“Looking to move? We will pay instant cash for your home! Call ……”
You might have seen that kind of offer on a billboard or a homemade sign posted to a telephone pole.
The concept has been around for years. Want to sell your home fast? There’s usually someone willing to buy it – as long as you’re willing to take less than market value.
The newest take on this type of online house flipping is called iBuying – an automated, much more formal method of selling your home quickly. Many companies in the online real estate industry, like Opendoor, Redfin, Offerpad and Zillow have jumped in the iBuyer game, with mixed results.
For Zillow, the results have been disastrous.
The company shut down its iBuyer program, Zillow Offers, this month – less than two years after it launched – after buying thousands of homes above current asking price and losing $304 million due to the program during Q3 2021.
So what does that mean for the iBuying business?
Joshua Roberson is a lead data analyst at the Texas Real Estate Research Center at Texas A&M University. In an article he recently wrote for Barron’s, Roberson said, “iBuying is here to stay, but it’s not for everyone, nor is it likely intended to be . . . Zillow may be under a cloud, but elsewhere, the sun is shining.”
Whether or not the sun is shining on the iBuyer business may be entirely up to home sellers. If you’re looking to sell a home, and considering using other major iBuyer companies like Redfin or Opendoor instead of a local real estate agent, here are a few things to consider.
The Pros and Cons of iBuying
Some benefits of using an iBuyer:
iBuying is convenient. Unlike in a traditional real estate transaction, when selling to an iBuyer you don’t need to worry about staging and glamming up the curbside appeal. You don’t have to worry about giving up your Sundays to open houses or leaving every time the real estate agent wants to show. You simply sell your home to the iBuyer, and they take care of the rest after you’re gone.
The uncertainty of selling a home is one of the most difficult aspects of the process. You don’t really have the cash to buy a new home until you sell your old home, right? But you still want to look for that new home to get an idea of what’s available. And what if you find that “perfect” house before you’ve sold your old house…what, then? This is even more complicated if you’re making longer moves to different states or across the country. An iBuyer takes all those variables out of play. The iBuyer makes an all cash offer, which is usually good for at least a week, you accept or reject it and move on.
You know you’re going to get an offer. You know when you’ll get an offer, and when you’ll have to move. You know exactly when the movers need to arrive. You don’t have to worry about the purchaser’s refinancing falling through. You don’t have to oversee a bidding war or haggle with the buyer’s agent (though you can negotiate with the iBuyer). The iBuying process is very clear cut and takes a lot of stress out of the selling process.
Some reasons you might want to reconsider using an iBuyer:
Uncertain Sales Price
iBuyers use algorithms, called an automated valuation model, to determine a house’s value. They’ll tell you they offer “fair market value,” but it’s hard to really know if that’s true. In Zillow’s case, they actually overpaid for a lot of homes during the pandemic, but that seems to have been an exception in the iBuyer business model. iBuyers will want to purchase your home at lower cost so they can turn it around and make a profit quickly. So, usually, you’ll be accepting a lower offer than if you sold through a real estate agent.
You’ll need to be in a real estate market an iBuyer is interested in, and you’ll also need to have the right type of home an iBuyer wants. The “right” type of home is dependent on the market and what qualifies as a typical home in that area. iBuyers tend to focus more on larger cities, so if you live in a rural part of the country you may be out of luck.
With an iBuyer, you’re trading convenience and speed for the possibility of a lower offer, paying more fees, and taking another hit if your house needs repairs. One study said that iBuyers typically charge a service fee of anywhere from 6% to 9%, which is several percentage points higher than licensed real estate agents charge. Also, after you accept an iBuyer’s offer, they’ll do an assessment on your house. Any repairs needed could be taken out of the final sale price.
Should You Use An iBuyer Instead of a Real Estate Agent?
That’s a question only you can answer.
Though Zillow has closed its iBuying program, other iBuyers like Opendoor, Offerpad, and Redfin are still out there going strong. You’ll likely enjoy the convenience an iBuyer offers, but that will come at a price.
Do your research and weigh the pros and cons to determine if an iBuyer is right for you. Selling your home is one of the biggest financial transactions you’ll ever make, so make sure you know what you’re getting into – whether you use a traditional real estate agent or an iBuyer.
Robert Bruce is a Senior Writer for The Penny Hoarder.