What is an iBuyer?

Keen Realtors have noticed a trend as of late - the proliferation of "ibuyers". There is still confusion as to what an ibuyer is and what an ibuyer does. One of the most prominent strategies behind the growth of ibuyers has been heavy online marketing. ibuyer stands for "instant" buyer. There are different kinds of ibuyers but they generally function by offering to buy a property at fair market value, accepting a fee for facilitating the sale, and then reselling the house for a profit.


1. Using an ibuyer means the seller won't pay a commission

When most consumers think of using the services of an ibuyer, they think of the money they will save because they won't pay a commission to a real estate agent. While they may not interact with a real estate agent, ibuyers do still take a commission. Whether it's called a "commission" or merely a "fee" is up to the ibuyer. Generally, ibuyers charge about a 6% fee to purchase the home. Sellers who sell their house for fair market value, will have a 6% line item on an already reduced home evaluation.


2. Realtors won't get involved

Many turning to ibuyers feel that having a real estate agent is a hassle. They see appeal in an ibuyer sale because they won't have to be involved with a realtor. While it is true that the seller won't work with a Realtor, it depends on the ibuyer company. Some work strictly online, while others have offices or a combination of the two. As the ibuyer industry has grown, the need for buyer's agents hasn't changed. Because of this, many ibuyers have their own buyer's agents to sell the listings they purchase. Other ibuyers opt to sell their buyer leads to brokerages in the area. This means that while the seller won't have a real estate agent, the ibuyer company, and the future buyer will.

While this might be seen as a plus for sellers, experienced agents view this method of selling in terms of a modified pocket listing. The buyer's agent (working for the ibuyer) knows that a house is going to come on the market for market value, the buyer agent can then sell the property to the buyer for a profit. The ibuyer, and the buyer's agent both benefit. Why? Because the home purchased at fair market value, is marked up once the ibuyer puts the house on the market.

Without knowing the real estate process, the seller potentially loses out on getting a higher price for their home because they are not represented in the transaction. Depending on the ibuyer, you have very little or no room to negotiate as opposed to a traditional sale where fees can be negotiated. In an ibuyer transaction, the sellers carry the majority if not all the costs.


3. Sellers won't need an inspection to sell their home to an ibuyer

For many, the perceived advantage of an ibuyer is to sell their house "as is." Whether the home needs extensive repairs or just a few updates, many sellers don't want to worry about an inspector's report. An unfavorable report is thought to slow down the homebuying process, and tie up the seller with lower offers, covering repairs, or doing the repairs themselves. Sellers mistakenly take ibuyers for "house flippers." In the house flipping industry, investors are more willing to purchase homes that need repairs. However, ibuyers do not fall into the "flipper" category.

The process varies between ibuyers, but between the preliminary offer and the final offer on a home, the ibuyer will send an inspector to the property. It is the job of the inspector to ensure that the seller's property is a good investment for the ibuyer. Unlike a traditional transaction where a deal can be made, ibuyers opt to take the cost of all repairs out of the final offer. The seller can't decide what repairs to make or do the repairs themselves.


4. A fast sale brings in more money

One of the most significant perceived advantages of the ibuyer is keeping a listing on the market for a shorter period of time. Most sellers feel that if their house stays on the market for an extended period of time, they will have to make price reductions to sell their home. However, ibuyer transactions aren't as fast as sellers might think. According to most estimates, the traditional home buying process takes around 40-50 days. The ibuyer process varies, but generally can be anywhere from 15-60 days. The majority of the process hinges on the seller's ability to accept the offers and vacate the property.

The misconception is that the longer the home is on the market, the less the home will sell for. The faster option (ibuying) appears to bring in more money. While a quick sale can be the best case in specific scenarios (divorce, employment changes, ect), most sellers will come closer to the traditional average. Why? More than likely, sellers will be moving from one house to another, who's owner is more than likely going through the traditional process. Even if a seller is chomping at the bit, they will have to wait to buy their next home in most cases.


5. ibuyers work for everyone

According to Zillow 90% of sellers who started their ibuyer program opted to go with a traditional transaction. Even though Zillow's process is in it's infancy, it appears that the offers being received arent what a majority of the market is looking for. According to Curbed "Zillow says it's making $1,723 per home flip at a minuscule 0.6 percent profit." Real estate is a numbers game. While ibuyers might have bigger goals in mind (selling leads to traditional brokerages, streamlining the process, and providing extra services) right now, it isn't the best choice for everyone.

This is perhaps the biggest misconception. The idea that the ibuyer is the perfect solution to what can be a difficult process. Sellers are starting to realize they can get a better deal for their home using traditional methods but realize this after their ibuyer inspection and see the net profit. After all the fees, line items, repairs, concessions, and services, many wonder if they could do better with some help from a Realtor.



Sources:

What is an iBuyer – How it works and is it worth it?

How iBuyers are Changing the Real Estate Market 

Selling your home to an 'iBuyer' could cost you thousands 

WTH is an iBuyer?

Agent vs. iBuyer

The real estate transaction is broken. Tech companies want to fix it

The Top Five iBuyers in the Real Estate Industry

iBuyers: Is The Convenience Worth The Cost?