iBuyer - The Cost of Convenience
This article was inspired by a recent conversation with a neighbor. She wondered why everyone wouldn’t just sell to an iBuyer rather than list their home with an agent.
The “iBuyer” is the latest thing in residential real estate. An iBuyer (short for “instant buyer”) is a company that will make an on-the-spot, cash offer to buy your home at a guaranteed price. You have seen/heard the names: Open Door, Offer Pad and Knock. Zillow is now in the game, as well Redfin, Homelight and several local real estate brokerages. The iBuyer model combines technology with millions of dollars of investor capital to create liquidity and convenience for home sellers.
The iBuyer value proposition is simple: you receive a fair market price for your home and avoid the time and inconvenience associated with listing and selling it – no repairs, no staging, no showings and no risk. In addition, you can select a a closing date that best suits you. Because iBuyers purchase with cash, they can close quickly. Sounds great; so what’s the catch?
An iBuyer sale does NOT avoid brokerage commissions; these transactions carry a full seller-paid commission (typically 6%). Also, understand that an iBuyer is an investor seeking to buy your home and resell it at a profit. The “fair market price” offer, therefore, must allow for this resale profit. Beyond this, an iBuyer offer will factor in the anticipated carry cost, the cost of needed repairs and cosmetic updates, re-marketing/selling costs and the risk of the home taking longer to sell and/or selling for less than projected.
For a seller, iBuyer convenience and certainty does not come cheap – it can’t if the iBuyer business model is to succeed. The early data indicates that about 90% of sellers who request an iBuyer offer reject the offer and go the traditional listing rout; this suggests that iBuyer offers are not all that compelling. With that said, an iBuyer can be a good solution for a seller who truly needs a quick and hassle-free sale and is willing/able to put convenience ahead of price. Given the number of iBuyer investors in the market, soliciting competing iBuyer offers might be a good strategy to maximize the offer price.
A closing thought: Beware of brokerages that want to either iBuy your home, or, alternatively, list it for sale for you. This presents a serious conflict of interest.
John Stemlar is a Principal and the Managing Broker at Sage Real Estate Advisors, a boutique Atlanta residential brokerage.