“iBUYING” PROGRAMS (AND WHAT THEY MEAN TO YOU)

In recent years there’s been the beginning of a shift in the real estate industry – and it’s called “iBuying”. The “i” stands for “instant”.

Maybe you’ve heard of iBuying? Recently there’s been a lot of press around this topic (and a ton of ads on TV and online)!

The big players in the iBuying market are OpenDoor, Zillow, Redfin, and Offerpad. These are companies who see sellers in the real estate market as uninformed, technology-driven, and as easy marks for their schemes.

 

The ads targeted at sellers go something like this:

  • Sign up with one of the providers offering iBuying services
  • Complete a questionnaire
  • Upload photos of your home
  • Wait for 24-48 hours
  • The provider assesses the value they’re willing to pay based on your photos, other sales in the area, and the profit margin they need.
  • You agree to the price
  • The provider may choose to have an inspection
  • You receive a list of items the iBuying company wants fixed. If you agree, you then have to make the repairs (or receive less money for the home if you refuse).
  • The iBuying service buys your home, paying cash
  • Seven to 10 days later your home is sold, and you move out

Sounds intriguing, right?

Sounds simple.

No cleaning the house, no doing any maintenance, no waiting for a buyer.

And money in your pocket quickly.

 

THE REAL TRUTH: ALL CASH, ALL FLASH

Who wouldn’t want access to quick cash for their home? It sounds so easy and stress-free.

Here’s the reality.

The iBuying business model is based on this premise: buy a mid-priced home at a below market price after charging you a high fee, put a little lipstick on it if needed (a fresh coat of paint, for example, or beauty bark and flowers in the front yard), hold on to it for 60 to 90 days, resell at current market prices, and pocket all the profit that should have been yours.

To succeed, the iBuying model requires that it charge you – the seller – a high fee. And they must also purchase your home at a price substantially below market value.

That “high fee” that I mentioned? Depending on which iBuying service provider you use, that can range from 7% to 13%. That’s far above the normal 6% charged by traditional real estate agents.

Let’s look at a real-life example of the profit you lose with an iBuying service, using a $500,000 home as an example.

Fees, traditional agent services at 6% = $30,000

Fees, iBuying at 7% = $35,000 (hey, you just lost $5,000!)

Fees, iBuying at 13% = $65,000 (oh no, you just lost $35,000!!)

And that’s not even the true story. That home I used as an example? The figure of $500,000 is what I am estimating a traditional agent could get for your home. An iBuying service is going to be offering you far less – perhaps $390,000 … or $425,000 or $450,000 if you’re lucky. Regardless of the exact amount, there goes another huge chunk of money out of your pocket and into the pocket of the iBuying service.

A recent study by Collateral Analytics showed that costs for sellers using iBuying services averaged 13 to 15% more than sellers using traditional methods. Research by Marketplace showed similar results, with sellers netting 11% less with iBuying than with traditional real estate services.

Using an iBuying service doesn’t save you anything on title fees, escrow fees, or excise tax either. You have to pay those, regardless of whether you use a traditional agent or an iBuying service, and the fees for those services don’t change based on who sells your home.

You know I’m an advocate in my clients’ best interests. And I am 100% convinced that iBuying services do not serve my clients well.

 

DOES iBUYING MAKE SENSE FOR YOU?

WHY YOU MIGHT WANT TO WORK WITH AN iBUYER:

  1. You’ll get your money quickly (10 to 14 days)
  2. You won’t need to prepare your home to receive top dollar because iBuying programs don’t pay top dollar. So now cleaning, prepping, catching up on overdue maintenance. MAYBE. Remember that some iBuying companies don’t require this on the front end, but may inspect your home after offering to purchase, and may still require you to complete repairs prior to the sale closing.
  3. You never need to meet live with a real estate agent
  4. You won’t need to leave your home for showings

 

WHY YOU ARE BETTER SERVED WITH A TRADITIONAL REAL ESTATE MODEL:

  1. A good agent can sell your home quickly – 25 to 40 days is typical in our current market. Most sellers aren’t so urgently in need of funds that they need money in 10 to 14 days.
  2. You will net more money. This happens because a real estate agent will position your home to receive the highest possible value, and because your fees will be lower than those charged by iBuying companies.
  3. Meeting live with a real estate agent allows them to understand your needs and your goals and helps them strategize effectively with you. You likely also will need to purchase a new place to live, so having an established relationship with the agent who sold your home makes that simple and stress-free.
  4. Leaving your home for showings is part of the process of selling your home. The more people who see your home, the higher the demand (and the price) will likely be. Yes, it’s inconvenient. But it puts money in your pocket.
  5. Selling your home quickly (in 10 to 14 days, on average with iBuying) likely means needing to be out of your home that quickly. Are you really prepared and able to do that? Most sellers are not.

The bottom line? It’s all about your bottom line. If speed and some cash is the most important thing to you, iBuying could be a viable option.

However, if profit is more important to you, a traditional model of real estate will be your best bet.

 

WHAT CAN YOU EXPECT FROM iBUYING IN 2020?

iBuying has been around since 2013, and not even 1% of the real estate transactions in this country are completed with iBuying. Sellers are savvy, and understand these services are rarely in their best interest.

The future of iBuying is uncertain. In robust real estate markets, as we have here in the Puget Sound, there are far more opportunities for sellers who follow a traditional path. Perhaps the programs will be more effective in parts of the country where real estate is not such a hot commodity. Only time will tell.

Our team will be keeping an eye on iBuying this year and watching to see if and how it impacts our market. As a strong advocate for my clients, you can count on me to keep you up to date on iBuying as an option.

And if you’re wondering how iBuying versus traditional real estate services would impact your situation, I’m happy to provide you a real-life example starring you and your home. If that’s of interest, just reach out and we’ll schedule time to chat!

 


Marti Reeder, Realtor, Managing Broker