The promise of iBuyers sounds amazing. Avoid the hassle of selling a house, get instant no obligation cash offers. But how does this actually play out for a home seller?
An iBuyer, or Instant Buyer, is a real estate company that uses "technology" to make an offer on your home instantly. iBuyers aim to make the home selling process more convenient, but this convenience often comes with some major baggage.
Before you accept an iBuyer offer, you need to hear the truth about how iBuyer programs work in real estate.
Kiss Market Value Goodbye
When you're entertaining the idea of selling your house, one of the first things you'll do is estimate the fair market value. Meaning, you'll come up with the price you think it's worth. (Or, more accurately, the final sale price folks would be willing to pay for your property). You'll usually come up with a number based on comparable home sales in your neighborhood, to roughly estimate what you could command on the open market. Well, that's what you would do in a traditional home selling process.
If you're hoping to get instant cash offers from iBuyer companies, then you can waive goodbye to market value. You will never see an iBuyer offer in the near vicinity of what you home is worth. Here's why.
The whole business model of iBuyer programs is to acquire properties for below market value then quickly turn them around to sell for a profit. That's it; that's all the magic. So there are two implications here.
First, their business is predicated on the knowledge that there's a pool of potential buyers who will pay higher than what this company will pay YOU for your property. So that begs the question.... why not sell it to THOSE buyers for more money?
Second, for these companies to survive, their profit margins need to be sizable. Which means, there's a pretty significant delta in the price they'll pay you and the price others will pay them. So you're really leaving a lot of money on the table if you accept that all cash offer from an iBuyer.
They Come at a Cost
It isn't just the offer price from an iBuyer that hurts. Their cost structure also feels a bit predatory. Some of the fees associated with selling to an iBuyer include the following.
Commission or Service Fees
iBuyers typically charge a fee for the "convenience" and immediacy they provide. This fee can range from about 5-12% of the home's purchase price, depending on the iBuyer. This is way higher than the commission charged by a traditional real estate agent, which is usually around 5-6% (for both listing agent and selling agent combined).
Repair Costs
Check the fine print that accompanies every iBuyer cash offer! After they purchase a home, they often make repairs or improvements before reselling it. If the iBuyer identifies necessary repairs during the home inspection, they may deduct the estimated repair costs from their "instant cash offer." Even though you're not responsible for making the repairs yourself, you'll still be charged for them.
Other Costs
Additionally, iBuyers often add a variety of other fees to the home sale that homeowners might not be aware of until they've started the selling process. These iBuyer companies may charge you for staging your home to market it, or for cleaning your home at some point prior to the closing date. There's nothing more frustrating during the selling process than discovering another hidden service fee.
A Digital Bait and Switch Is Still a Bait and Switch
That wonderful cash offer you get from an iBuyer? It comes with some strings, after all. You might not want to start spending those dollars yet.
Most iBuyers require a full inspection before closing the deal. Not only does this add additional time (and potential costs if they stiff you with the appraisal), but the results of the inspection can also significantly lower the original offer after you've already committed to the sale. This is because iBuyers' offer prices don't account for any damage or imperfections, which are added in later using one of the fees discussed previously.
At best, this can complicate the process for home sellers who have already accepted the initial offer and may be ready to move on to their next home. At worst, this is a sinister trick to string you along with the intention of low-balling you the entire time. You wouldn't tolerate that nonsense in a traditional home sale, why put up with it from an iBuyer company?
Final Thoughts
Some real estate companies think they can take advantage of you by promising a quick cash offer and letting you pick your own closing date. But beware these digital predators masquerading as a legitimate cash buyer. They'll never offer you close to what you could get on the open real estate market, charge you more in fees/commissions than real estate agents would, and ultimately put way less money in your pocket than you'd get from a traditional sale. The truth is, when it comes to selling real estate, iBuyers can be pretty expensive indeed.
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