Selling a home can seem daunting. Making repairs, painting and keeping it clean for potential buyers sounds like a lot of work. Enter “iBuyers” — companies that make you an offer on your house without stepping foot in it.
Sounds like the perfect solution, doesn’t it? Or perhaps too good to be true? Let’s look at how these companies work and then you can decide if the process is right for you.
How “iBuyers” work
First, a few basics. The better-known players in the “iBuyer” market are Opendoor, Offerpad and Zillow Offers. The details for each company vary but the fundamentals are the same: Using an online questionnaire, provide information about your home such as square footage and whether you’ve made any improvements. Then, upload a few photos. Typically, the company replies within 48 hours with an offer based on computer algorithms that compare your home to others in the area.
If you agree to the company’s offer, an appraiser will come to your home to confirm the information you provided. Once satisfied, the company buys your home, makes repairs and puts it on the market.
The pros are obvious: few hassles, no strangers in your house, closing the deal and getting your cash in usually a couple of weeks. The price of the home is held in escrow until closing, and then wired to your bank account. For someone who needs to sell a home fast — say to relocate for a new job or to avoid foreclosure — an “iBuyer” company may be the answer.
If you decide to try “instant buying”, get offers from more than one company to maximize your chance for a good deal.
The cons of “instant buying”
The biggest downside to accepting an offer from Zillow Offers or Opendoor — or any of the many companies offering “instant buying” — is the amount of money you could be leaving on the table. When your home isn’t on the open market, there’s no chance of multiple offers and getting more than your asking price. There’s also little room for negotiating with the instant-buying companies on their offers or on the costs of any repairs that have to be made. (It should be noted that you are under no obligation to accept an offer.)
There’s also the matter of fees. Real estate agents typically take a 5 percent to 6 percent commission, which is always negotiable. Zillow does not have its fees listed on its website, saying all fees are revealed with its offer, but it has been reported to charge an average service fee of 7 percent, while Offerpad charges between 6 percent and 12 percent of the sales price. Opendoor’s website says it charges an average 6 percent to 8 percent service fee. You’ll also pay closing costs, just as you would in a traditional home sale. These can be 1 percent to 3 percent of the home’s price.
Obviously, these companies have to make a profit so they are building in their margins along with that of the listing fee percentage.
The companies typically point out that they are saving you from having to pay 1 percent to 2 percent in concessions to buyers, but that will depend on the housing market. In a sellers’ market, you may not have any concessions.
They also note that you won’t have to pay for repairs upfront. That’s true, but neither can you negotiate the cost of those repairs as you can with a traditional sale, and the costs ultimately come out of the sales price. You may also have to pay for a survey of your property.
Nor should you assume you won’t be working with, and therefore paying, a real estate agent. Both Opendoor and Zillow Offers encourage sellers to have representation.
The bottom line
Whether you sell your home with an “iBuyer” or proceed with a traditional sale, be sure to understand all the fees you’ll be responsible for and study up on the health of the housing market in your area. If you have a reasonable idea of what homes like yours sell for in your neighborhood, you’ll be able to make an informed decision.