With advances in technology and new ways to utilize data, some companies have created different ways to sell your property. Basically, they utilize automated valuation models (AVMs) to make quick offers on homes, allowing them to close in a much faster than typical timeframe, and then resell them. Companies that offer this kind of service are only in limited markets across the country right now.
In the real estate profession, we call these companies iBuyers (investor buyers, instant buyers). Some of them are large conglomerates while other iBuyers may be a smaller real estate investment company.
Let’s look at the benefits and costs of using this type of service
Eliminate hassle: From a seller's standpoint, it can eliminate some hassle and uncertainty – that is certainly an attractive offer. Unfortunately with high "transaction fees" ranging from 7% to 14%, and the likelihood that they will sell the home for more than they paid you for it, you are simply exchanging that smooth and quick transaction for a portion of your equity.
Quick sale: These iBuyers operate by having homeowners fill out a short questionnaire with information on their home. They feed that data into their AVM, which kicks back an offer price. They make the homeowner a cash offer to close in a short timeframe (typically about a week) and specify what the fee will be to proceed through to closing. Once they own the home, they may repair and spruce it up, and list it for sale on the open market. While the quick closing timeframe may seem attractive – you might also be able to sell your home quickly on the open market by hiring a REALTOR to assist you.
No repairs or updates: While you may believe no one wants to buy your property because it’s not updated or it’s in poor condition, you would be surprised to know that it not the case. In fact, many times you are your homes worst critic and you believe the home is not updated as nicely as others. However, many home buyers contact a REALTOR asking for assistance in buying affordably priced homes, even if they need some updating. Not only are there home buyers who will be interested in your home on the open market, but the iBuyer may ask you to reduce the sales price after getting an inspection on your property.
It may be tempting to consider such an offer, but keep in mind that this is a straight numbers play
The iBuyer companies are determining a price that allows them the room to cover the costs of the transactions as well as the repairs, while still making some profit. Their profit will either come from the fee you've paid or from acquiring your home at a below market price - although it could possibly be a combination of the two. In fact, an analysis on one company's transactions showed they were selling homes at an average 5.5% appreciation, on top of their transaction fee. With transaction fees between 7-14% and adding another 5% appreciation, a home seller could have made 10-15% more money had they used a traditional real estate company. That's a lot of money to leave on the table for a little convenience.
Are all of these iBuyer companies the same?
Many of them are the same – offering to buy a house at a fixed price in a quick timeframe (even if the home seller could make more money and still sell quickly on the open market). However, there are a few other companies beginning to test alternative listing models as well, utilizing technology and AVMs to make 'instant offers' on homes, or to help buyers acquire and move into their next home before selling their current one. As always, it's important to read the fine print and understand what you are agreeing to. Pay special attention to any sort of bridge financing or wrap-around mortgage products that may become problematic to you if the first home doesn’t sell in the time frame or for the amount
What should I do if I am ready to sell?
If you are planning to sell a property, it’s important to do your due diligence in determining the right option for your specific situation. You may want to consult with more than one iBuyer company and you should also compare that to a traditional real estate brokerage model. *Please note that due to the Corona Virus Pandemic, many of these iBuyer companies have stopped buying houses until they know how things will play out in the economy. However, a more traditional real estate brokerage service is likely still able to help you list the home on the open market and get the property sold right away.
Your best bet is to do some research, find a company that suits your needs, read the fine-print, and then move forward to get your property SOLD!
About the author:
Melissa Hailey is the Broker-Owner of North Texas Top Team, REALTORS in the Dallas-Fort Worth Metroplex. Our Team helps home buyers, sellers, landlords, and tenants move across North Texas and we connect clients to other great REALTORS across the country. She is a real estate instructor and coach who loves to see others succeed. She is a serial volunteer helping others in her community and in her industry. Connect with her at https://www.northtexastopteam.com/melissa-hailey/