Ibuyers: Are they Worth the Cost?

Photo by Veri Ivanova on Unsplash

iBuyers, instant Buyers, internet Buyers, investor Buyers …

Today, large online real estate service companies are repositioning themselves as investors. These services, like Opendoor, Offerpad, Zillow Offers and Redfin Now, have become known as iBuyers. With their own in-house brokerage services, they handle the entire transaction in an effort to appeal to sellers who want to sell their home with zero hassle. The process essentially eliminates agents who aren’t directly affiliated with the iBuyer companies, automatically reducing the ibuyer’s cost.

Strategically, ibuyers strive to make the initial offer somewhat close to market value. Some, like ZillowOffers, encourage sellers to request value estimates from real estate agents, to provide more assurance of the value. All will inspect the property and adjust the contract price, typically after a contract has been signed. This varies slightly from the normal sales process in that a conventional buyer will have viewed the home prior to making an offer, and incorporated the general condition of the home into the offer price.

“…an ibuyer is purely investment oriented and won’t negotiate.”

There is typically little negotiating room with ibuyers. There will be an inspection and the recommended repairs are priced out and subtracted from the initial offer on a “best and final” basis. Unlike a broker assisted sale where the buyer is emotionally involved, an ibuyer is purely investment oriented and won’t negotiate.

To the ibuyer, the ideal situation is to represent the seller and themselves. The seller is happy because it was quick and easy. The next step for the ibuyer is to make the repairs and list it for sale at an increase in price, once again trying to be the sole broker on the transaction. One could think of it as the real estate version of a vertical market. The ibuyer acts as the listing agent, the buyer, the buyers agent, the investor, and the ‘fix-n-flip’ contractor instead of having separate professionals for each step.

“It’s a sweet deal–for the ibuyer.”

It’s a sweet deal–for the ibuyer. Savings include sales commissions, much of the closing cost, and contractor profit margins. On the flip side of the ledger, the income includes “service fees” charged to the seller, usually in the 7% to 7.5% range, well above the highest real estate broker commissions. Some studies estimate that the final cost to the ibuyer is 15-20% below market value.

Clearly, sellers who use iBuyers end up netting less money, either through a below market purchase price or the higher fees compared to a traditional brokered sale. Is it worth the higher cost to avoid the hassle of making improvements, preparing the home to sell, and keeping it clean long enough to find a buyer who plans to live in the home?

“…it should not be the only option considered.”

When a home is severely outdated or dilapidated and the seller is unable to make improvements, an ibuyer may be the best option. Or, when the market is slow and it’s imperative that the home be sold promptly, an ibuyer may be a good solution. Under any circumstances, it’s certainly one more source to complete a sale. Given the size of the transaction and the cost involved, it should not be the only option considered.

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