “If repairs are needed, a credit and repair addendum is prepared to adjust the [offer] price, and the work doesn’t need to be completed until after closing,” said Cortney Read, director of communications and corporate development for Offerpad.
  • Close quickly. Once the negotiations are finalized, the closing can occur within a week or two, although closing dates are flexible. “Customers can close in as little as 10 days, or as long as 90 days, and can change the date as often as needed,” Read said of working with Offerpad.

How much are iBuyer fees compared to real estate commissions?

While a homeowner won’t pay the typical 5% to 6% real estate commission to an agent, they will pay a comparable fee (or even more) at closing to an iBuyer.

Here’s a glimpse at fees charged to sellers by the top iBuying companies:

iBuyer company Fee range
Offerpad 6% to10%
Opendoor 6% to 14%
Zillow Offers 6% to 9%
RedfinNow 7%

Pros and cons of selling your home to an iBuyer

Selling a home quickly may seem appealing at first, but there could be drawbacks worth considering. Here are some advantages and disadvantages to the process.

Pros

  • Quick sale with no repair hang-ups. IBuyers purchase a home as-is, so you don’t have to hassle over home inspection repairs or buyer credits.
  • Less contingency hassle. A traditional buyer may make an offer contingent on selling their current home, getting a loan or on the home appraisal. An iBuyer company doesn’t include offer contingencies because they pay cash.
  • No showings are needed. There are no open houses and no buyer showings to schedule or frantically clean for. Offers are made electronically and can be completed with little disruption to your day-to-day life.
  • Avoid the costs of owning two homes. It can be challenging timing the sale of one house with the purchase of a new one. If the timing isn’t right, you could end up making two mortgage payments until your old home sells.
  • Flexible closing dates. Closing dates can be made and changed as needed — there is no one moving into the home right away, so the iBuyer can be more accommodating with move-out date changes.

Cons

  • Lower offers and sale prices. In a recent study of closed iBuyer transactions, the prices of homes sold to iBuyers were 3% to 5% lower than similar homes sold through a traditional real estate agency, according to Collateral Analytics, a Honolulu-based real estate data firm.
  • Limited availability and property restrictions. IBuying companies are not purchasing homes in every market. “What we’ve been able to deduce is iBuyers prefer single-family residences north or south of the median price, where the average number of days a home is on the market is low, and there are a lot of units in neighborhoods with only two or three home styles,” said Victor Lund, managing partner of WAV Group, a real estate consulting firm.
  • Fees may be higher. The table above shows that iBuyer fees are higher than the fees charged by real estate agents in regular sales.
  • Repair costs might mean a lower sales price. After the home inspection, iBuyers will indicate if repairs are needed and adjust the offer price accordingly. You can decline the revised offer if you find it unacceptable.

Buying a home from an iBuyer

Buying a home from an iBuyer removes some of the inconveniences of buying the traditional way.

For starters, there’s no need to work around the seller’s schedule to view a property or deal with a seller who lists the house at an unrealistic price due to personal attachments to the home.

“Typically, iBuyers are corporations, so there is less of an emotional aspect to the sale,” said Gayln Ziegler, director of operations with Keller Williams.

The homes sold through iBuyers are also move-in ready. “When we buy a home, our goal is to make the home better for the next buyer. Almost all of the homes have fresh flooring, paint, etc.,” Read said. Buying a repair-free home means a faster move-in date, in some cases.

Another perk: You don’t need a real estate agent to tour iBuyer-owned homes. However, hiring a real estate agent to advocate for your interests and help negotiate the contracts still might be a good idea. Closing dates can be chosen and changed as needed with the iBuyer since the homes are vacant.

Some iBuyer companies go as far as offering a money-back guarantee. For example, in some cases, Opendoor has a 90-day guarantee on home purchases and will buy properties under $500,000 back (subject to a 3% fee) if buyers change their minds.

What are the top iBuyer companies?

There are four companies that make up the majority of iBuying market share in the U.S., according to a recent report from ATTOM Data Solutions. They are:

  • Offerpad: Offerpad makes online offers in 24 hours in 13 markets. Service fees range from 6% to 10%, and transactions can close in as few as 10 days, Read said.
  • Opendoor: Opendoor is considered the pioneer of the current iBuying model. It operates in 21 cities and is growing. Offers are made within 24 hours, and fees vary from 6% to 14%, depending on the property. Sellers can choose a closing time from 14 days up to 60 days after accepting an offer.
  • Zillow Offers: Zillow is best known for its online Zestimates, but it now offers iBuying options for both buyers and sellers in 21 U.S. markets. Closings occur in as little as seven days or as far out as 90 days. Zillow Offers’ fees average between 6% and 9%, according to a Zillow spokesperson.
  • RedfinNow: RedfinNow, a subsidiary of real estate brokerage Redfin, provides a cash offer within 48 hours of application. RedfinNow charges a 7% service fee with close, and move-in times range from seven to 60 days.

Some large real estate brokerages are teaming up with iBuyers to offer an expedited alternative to the traditional sales process. For example, Keller Williams partnered with Offerpad in August to offer sellers both traditional and iBuying options through Keller Offers.

“We want sellers to understand the level of equity they might be leaving behind with an iBuyer sale, and the best way to ensure that is for them to be represented by an agent,” Ziegler said.

In the Keller Offers process, agents prepare an analysis of what the property might sell for in a traditional real estate transaction versus the offer from an iBuyer platform. The agent can represent the seller in negotiations even if they choose to accept the iBuyer offer.

Is it worth it to use an iBuyer?

Ultimately, the decision of whether or not to use an iBuyer comes down to your specific needs and goals.

“When a seller is considering whether to sell, protecting the equity in their home should be the No. 1 priority,” Bailey said. “The advice of a real estate agent is free, and an agent can provide market data to compare offers made by iBuyers to evaluate what the best forum is for the seller.”

The four factors that drive sellers to iBuyers are speed, convenience, ease and a previous unsuccessful attempt to sell a home, said Lund, the WAV Group executive.

A sudden health-related expense, job layoff or divorce are also situations when iBuying may be beneficial,” Lund added. “Life happens, and if a quick sale becomes necessary, selling to an iBuyer may be the best option.”

 

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