The Truth About iBuyers

The Truth About iBuyers

“Wait! I can sell my house to a buyer who will pay me all cash, I won’t pay any real estate commissions, I don’t need to get my home ready to sell or do any repairs, they won’t do an appraisal, and I can close whenever I want?”

Wow, that sounds great!  But is it too good to be true?

The question above is one I’ve been getting a lot lately from homeowners who are thinking about selling.  We all are seeing lots of advertising both on line and through the mail from these “iBuyer” companies. Since one of my promises is to always tell you The “Real” Real Estate Story I thought it would be good to share some information with you about this topic.

What exactly is an “iBuyer”?

The term iBuyer stands for “instant buyer”. There are several iBuyer companies out there. Zillow Offers and Opendoor are two with a growing presence in our area.  These iBuyer companies use investor funds to purchase homes directly from sellers. After doing a few repairs they turn right around and resell them on the open market. They all have the very same goal - to make a good profit on your home in a very short period of time. They need to buy from you at a low enough cost that they are confident they will make money!

Is selling my home to an iBuyer a good choice for me as a seller?

Honestly, it could be the best thing for you. Or, it could be the worse financial decision you could ever make.

Much depends on your own personal situation, and what your priorities are as you sell your home.

How is selling to an iBuyer different than the traditional way of selling my home?

Each iBuyer company has its own business model, but in general this is how they work:

• They pay all cash for the homes they buy, so no lenders are involved and there is no appraisal needed.
• They usually allow the seller to pick the timeline for closing, from ten to 45, 60, or 90 days out. 
• They make an initial non-binding offer quickly, usually within twenty-four hours, without physically seeing the home.
• If the seller agrees to this initial non-binding offer, the iBuyer company will schedule and pay for a home inspection to be done by an inspector of their choice. An iBuyer company representative may be there as well. 
• After the inspection is completed the iBuyer company will submit the official written offer.  It will include the offer price (which may or may not be the same as the initial offer above), any deductions for service/convenience fees (see more about this below), and an additional deduction for the condition of the home and/or for repairs they will want to do after closing.  Some companies will allow the seller to complete some or all of the repairs, some do not.
• The seller will be given a short time to accept the offer, usually a few days to a week or so.
• Most iBuyer offers are “take it or leave it”. They usually will not negotiate the price or the terms (other than the closing date).
• If the seller and the iBuyer agree and sign the contract it will be sent to a local title company (one the iBuyer company has chosen), and that title company will do all the pre-closing title work, issue the title insurance policy, and conduct the closing. 
• The iBuyer company will do a pre-closing walk-through, usually a few days prior to closing, to make sure all is as they expect it to be. If it isn’t they may delay closing, or possibly hold back funds to cover extra expenses.

What else do I need to know?

• The iBuyer companies all say they don’t charge a real estate “commission”.  What they do instead is deduct from the seller’s proceeds something called a “service fee” or “convenience fee”.  (And we’ve been seeing these fees run between 6% and 15% of the sale price, much more than typical commissions!)
• It’s important to know that the iBuyer companies use their own version of a real estate contract, not the standard Colorado Real Estate Commission approved Contract to Buy and Sell. These iBuyer contracts are written by attorneys who work for the iBuyer companies, and they contain language that solely protects the iBuyer company.  There is no language included to protect the seller. These contracts often include provisions that allow the iBuyer companies to change their minds about the purchase prior to closing, and to withhold additional funds at closing for any reason they deem reasonable (without seller permission). 
• The iBuyer companies will have licensed “buyer agents” who will represent them throughout the transaction. Their role is to make sure the iBuyer company is paying as little as possible for your home.
• The iBuyer companies usually offer an “earnest money deposit” that is much smaller than we typically see in a regular resale transaction, and their contract will include a provision that says they get it back if they terminate the contract.

The business models being used by the different iBuyer companies are constantly changing, as they attempt to steal business from each other and gain market share. Some of the early companies are already out of business, and others have adjusted how they operate as they test ideas and learn what will work or not. 

Will they make an offer for every home?

No. Each iBuyer company only operates in selected metro areas, and those are the cities and suburbs where they believe real estate prices will continue to increase (so they have a greater likelihood of turning a profit).

They each also have their own restrictions on the locations and types of home on which they will make offers. For example, some companies won’t buy rural properties, some don’t want to buy homes that need a lot of major repairs, and some will only buy homes that fall within a specific price range.

Can I and should I have a listing agent represent me if I want to work with an iBuyer company?

If you’ve read the above, you know the answer is DEFINITELY YES!

It’s interesting that many of the iBuyer companies actually suggest on their websites that sellers should have their own representation.  I’m making an educated guess their legal advisors have recommended they do this to reduce the risk of unhappy sellers coming back later to file lawsuits against them claiming they had been taken advantage of during the process. 

Remember that the iBuyer companies will have buyer’s agents representing them, and the contract they will want you to sign has been written by their own attorneys to protect their side only.

Shouldn’t you have someone helping you evaluate their offers and explain all the details of their contracts, before you sign anything? 

Summary

For sellers who care less about the amount of their proceeds at closing than they do about just getting the house sold quickly, selling to an iBuyer company may be a good option.

You need to keep in mind that the function of an iBuyer company is to make money for their investors. 

Many of them have staff members who are very personable and will make a connection with sellers to earn their trust. They may be the nicest people in the world, but at work it’s their job to buy houses at the lowest possible cost.  It’s also common for them to offer what seems like a decent price up front, then reduce the price on the final contract and add in some pretty big fees that the seller will need to pay. 

If you are considering getting an offer from one or more of the iBuyer companies, I suggest you contact a good listing agent before you click the button on each iBuyer website to request a bid. Then have your listing agent request the offers directly so he or she is involved as an intermediary from the very beginning. 

You’ll want to have a good idea of what the current true market value of your home is anyway before you request an iBuyer bid, so you’ll know exactly how what they offering compares to that.

If you are considering selling your home and want to explore selling it to an iBuyer, please call me.  

I will be involved from beginning to end, explain the process steps, review every provision in the contracts with you, provide a detailed financial analysis comparing the iBuyer offers to what you might receive at closing for a sale at the same price on the open market, and make sure you have all the information I can give you so you can make a well-informed decision based on facts.

You should know that what I charge sellers to represent them if they will be working only with an iBuyer (so not putting their home on the open market), is quite a bit less than a typical real estate commission. I won’t be paying for professional photography, advertising costs, and many of the other expenses that I incur when listing a home for sale to the public. You also won’t be paying the typical buyer side agent commission.

If you are considering selling your home, either to an iBuyer or on the open market, we should talk. Let’s discuss what you are trying to do and how I can help.

Lynne Hannifan, GRI, MCNE, PSA, SRES

Broker Associate, Trainer, Mentor

HomeSmart Cherry Creek ELITE

303-589-5494

 ©Copyright 8/19/2019, Lynne Hannifan