Confused about how to sell your home?
What the Heck is an IBuyer?
And Should I Sell Them My Home?
There is only one certainty in life… change, and the home buying/selling process is changing. Here in the Phoenix-metro area, we are at ground zero because ibuyers are here in full force. Other parts of the country will be inundated with them soon. You may even be familiar with some of the big name ibuyers – Opendoor, Offerpad, and Zillow, all of whom are here in Phoenix.
Let’s start out by saying ibuyers and flippers are the same things .. Sort of. They will buy your home for cash, and sell it for a profit. Note I said for a profit. These are not charitable organizations. Both are investors.
I said, “sort of”. They have some differences. More about that follows.
What is a Flipper?
A flipper is an investor looking to buy distressed properties for resale. Profits from flipping real estate come either from buying low and selling high in a rapidly rising market, or buying a house that needs repair, with plans of fixing it up before reselling it for a profit. There are several TV shows about this on HGTV. The target house for a flipper is generally in need of repairs and upgrades to make it marketable, with an owner who prefers to not make any repairs themselves and for this reason, will accept selling it at a lower than market value price.
What is an ibuyer?
An ibuyer is an investor looking to buy turn-key homes. Homes in good condition, needing little or no repairs or upgrades. Homes they can buy and sell quickly, often times in as little as two weeks. I think a good definition is, “instant buyer” because homeowners can get an “instant” offer on their home. More on this in a bit. The seller that the ibuyer targets needs to sell quickly and likes the convenience of the ibuyer.
Flipper vs ibuyer and How Their Targets Differ.
The ‘Target Audience’ is the main difference between a flipper and ibuyer. As mentioned earlier, Flippers look for distress homes whereas ibuyers look for homes in good condition that can convert quickly.
Generally, a homeowner who will sell to a flipper cannot afford to make repairs while continuing to make payments on their property
Homeowners who sell to an ibuyer are usually looking for convenience over profit.
Flipper vs ibuyer and How Their Marketing Images Differ.
Another difference between a flipper and an ibuyer is the image. When you picture a flipper you may imagine a sign on the corner saying, “I buy ugly houses.” On the other hand, with an ibuyer, you’ll probably watch an attractive spokesperson on a TV commercial who sincerely wants to help you sell your home. Major ibuyers spend a lot on marketing. They sell their image. Many people buy into the hype thinking, “this person is looking out for my best interests.” Remember, they are investors and are in business to make a profit.
Read More: How to know which offer to accept?
What is the Process if I Choose to Sell My Home to an ibuyer?
Technology is an amazing thing! The process is all online. You’ll go to their website, answer a few questions and in a couple of days, you’ll receive their cash offer. WOW!
Now, let’s assume you accept their offer. Next, they’ll send an inspector to evaluate your home. Then they’ll ask for a repair credit. This is money that will be taken from your profits at closing. They do not lower the price paid for the house. This is an additional expense you will pay.
Let’s assume you accept the repair credit. Now you can go house hunting and make a strong offer on a house you love. Easy peasy!
- No cleaning and staging your house.
- No showings or open houses
- No selling your house and merely settling on another because the clock is ticking and your closing date is right around the corner.
Is it Really That Easy?
No. There are always pros and cons, and how much money you’ll get can be a big issue. You will pay for the convenience.
Related: How climate change could affect your home’s value
How Much Will I Get if I Sell With an ibuyer?
That is a very important question! You want to know what you will net after all the fees and adjustments are made. I ran my own sample survey using my own home as an example.
The ibuyer will typically offer less than you would get on the open market (market value). They have to or they will lose money. Do that enough and they will fold.
The ibuyer does not charge a Realtor® commission, instead they call it a ‘Service Fee’. Potato, potatoes. A Realtor® commission is typically 6% with 3% to the buyer and 3% to the seller. ‘A Service Fee’ is usually anywhere from 7.5% to 8.8% as shown in my example. It can vary. I have heard higher numbers on the rumor mill.
As previously mentioned, the ibuyer will have your home inspected and will require you to pay for the repairs they deem necessary. This is a total wild card. You don’t know how much they will ask. As a Realtor®, I do not suggest spending more than a couple of thousand for repairs to keep goodwill. An ibuyer may push that envelope and I’ve heard that they do push.
In my example, I’m referring to them as ibuyer #1, 2 and 3 and am comparing them to a conventional Realtor® sale.
Zillow’s Zestimate for my house was $347,000 to $383,000. The average $365,000. I used a conservative $360,000 for the Realtor price.
Don’t forget the above figures haven’t been adjusted for the Repair Credit the ibuyer will request. Meaning an even smaller Net sale for you!
A sale with an ibuyer is so convenient, but is it worth – $20,000 or more to you? That is:
- Two deluxe cruises
- 1000 $20 lunches
- Tuition for a year
Beware
- Ibuyers are investors, not regular buyers.
- Ibuyers are looking out for their interest, not the consumers.
- Ibuyers purchase homes based on what they say it’s worth, not current market values.
- Ibuyers make sellers pay for repairs they want done.
Honestly though, you can say the same thing about all buyers. They are looking out for their own interest. They want to pay what they think it’s worth, and they want the seller to pay for repairs. The big takeaway is that ibuyers are investors. They do this all day long. And the ibuyer is not vested in the purchase. They are not in love with the house. This is only business to them and they are very willing to walk away.
In a traditional real estate transaction, you have a Realtor® to protect your interests. Your Realtor® will push back, while an ibuyer can run you down.
So, What Do You Do?
The three major issues you may want to consider are Time, Sale Price and Profit, and Convenience.
Consider what is most important to you? Is it making top dollar or are you on a time crunch? Are you willing to invest time and energy into showings, or do you prefer to go with the most hassle-free option available?
Time, or Urgency of the Sale
Do you need to move quickly? It might be worth taking a cut on the sale price in order to speed through the selling process. Most ibuyers claim they can close the deal in as little as a week, leaving you with cash in hand to invest in your new home. They will allow you to set the closing date.
Sale Price and Profit
If you want to get top dollar for your property, the open market is still the most profitable option on the table. Even though many ibuyers claim they buy properties at market value, in reality, they are going to undercut market values when making their offers. If you’re thinking an ibuyer fits your needs best, it never hurts to compare competing ibuyer offers and get the best deal.
Convenience
A good agent will take a lot of the headache out of a traditional sale by helping you arrange showings, with listing photos and marketing strategies. Your Realtor will help keep the buyer’s requests to a minimum and to keep insanity to a minimum. The Realtor is there to guide and protect you.
If you are living in the home you are selling, you’re still going to need to keep your place in tip-top condition at all times.
At the end of the day, it is up to you. What will you do?