You may have heard on the radio or seen in print, “I’ll get you a cash offer for your home,” or even better “I buy ugly houses!” So, what and who are these programs and are they “safe,” “worth it” or just another scam? Interestingly enough, this is becoming a new real estate industry innovation you may be hearing more about as expansion occurs.
An “iBuyer’’ is generally known in the real estate industry as a real estate investment company that uses an automated valuation model (eg. Zestimate) and other technology to identify, and then purchase, homes like yours that meet its purchasing investment criteria.
After identifying homes that meet its investment criteria, an iBuyer may provide homeowners with written offers to purchase their homes, often on terms that may be favorable to a homeowner in certain circumstances. A homeowner is never obligated to accept an iBuyer’s offer. If a homeowner accepts an iBuyer’s offer, then the homeowner and iBuyer enter into a purchase contract for the sale of the homeowner’s home to the iBuyer.
After an iBuyer purchases a home, it may make improvements and/or repairs to the home, and/or shortly thereafter resell the home to a third-party buyer for a profit or rent the home to tenants. Most iBuyers choose to resell the homes they purchase to third parties for a profit, while only some choose to rent the home to tenants.
Homeowners find that selling to an iBuyer eliminates their risks of uncertainty due to fluctuations in real estate markets and interest rates. Because these transactions are less likely to fall out of escrow, there is less of an adverse emotional impact on homeowners resulting from transactions that fall apart.
In addition, a sale to an iBuyer is ideal for a risk-averse homeowner, a homeowner needing to quickly relocate for career purposes, an authorized executor desiring to quickly sell the former home of a deceased homeowner as part of liquidating a deceased person’s estate or a homeowner who simply wishes to sell the home quickly without the emotional wait-and-see rollercoaster that is often associated with the traditional sales and negotiating model. This option gives sellers a greater degree of certainty, convenience and sense of control over their home-selling transaction.
Why would a seller choose a “convenience” option over top dollar?
Here are some of the reasons. No uncertainty. Buyers are cash. No seller concessions. No double moves. They pick the closing date and move just once. No double mortgages. Only contingency is an iBuyer inspection (typically completed in five days but dependent on scheduling of inspectors). No nosey neighbors. No MLS (or MLS syndication) equals privacy (unless mandated by MLS rules). With real estate agent involvement, the seller doesn’t run the risk of accidentally selling their home for less than they should because they don’t know any better.
So, what a seller really wants is two-fold: Either top dollar or convenience. When I say convenience, I’m really talking about certainty. Many sellers, depending on the situation, will sacrifice dollars for certainty. Your trusted real estate advisor should have the skills to help you distill all the market noise and make a sound decision on what’s important to you after being presented with all the options. It is the real estate professional’s job to educate homeowners so they are exposed to all the choices and are able to make the best decision for their situation.
COVID-19 has had an impact and a few of these iBuyer platforms and some have halted operations for the time being, but not Express Offers. ZillowOffers just resumed on Aug. 4 in 24 cities around the country, including Miami. If you are interested in this method of selling your home, you may check the other iBuyers programs to see if they service your city.
For most iBuyer programs, you’ll pay a built-in service fee (typically 6-13%), plus your standard seller closing costs. But other costs may not be so obvious. Zillow Offers will also deduct any necessary repairs from your offer price following an onsite inspection, which can further erode your net proceeds.
Express Offers, located in 32 states and soon to be in all 50 states, provides an alternative for sellers in that there are no added service (convenience) fees. The offer is the offer and not based on inspections. Express Offer iBuyers will already have a property condition report and photos to support its offer decision. You as the seller only pay the real estate listing side of a commission, which is negotiated at the upfront at the time of the agreement to request a no-obligation offer. This saves the seller significant dollars from the other programs mentioned.
ZillowOffers, OpenDoor and OfferPad are iBuyer groups known for very narrow buying criteria, which limits the potential that your home would qualify for an offer. Because Express Offers has a marketplace of buyers who seek a wide variety of homes, including condos, mobile homes, townhouses and vacant land, the probability of matching your property for sale with an iBuyer is greater. iBuyers in the Express Offer platform must demonstrate they have purchased at least 50 properties in the past year for cash and have significant portfolios to support more purchases. New iBuyers are added frequently.
If you are considering selling your home to an iBuyer, get with an experienced real estate professional who can eliminate any confusion you may have, negotiate the transaction, demonstrate your net proceeds, explain your costs/benefits and guide you to whether top dollar or the time value of money is more important.
