What is an iBuyer?
You might be wondering what the heck an iBuyer is and why I should care. If you are planning on selling your home, make sure you pay attention.
In a nutshell, an iBuyer is a company that will purchase your home without the usual hassles of either trying to sell it as a for sale by owner or by going the traditional route of listing with a real estate agent.
Their stick is to give you a cash offer for your property and close super quick. You're probably thinking to yourself this sounds too good to be true. What's the catch? There must be one, right? There always is.
Yes, you're correct. Nothing is ever as good as it seems. First, not every home is going to qualify. iBuyers are interested in purchasing turn-key properties, not the house on the block that everyone wants to be bulldozed. So, if your home needs tons of work, it is unlikely an iBuyer will have any interest.
The iBuyer wants to purchase your property, do minimal work, and then put it back on the market and make a profit. It sounds like a pretty brilliant marketing strategy, right? Well, it is when it's an appropriate time to be buying homes.
Unfortunately, now is not one of those times. Real Estate markets all across the country are suffering because of the Covid19 outbreak. Homes sales are down significantly in every metropolitan area across the US. Therefore, the most popular iBuying companies have put their business model on hold for the moment.
Who Are iBuyers?
iBuyers are not typically small investors but larger companies.
Up until the pandemic hit, there were some very well known real estate companies who were the major players in the iBuyer market. They included:
Most of these companies have put a freeze on purchasing homes. Who could blame them? Would you want to be stuck holding the bag on a bunch of houses that nobody wants to buy?
The buyer pool has shrunk dramatically. This is not the kind of market for the timid of heart. Sound business decision making has to be paramount.
Will The iBuyer Return?
Yes, of course, they will. When we see some semblance of "normalcy" returning to real estate markets, iBuyers will be back. Purchasing homes from those in need of a quick sale is a robust market. There are always things that come up in people's lives that make them viable candidates for wanting a quick hassle-free sale.
Is iBuying for everyone - no way, Jose! There must be some downsides to this concept. In fact, there are some pretty substantial drawbacks.
If you are a potential seller reading this is really what you need to pay attention to. While there are some excellent upsides to iBuying here is what will give you pause for this being the right situation for you:
Cons of The iBuyer
The most significant downsides to iBuyers are that they will not be paying you what your house could fetch on the open market. iBuyers will use what's called an automated valuation model to come up with what to offer for your home.
Unfortunately, the value they set for your home is often much less than the actual market value. In addition, the fees that iBuyers charge you are higher than the typical real estate agent expense.
While most real estate brokerages charge five to six percent to sell a home, an iBuyer will often charge seven to eight percent and sometimes more.
So if you are looking to net the most money from your sale, using an iBuyer is not the way to go.
What Should You Do?
If you are considering using an iBuyer to purchase your home, at the very least, you should get an analysis done on what it would fetch on the open market. You can then compare the difference between what an iBuyer will offer to the likely sale price with a traditional sale.
You'll then be able to compare the difference and whether it's enough to give you second thoughts on going with an iBuyer. The pros and cons of iBuyers are reasonably straightforward. You're the only one who can determine what holds more value to you.
Conclusion on IBuyers
It is anybody's guess when iBuyers will return to the market. My intuition tells me that it will occur when these companies can see a fluid exchange of homes going under contract again.
Is the iBuyer concept going to go away - I seriously doubt it. The idea holds great promise for some folks. There are many who are in a place where an expeditious sale is far more important than maximizing profit. These are the ones who can benefit the most from the iBuyer return.
For others, the IBuyer model is a complete waste of time. A significant percentage of homeowners want the most many they can from their sale. One of the reasons consumers hire real estate agents is because they know this is the absolute best way to get the most money from their home sale.
Only you can decide whether you would consider an iBuyer purchasing your house makes sense or not.
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About the Creator
One of the top RE/MAX Real Estate Agents in New England. A passionate writer who's work has been featured in many prestigious real estate publications including The National Association of Realtors, RISMedia, Inman News, and Credit Sesame.