What is an iBuyer?
If you follow news in the world of real estate you know that there is a new type of real estate firm on the scene: instant buyers, generally known as “iBuyers.” And even if you aren’t a real estate pro, you’ve probably seen ads for some of these companies - like Opendoor, Redfin, or Offerpad. While iBuyers are not all exactly the same - they all have their own unique product offerings and geographic coverage - they all have the same mission of allowing people to digitally buy and sell homes quickly, streamlining what has historically been a slow and paperwork heavy process.
How do iBuyers work?
IBuyers accomplish this by using computer models and data driven algorithms to determine your home’s value. These values are often very representative of market prices as the models are themselves based on data from hundreds of similar home sales. IBuyers will then use this value to make an offer on your home, often in all cash. By quickly determining the value of your home and moving to purchase, ibuyers can complete your real estate transaction much faster than the traditional process that involves staging the home, or the haggling and back and forth with multiple buyers.
You may wonder how iBuyers make their money. Opendoor, one of the biggest i-buyers on the market, has a typical business model. First, Opendoor operates by buying and selling homes on their own behalf, meaning that Opendoor is not a middleman but rather actually purchases the home from individual buyers. When deciding what homes to buy, Opendoor generally limits itself to single family homes built after 1960 that are worth between $125,000 and $500,000. Opendoor has two main streams of revenue, which are typical for the iBuyer market: (1) the service fee it charges for handling the transaction, and (2) the difference between what it buys and sells houses for. Also typical of the industry, Opendoor works with real estate agents, paying both buyer and seller commissions. Therefore, Opendoor is not making its money as a “home-flipper,” who makes its money based on the difference in purchase and re-sale price, but rather on its ability to help facilitate real estate transactions.
Is Using an iBuyer worth it?
The benefits to sellers are clear - iBuyers help remove a significant amount of legwork and uncertainty by making fast, cash offers. IBuyers remove the haggling and uncertainty of trying to play buyers against once another, and do not require that homes be staged (which you would have to do if selling your home on the open market). This lets people sell their homes without having to worry about things like repairs or extensive cleaning and set up. For those looking to move quickly, iBuyers can provide the perfect solution for selling their house and moving on.
Along with providing speed and efficiency, iBuyers are also able to offer competitive pricing that generally tracks the market. After all, what good would speed and efficiency be if iBuyers weren’t able to offer competitive prices. While studies tend to show that iBuyers do pay below market prices, this is generally only a few percent. For many buyers, the slight reduction in final sales price is well worth the savings in time and stress. And often times being able to close a real estate transaction quickly can itself be a source of savings. For people who are planning to move to a low-cost state, but need to sell their home first, each month remaining in their high cost state can be a source of additional cost in the form of paying higher taxes or more for life’s necessities.
One noted downside of trying to sell to an iBuyer is that the iBuying industry does not yet cover all 50 states, meaning that in many places people are simply not yet able to sell to an iBuyer. IBuyers are most heavily concentrated in the southwest, particularly Arizona and California where many were founded, but operate in many southern and south eastern states as well (although some iBuyers exist as far up the east coast as Massachusetts). But this is not likely to be the case for long as iBuyers continue to expand across the country. And in areas where multiple iBuyers exist, sellers can get multiple offers from multiple services.
At the end of the day, iBuyers provide a great option for people looking to sell their home. For many people, being able to close quickly and efficiently is well worth the trade off of potentially making slightly more in the sale on the open market (not to mention that iBuyers often do meet or beat market prices). When looking to sell your home, it’s definitely worth considering whether an iBuyer is right for you.
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