What is the difference between Instant Offers or iBuyers and selling with a traditional REALTOR?
With advances in technology and new ways to utilize data, some companies have sprouted up to create different ways to sell your property. Generally speaking, these companies are real estate investment companies such as Open Door, OfferPad, and Zillow; just to name a few. They are sometimes referred to as Instant Offers or iBuyers for your house. Basically, these companies utilize automated valuation models (AVMs) to make a quick offer on a house. This, coupled with their ability to pay cash for the house, allows the investor company to close quickly. Then the investor company resells the house.
From a seller's standpoint, it seems appealing to eliminate the hassle and uncertain time frame of selling a house (you pick the closing day). However with high transaction fees ranging from 7% to 14% plus closing costs, 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 the equity you have in your home. Most sellers don’t realize that by working with a REALTOR, they can save money and still have some general certainty of the time frame to sell based on historical data for how long other homes took to sell.
These companies operate by having homeowners complete a questionnaire with information on their house. They feed that data into their AVM, which kicks back an offer price. They make the homeowner a cash offer to close quickly (usually 7-10 days) and they specify what the fee will be to proceed through to closing. Sometimes the investor company even requires the seller to make repairs to the home before they will buy it. Generally if a seller will consult with a REALTOR, they will find that they can sell the house for more money with lower fees. This means more money in your pocket when you move.
Once the investor owns the house, they may repair and/or do some minor updating. Then they will list it for sale on the open market (generally through the MLS, and generally with a REALTOR). It may be tempting to consider such an offer, but keep in mind that this is a straight numbers play. They are determining a price that allows them the room to cover the costs of the transactions as well as the repairs/updates, while still making a 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.
An analysis on one company's transactions showed they were selling homes at an average 5.5% appreciation, on top of their transaction fee. That's a lot of money to leave on the table for a little bit of convenience. There are other companies beginning to test alternative listing models as well, utilizing technology and AVMs to make 'instant offers' on homes. As always, it's important to read the fine print and understand what you are agreeing to.
If you want to talk to a REALTOR to get another option for selling your house – and you want to know more about a realistic market price and time frame to sell on the open market – give the North Texas Top Team, REALTORS a call at 469-759-3899.
Our agents can help you navigate the home selling process and get you top dollar for your home.