iBuyers: Are You Leaving Money on the Table?

A Story by Tom Phillips | Updated 10/2/2019 12:17pm


What is an iBuyer?

IBuyers or 'Instant Buyers' are companies that purchase homes directly from the owner.  This saves the owner from having to either list their property with an agent, or do a 'For Sale By Owner' listing.  Open Door was the original iBuyer, and now we have companies such as Offerpad, Homelight, Zillow and Amazon (in select markets) that have joined the ranks of today's iBuyers.  Some large real estate brokerages are now playing the game as well.   IBuyers use an algorithm or AVM (Automated Valuation Model) and present an offer based on age, condition and the home's future value.  If the owner accepts the offer, they can close in a matter of days or weeks depending on their situation.  The iBuyer then lists the property on the market, or sells directly to investors at a profit.

Having someone come in and buy your home for cash sounds pretty great right?  The sale is fast, there are no lenders involved, no staging... no showings.. and no agent commissions to pay.  If you are a pet owner, this is particularly enticing because you don't have to come and remove your pets from the premises every time someone requests a showing.  These points are definitely some of the 'pros' of selling to an iBuyer.  So, what do you think the catch is?  That's right... you likely won't be offered full market price and your profits will be affected.

It all boils down to convenience.  We live in a society where we want things to be easy, no hassles.  And let's face it, showing your home is a hassle.  But, consider all the hard work you've put in to your home.  There are particular circumstances where some sellers might need a quick, no-hassle sale, but take a look at some numbers that will show you that convenience sounds like a great solution at first, but consider all of the hard-earned money you may be leaving on the table.

Let's cmpare the costs of  typical real estate transaction.  We're going to use an example of a $300,000 home, and the costs involved in selling to an iBuyer, vs. selling with a Realtor.  I have to interject here that all figures may not be applicable to all markets and all situations.  These numbers may not accurately reflect all scenarios, but it will open you eyes to the costs that are involved.

REALTOR®                                       iBuyer

$300,000                                          $270,000

Market Price                                    Offer Price

*Working with a REALTOR and selling among multiple properties for sale helps bring top vlaue for your home.  iBuyers tends to offer below market value.  They have to, because they need to make a profit

______________________________________________

$150,000                                          $150,000

Balance                                             Balance

*This is what you currently owe on your existing mortgage.  Your balance is paid off by title at the time of funding.

______________________________________________

$2,783                                               $2,783

Closing Costs                                   Closing Costs

*Closing costs include Title Insurance, Escrow fees and filing fees and are the same, no matter whether you use a Realtor, or sell for cash.

______________________________________________

$18,000                                              $0

Commission                                      Commission

*A REALTOR® will charge 6% (typically) to sell your home, where iBuyers do not charge a commission to purchase your home         

______________________________________________

$0                                                        $24,300

Service Fee                                        Service Fee

*iBuyers charge a 'service fee' which is a convenience fee of 6-9%.  This fee includes selling fees, "risk", holding costs and more.  

_______________________________________________

$0                                                       $5,400

Repairs                                              Repairs

*iBuyers run a thorough inspection of the home and commonly require a non-negotiable credit for repairs.  An expert REALTOR® will negotiate repairs on behalf of the seller, which can offer considerable savings in this area.

_______________________________________________

$3453                                                 $843

Holding Costs                                   Holding Costs

*iBuyers hold the benefit here.  You have to pay for fees and costs of taxes and insurance while living in your home.  A quick close means this figure is lower for the seller.

_______________________________________________

$125,764                                            $86,674

NET                                                      NET

*This is the final amount you will walk away with, a.k.a. your NET.

_______________________________________________

COST OF CONVENIENCE:  $39,090.00

 

I can completely understand the want for convenience, but at what price tag?  Is a little convenience worth giving up a big chunk of your home's equity?  After all, this is one of the reasons you bought  your home in the first place... as an investment so you wouldn't be throwing away your money on rent.  

And, here's something that might surprise you -- There are some reviews of iBuyers and the iBuying process that are HIDDEN from the public.  Yelp has been caught hiding reviews.  JS --

The bottom line:  iBuyers are not for everyone, but they can be very helpful in certain scenarios.  Do your homework, and talk to a REALTOR® before making a decision.  Your REALTOR® will break down all fees and costs and give you a Comparable Market Analysis with a breakdown of all fees and costs.  This will show you exactly what you will net after the sale of your home.  You can even ask their advice and help with staging, innovative showing instructions (if you have pets) and a cleaning service if needed.  Don't be afraid to ask!  The result can be more for you.  And who deserves more profits?  YOU DO.

 

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