iBuyers offer cash payment on a lightning-fast timeline and, unlike the mildly unsavory cash buyers who put up “We Buy Houses for Cash!” signs next to highway off-ramps, present a modern, hi-tech image straight out of Silicon Valley.
However, you’ll likely pay a premium for the convenience that iBuyers offer. In addition to the service fee, you should also be aware that the offers they provide will likely be less than what you can get on the open market.
- iBuyers buy homes, and resell them on the open market.
- Typically, only newer homes that are in good condition are eligible.
- Selling to an iBuyer is convenient and predictable.
- You may not make as much money selling to an iBuyer as you would on the open market.
Curious how much an iBuyer will pay for your home? Request a free offer from Opendoor now!
What Is an iBuyer?
An iBuyer is a company that uses data analysis to assess property value, extends fast cash offers on homes, and quickly resells them.
iBuyers are similar to cash buyers and house flippers, except they don’t rely on buying homes for a deep discount to make money.
Unlike house flippers and cash, iBuyers pay at or near market value, and sell at only a slight markup.
Below, we’ve broken down how much you might get for a home worth around $200,000 if you sold with a home flipper, iBuyer, or traditional agent:
|Method of Sale||Sale Price||% of Fair Market Value|
|Sell to Home Flipper||$100,000-140,000||50-70%|
|Listing w/ Realtor||$200,000-220,000||100-110%|
iBuyers make their money on the service fee they charge sellers, which can run from 5% to 14% of the home’s sale price. That means their offers are generally much better than one you’d get from a cash buyer or a house flipper, who are really trying to maximize their profit margins on each sale.
If there’s a catch, it’s that iBuyers are pickier than cash buyers. iBuyers typically only buy homes that are newer, and in good condition, so there are no gut rehabs or long periods of carrying costs to eat into their thin margins.
After years of steady growth, the iBuyer industry is facing an uncertain future.
While the overall real estate market has recovered— and then some— from the economic shock of the pandemic, the iBuyer industry is lagging quite a bit compared to their pre-pandemic performance.
Overall, iBuyer transaction volume was down 60% in 2020 compared to the previous year. Opendoor, the top iBuyer, saw a drop of -59%, while Zillow Offers and Offerpad saw drops of -21% and -24%, respectively.
The cause of this decline is mostly due to these iBuyers scaling back their operations in response to the economic uncertainly brought on by the pandemic.
Still, most iBuyers are treating this as a temporary downturn, not a permanent market shift. Opendoor— who, as the industry leader, has twice the transaction volume as its closest competitor— is moving forward with a planned expansion into 100 additional markets.
Additionally, Opendoor’s model of boosting profitability by bringing ancillary services like title and escrow in-house could prove to be a path forward for their competitors.
Who Can Benefit from Selling to an iBuyer?
If you’re selling your home, it can be tough to figure out which approach is right for you. Should you use a conventional agent? Go the “for sale by owner” (FSBO) route? Use an iBuyer?
Let’s look at some specific types of sellers who could benefit from what iBuyers have to offer.
Sellers Looking for a Quick Sale
Even in a hot market, selling a home takes time. According to the latest data from the National Association of Realtors (NAR), a typical home is on the market for around 24 days, with closing taking around 45 more days. Total, that’s a little over two months, and that doesn’t include time spent on staging or pre-sale repairs.
Selling to an iBuyer is much faster than that. Sellers can receive cash offers in as little as 24-48 hours, and can close in 7-10 days. That’s a week and a half, from the time you submit an offer request, to having cash in hand— a stunning pace for something as large as a home sale.
If you’re under time pressure because you’re starting a new job, or inherited a property you don’t have much interest in, an iBuyer can take it offer your hands quickly, and for a pretty fair price.
Sellers Who Want an Easy Sale
Selling to an iBuyer might be the easiest, most frictionless way to sell your home, whereas selling a home the conventional way takes time and effort.
When you sell with an agent, you’ll likely have to stage your home before you even put it on the market. This can entail getting rid of half of your belongings and redecorating the whole place.
There are weeks of showings, as strangers walk through your home and peek into your closets and cupboards. And once you get an offer, there are negotiations and counternegotations— and the sale could still fall through!
Selling to an iBuyer is more of an open-and-shut transaction. Though they’ll likely have an inspector come to your home once, to survey its condition, there won’t be much suspense about the outcome, and the offer you receive is usually nonnegotiable, so you don’t have to stress about haggling.
Sellers Who Don’t Want to Make Repairs
Homes pick up a lot of wear and tear, and if you lived in your home for more than a decade, it probably needs some updates. This could include everything from a fresh coat of paint to new light fixtures to an overhaul of the kitchen, which takes time and money.
iBuyers will purchase your home as-is, though they’ll likely deduct money for repairs from your offer.
How Do iBuyers Determine How Much Your Home Is Worth?
One of the main innovations of the iBuyer industry is their use of data analytics to determine home values. So how, exactly, do they do it?
Well, their exact methods are closely-guarded trade secrets, but we do know some of the factors they look at.
One of the easiest ways to establish a home’s value is to look at what similar homes sold for. The sale prices of properties of the same size, condition, and in a similar location are useful to come up with a rough initial estimate.
Your home’s condition
An in-person inspection will look at your home’s condition, and tally up the cost of any needed repairs. iBuyers don’t usually buy homes that aren’t in decent condition to start with, so if your home needs a lot of work, they’ll likely pass.
Their own data sets on home values
Most if not all iBuyers use something like an Automated Valuation Model (AVM) to help price their homes. These AVMs use statistical models and incorporate data from thousands real estate transactions to estimate what a home might sell for on the open market
In plain language, this is basically an algorithm that uses past data to project the future— not unlike the algorithms on social media that decide what to put in your feed based on things you’ve clicked on.
Input from local experts
To get local perspective, iBuyers consult local experts who look at the values produced by analytic tools and tweak them to take local market dynamics into account.
There’s not really a national real estate market; there’s just a bunch of local ones. So when it comes to your property’s value, what matters most is what’s happening in your town, your neighborhood, or even on your block.
Not eligible for Knock?
If you live outside of Knock’s current service areas, you can still connect with top-rated listing agents in your community.
Our friends at Clever Real Estate have built a nationwide network of local listing agents. Get in touch for a no-strings-attached consultation with one of Clever’s Licensed Concierges.
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Pros and Cons of Working with an iBuyer
Working with an iBuyer undoubtedly offers some advantages, but those have to be weighted against the drawbacks. Let’s survey the pros and cons of selling to an iBuyer.
This is the primary advantage of working with an iBuyer; from start to finish, your home sale could potentially take as little as 10 days. That kind of speed is impossible to get from a conventional sale.
A Decent Price Compared to Cash Buyers
If you’ve decided against a conventional sale, an iBuyer probably offers you your best shot at market value. A cash buyer or home flipper will almost certainly give you a lowball offer, since they get their profits on the resale, but iBuyers work from a different business model that’s based on service fees.
Ease and Convenience
iBuyers buy your home as is, and you can receive an offer, and even sign a purchase agreement, entirely online, without hosting a single open house, or sitting down with a real estate agent.
An offer from an iBuyer is transparent and simple. They tell you how much money they’re offering up front, and there are no hidden fees or exorbitant real estate commissions to pay on the back end.
Not Every Home Is Eligible
As we mentioned above, iBuyers are relatively picky compared to cash buyers. They prefer homes that are easy to assess and easy to resell; in practice, that translates to newer homes, often in hot, suburban markets. If you have a unique home, or one that’s in a cooler market, you might have more trouble getting an offer from an iBuyer.
The offer you receive from an iBuyer is probably not going to be negotiable, so if it’s not satisfactory, you’re out of luck. Similarly, their assessment of whether you need repairs, and their charges for those repairs, are pretty standardized. This is the downside of a business model that runs on algorithms.
The Service Fee
The service fee that an iBuyer charges on the transaction can run anywhere from 5% to 14%, or even higher. It’s not a flat, uniform fee because it’s essentially an expression of how quickly they think they can resell your home.
Once they buy your home, they own it, and home ownership costs money— these carrying costs include everything from utilities to property taxes, and every day they own a home, those carrying costs eat into their profits. So if they think your home will resell quickly, your service fee will be towards the low end; if they think it could take a while, it could drift up into double digits. And at that point, it might make more financial sense to sell conventionally.
While there are several big iBuyers in the U.S., none of them cover the entire country. There are many markets that aren’t covered by any iBuyer, so not all Americans even have the option of an iBuyer sale.
How Does Selling Your Home to an iBuyer Work?
Selling your house to an iBuyer typically unfolds like this:
- The seller completes an online form that provides the iBuyer with the property’s location, condition, size, and more.
- If the iBuyer’s analytics find that the property is eligible for purchase, the iBuyer will send a follow-up inquiry asking for more detailed information like square footage, how much the seller still owes on their mortgage, photos, and more.
- The iBuyer will quickly extend a cash offer— often in hours or days. This offer is usually a non-negotiable, “take-it-or-leave-it” offer.
- If the seller decides to accept the offer, they will usually sign a purchase agreement online.
- The iBuyer will send an inspector to look the property over; if they decide that repairs or renovations are necessary, the cost of those repairs will be deducted from the cash offer. Some iBuyers allow the seller to have their own contractor perform the repairs, but the results will have to be inspected and approved by the iBuyer.
- Once the offer is accepted and the deal is finalized, the seller will choose a closing date. One of the other advantages of working with an iBuyer is that they offer very flexible closing dates— often from 10-60 days.
- On the closing date, the seller fills out the final sale paperwork at the iBuyer’s title or legal office, and payment is transferred to the seller’s bank account.
How Does Buying a Home from an iBuyer Work?
So if iBuyers are snapping up all these homes, how do you buy one from them?
It’s actually a pretty simple purchase process.
Download the app
As you might expect from an industry that prides itself on using high-tech tools, buying a home directly from an iBuyer usually involves an app or online dashboard.
Opendoor, Offerpad, and Zillow Offers all use an app to handle almost the entire purchase process— you can even unlock their properties with your smartphone, for a private viewing.
Browse the listings
Through the app, you can browse all the properties sold by that iBuyer. In most apps, you can also look at other properties on the market, with an option to use one of the iBuyer’s agents to submit an offer.
Submit an offer online
If you find a property you like, you can submit an offer directly through the app.
One thing you should keep in mind: because iBuyers almost always refurbish the homes they buy, you should probably view them as finished products— trying to negotiate further repairs or improvements is going to be tough.
A streamlined closing process
If the iBuyer accepts your offer, the next step is to choose a closing date that works for you. Typically, you’ll be able to close in few of weeks.
So who are the top iBuyers? Let’s survey the market, and profile some of the industry leaders.
Currently operating in 21 markets across the U.S., Opendoor is unique in that they charge a flat 5% service fee. They can close in as few as 14 days, and have pretty good reviews, averaging 3.8 out of 5 stars based on 962 reviews. They extend cash offers in as few as two days, and in a nod to the pandemic, are now conducting remote assessments of home interiors.
Offerpad operates in 14 U.S. markets, mostly concentrated in the south. Their cash offers are non-negotiable, and their typical service fee is 6-10%. They can close in as few as 10 days, but their ratings are moderately concerning, with an average 2.1 out of 5 stars based on 53 reviews.
Available in 25 U.S. cities, Zillow Offers is the iBuying arm of the well-known real estate website. They offer the fastest overall transaction, with a minimum time to close of only 7 days, but their service fees are also the highest of any of the iBuyers on this list, with a base 6% selling fee, plus a sliding additional fee that can range as high as 9%.
Similar to the previous entry on this list, Redfin Now is the iBuyer arm of online real estate giant Redfin. Right now, they’re only operating in Colorado, California, and Texas, and their service fees are towards the high end, coming in at 6-12%. They can close in as few as 10 days, though, and they have fair ratings, averaging 3.8 out of 5 stars based on 3 reviews.
Knock isn’t a conventional iBuyer; they offer a “trade-in” experience in which they’ll buy you a home, in cash, and then list your previous home once you’ve moved.
If you’re after a streamlined experience like this, Knock is a great option, as their service fee is a low 1.25%, and they have great reviews, averaging 4.8 stars out of 5 based on 710 reviews. Knock currently operates in 11 U.S. markets.
If you’re a highly motivated seller who’s either under time pressures or just doesn’t really care about extracting maximum value for your property, and if you’re lucky enough to live in one of markets serviced by an iBuyer, and if you have a property that’s relatively new and in good condition, selling to an iBuyer might make sense for you. They really do offer great value for a small portion of sellers.
But beyond those circumstances, a conventional sale is probably going to be the wiser choice. It may take a little longer, but you’ll come out with more money in the end. The only downside to the conventional route is that it’s expensive; the standard 6% commission takes a big bite out of your sale proceeds.
But what if there’s a better way? Real Estate Witch has partnered with Clever Real Estate to help our readers have their ideal real estate experience. Clever agents have proven track records, and have agreed to sell your home for a low, flat fee of $3,000, or 1% if your home sells for over $350,000. Even if you need to sell quickly, they can work with you to make that happen with strategies like competitive pricing and timing the market. Intrigued? Contact Clever today to find out what they can do for you!
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