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iBuyers, or Instant Buyers, are companies that buy homes from individuals in a way that removes many of the hassles of the traditional home selling process. These companies can buy or sell your home, renovate it, and connect sellers with movers, home loans, and title insurance providers. You can also list your home through an iBuyer and work with your own real estate agent.
While it may seem appealing to go through an iBuyer to buy or sell your home, there are some things you need to know in order to choose the best route for you.
What is an iBuyer?
iBuyers are technology-driven real estate companies that use automated valuation models to determine the value of a home and make an offer to purchase, often within 24 hours.
An Automated Valuation Model (AVM) is a computerized appraisal that looks at the value of similar nearby homes and combines that information with the specifics of your home to estimate its value. If you’ve ever checked a home’s Zestimate from Zillow, for example, or been able to refinance your home without hiring an appraiser, then you’ve seen an AVM at work. Mortgage lenders and other real estate companies use AVMs all the time.
iBuyers use these models for new use to buy properties, repair them and resell them for a profit. This is very similar to what real estate investors do who flip properties.
iBuyers don’t think of themselves that way, though. Opendoor, one of the market’s leading iBuyers, states on its website that it is not a “home flipper” as the company does not buy distressed properties to repair and resell. Most iBuyers prefer properties that are already in good condition.
Opendoor, founded in 2014, was the market leader at the end of 2021, with more than four times as many homes for sale as Offerpad and operations in 44 markets. In addition to buying your home, the company says on its website that it will help you make a cash offer to buy your next home.
Offerpad, founded in 2015, is the second largest iBuyer. It aims to buy, renovate and sell homes within 100 days. The company operates in 21 markets at the end of 2021. Its business model is also based on providing mortgage and title services, and allowing landlords to register through its platform.
Zillow Offers was an iBuyer that ran from 2018 until November 2021, when it shut down due to its algorithm underperformance. He struggled to accurately predict future home prices, and the company overpaid for too many homes. He also couldn’t get enough owners to sell.
RedfinNow and Keller Offers are two other players in the iBuyer market, but they have a much smaller presence.
RedfinNow buys homes in 18 markets and has the strongest presence in California and Texas.
Keller Offers will buy your home for cash in 22 major markets in the West, Midwest, South and Southwest. It also has a program that will help you renovate your home to sell it, or renovate your home and stay put, an option that currently differentiates it from its competitors.
Working with an iBuyer
You can sell your home to or through an iBuyer, buy a home from an iBuyer, or both.
Buying a house from an iBuyer
If you want to buy a house from an iBuyer, the first question you will need to answer is whether there is one in your area. For now, that usually means you’ll have to live in a major metropolitan area.
The next step is to find the properties you like and visit them. iBuyers can make scheduling visits easier and eliminate any pressure or embarrassment that may result from the presence of a seller’s agent or the seller themselves. For example, Opendoor allows potential buyers to view its homes from 9 a.m. to 6 p.m. daily, without an appointment. Just go home and unlock the door with the company app. Offerpad asks you to contact them about any home you are interested in.
You’ll also need to decide if you want to buy direct from iBuyer or work with your own agent. When buying a home, it normally makes sense to work with a buyer’s agent since they represent your interests but are paid from the selling agent’s commission. Opendoor encourages buyers to use its own agents by offering a 1% discount, if certain conditions are met.
Selling a house through an iBuyer
iBuyers generally buy single-family homes. They can also buy townhouses, condominiums and duplexes, depending on the company and the market. If you want to sell your home through an iBuyer, you may have the option of selling your home directly to the company or through the company. Here is a breakdown of each option.
Selling your home to the business
You start the process by entering key information about your property using the company’s website or app. An algorithm will calculate a tentative initial cash offer which the company will customize after you provide more detailed information about your home through photos or a virtual tour.
The iBuyer will also send a building inspector to check on the condition of your property. The company may subtract the cost of necessary repairs from your bid or give you the option of hiring your own contractors to do the work.
These are the main factors that determine how much the company will offer for your home:
- Surfaces, finishes and fixtures
- Recent sales of similar homes nearby
- Projected Real Estate Market Trends
In addition to not being located in a market where the business operates, an iBuyer may not be interested in buying your home if it is:
- Not a single family residential property
- Located in a flood zone
- Too old
- Sits on over an acre or two of land
- Worth $1 million or more
- A prefabricated or mobile home
- seriously damaged
If you don’t like the company’s offering, they’ll reconsider whether you can point out features they may have missed. The company’s offer may only be valid for a few days. After that, you can request an updated offer based on current market conditions, which means you might get a higher, lower, or no offer.
Selling your home through the company
Selling your home through an iBuyer is more like the traditional home selling process where you work with an agent to determine a listing price, put your home on the market, show it to potential buyers, and negotiate a deal until closing. . You can make more money this way than accepting a cash offer from an iBuyer.
There are several advantages to using an iBuyer’s listing service. For example, Offerpad says that if you use its sign-up service, the company will provide free carpet and deep house cleaning, handyman services, landscape cleaning, and pool services to get your home ready for use. be shown. Offerpad also says it will give you a home improvement advance — an interest-free loan repayable from the proceeds of your future sale — for things like paint, new flooring and appliances, and other upgrades that you’ll need. could help sell your home.
An iBuyer can also make a replacement offer on your home if you can’t sell for the price you hoped for or if your moving schedule is speeding up.
Costs associated with selling to an iBuyer
Selling your home to an iBuyer can save you money in areas such as renovations and moving costs.
For example, sellers who contract with Offerpad are eligible for free moving services if their new home is within 50 miles, the items weigh less than 13,000 pounds, and the home being sold is less than 2,800 square feet. .
However, with iBuyers, you will pay a service fee of 5% to 14% of the selling price of the house. These fees also cover business ownership costs after you buy your home, such as insurance, property taxes, maintenance, utilities, and other fees.
Ultimately, the service fee may end up being higher than the 4% to 6% commission that a traditional real estate agent typically charges.
You may be able to save money by simultaneously selling and buying your home through the same iBuyer, as well as getting your mortgage through the company. But it’s best to shop around with mortgage lenders and real estate agents first to determine which options offer the biggest savings.
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Is an iBuyer worth it?
Whether you’re buying or selling a home, working with an iBuyer can help simplify the entire process and avoid overlapping housing costs.
As a seller, working with an iBuyer can be worthwhile if you:
- You want to sell your house quickly, rather than waiting for the highest possible offer
- You don’t want to clean, fix, or showcase your home for potential buyers
- You don’t want strangers visiting a house you still live in
- Feel comfortable selling your home without a real estate agent
As a buyer, you might consider buying your home from an iBuyer if:
- You want a house ready to move into
- The move-in date can be flexible since the house is vacant
- You want to close quickly
- Getting your mortgage and home from the same company is attractive
- You are comfortable buying a house without an agent