As such, investing in real estate can be both frustrating, risky, and a little scary. Because of this, people are often skeptical about getting involved with a real estate agent when it's time to sell their home. This fear has led to the emergence of institutional or iBuyers. These iBuyers are usually not individuals but larger companies, although technically anyone could be an iBuyer. Let's delve a little further.
iBuyers - The Inner Workings of an Investor
So, what is an iBuyer? They are basically institutional buyers who are looking to make some financial investments. These companies buy homes directly from a homeowner and either put them into their portfolio or resell for a profit by flipping them.
These are generally cash offers to purchase a home. The purchase offer price in these transactions is based on the available sales and other data available locally, such as the proximity of the location to the city center, accessibility to amenities, etc. The way different iBuyers work and operate may vary, but all of them make an approximate estimation of your home’s value by using some high-end technology and once done, they make an offer.
With an iBuyer, you are almost certain that it is going to be an all-cash offer, and that ensures you are in more control of the entire transaction than through other mediators.
There are many other advantages of selling your properties to iBuyers, and that is why they are more preferred when it comes to re-selling. Similarly to selling your home to a real estate investor like "We Buy Ugly Houses," sales happen quickly with generally fewer hassles. We will have a look at the benefits as well in later sections. But let’s find out more about how iBuyers emerged in the markets.
How did they emerge?
When it comes to listing your property for sale or looking to buy a new property, the whole process can be very complicated and might take a lot of time. You will have to take a lot of pains to successfully list and sell your property. And with all the hassles the homeowners had in the entire process, there was a need for change that was felt.
So the iBuyer concept started back in 2014 in the state of Georgia when Offerpad and OpenDoor launched this through their platforms. And this iBuyer concept is now live in 23 cities that include Denver and Colorado Springs.
Many large aggregation websites are now in the iBuyer space, which includes Zillow and Redfin offers. Thanks to the ease of use, and convenience, iBuyers are now coming up in all the major cities and metros. The reason these iBuyers are so preferred is attributed to their business models.
So, how do iBuyers work? What is the business model they follow? Let us find out.
How do iBuyers work?
Different iBuyers would work differently or would have different business models. However, one thing that is common in almost all the iBuyers is the fact that they make use of high-end algorithms and modern technology to estimate the property prices. An iBuyer usually makes use of a technique known as AVM or Automated Valuation Model. Since they use a lot of reliable data to assess the value of your home, they may even purchase your homes without even coming for a visit.
iBuyers provide you with the Instant option for your homes. The offer makes it possible for you to get instant cash for your home. Some iBuyers may even send a home inspector to your house to have your property evaluated before they can make a final offer.
Once the inspection is conducted, the prices can get further discounted, to which they might add a convenience fee. Some iBuyer business models also deduct the cost required to carry out repairs on your property. And some might assess the property after the offer is accepted by the seller, and may just request concessions later on for any repair that comes through.
And once they purchase the property from you, they will then list the property via a local real estate agent at a rate that is below the market prices, and this creates a system of competitive prices in the market.
So basically, the idea is to buy the properties at low prices and then list the properties at rates that are just below the market rates but above their purchasing prices so that the iBuyers still can make their share of profits and commissions.
So, that is the working of an iBuyer, and some may argue the offers they offer are too less. But for all the convenience and advantages that you get, selling your homes through an iBuyer can be worth it. There is some talk that if real estate agents were obsolete years from now, this model could be one of the replacements.
Let us find out why you should opt for an iBuyer, and the various advantages of it.
Pros of Selling your Homes to iBuyers
So, why should you sell your homes to an iBuyer? There are some obvious advantages of selling your house through iBuyers, and this included the following circumstances:
The best option for a contingent offer on a new home - There may be a need for you to sell your current home at the earliest if your contract with your new home has already commenced. And when you need your cash that fast, selling it through iBuyer is the fastest option.
They make it easy for you to dispose of the property quickly and relocate - There will be many circumstances when you would need to transfer from your current work location to a new area, and you will be in need to dispose of your belongings and property quickly. And, iBuyers can prove to be extremely useful in all, such cases. Just contact an iBuyer - they make an assessment, and make an offer - you accept the offer, take the cash, and fly off to your new location.
Makes it easy to liquidate assets when you are getting separated or divorced - There may be situations that would arise where you may have to split your assets with your partners in the event of a breakup or divorce. In such cases, you may want to liquidate your assets to split the money you get from the proceeds and move on with your lives.
Makes it easy to sell a rented property - A rented property may get really tricky to sell-off. The reasons being these properties may need a lot of repairs or are in a poor shape being used by carefree tenants. When you chose an iBuyer they will buy it whatever the shape of the property may be with some money deducted for repairs. As such an iBuyer is your best bet to buy a rented property.
Avoids all the hassles of listing - iBuyers take care of everything right from the time you take an offer from them. They will do everything required to complete the sale and that avoids all the hassles and inconveniences you may have to go through in listing a property yourself and failing. The listing process can get very stressful which can involve things like cleaning the house to regular house sites by strangers to endless negotiations. Sell it to an iBuyer and you avoid every hassle and inconvenience.
Now that you know the pros of selling your properties to iBuyers there are certain things you must be careful about. Let us quickly list these things in the next section
Things to Watch Out for with iBuyers
While iBuyers might look to be very lucrative in terms of the ease of convenience and quick cash for a home that you can avail in almost no time, you have to be wary about certain other things and circumstances. These things that we have to be careful about or watch out for are as follows:
Excessive charges or hidden fees - You may be charged fees that are not usually levied in traditional listing processes. There may be repair charges, processing charges, convenience charges and a lot of other charges that may look weird, watch out for such never-heard-before fees and question them and explain for a break up whenever required.
No single point of contact - There can be situations where you will not have any personal point of contact to answer your queries when you sell with an iBuyer. There may be an inspector to assess the property but once you get the offer there may not be enough guidance or people to help with any questions you might have which is not the case in the traditional process where you have the real estate agent available for your help always.
Lower net cash for the property - This is something which you need to check, check the net value of your property and the offer and if you feel you can get a better offer elsewhere, choose the better offer.
No time to think - With iBuyers you will have to either take the offer or lose it and hence you are in constant pressure of deciding immediately which may lead to a wrong decision.
Involves a lot of legalities terms and conditions - An iBuyer model might look very difficult to interpret by a layman as it consists of a lot of terms, legalities, and processes.
The Conclusion on iBuyers
To conclude, it is fair to say that iBuyer is the modern and the new-age way of selling homes. Having said that, keep in mind the things that we mentioned while opting for an iBuyer to sell your property.
Weigh the pros and cons, compare the offers, and when selling rely only on one of the reputed names around. Zillow, Opendoor, and Offerpad are some of the places you will not be disappointed it. Go ahead and give it a try.
About the author: The above article on what is an iBuyer was written by Joe Boylan. Joe is a Broker-Associate at Springs Homes Real Estate in Colorado Springs, Colorado . He writes about residential Real Estate issues faced by home buyers, sellers, and investors.