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What Is an iBuyer in Real Estate?

TLDR

What You Need To Know

  • iBuyers are companies that use algorithms to determine how much they’re willing to pay for your home
  • iBuying is a fast and convenient way to sell your home online, but iBuyers don’t typically pay top dollar
  • Many people use iBuyers when they want to make a quick home sale without having to renovate or repeatedly show the home to potential buyers

Contents

Have you ever thought about selling or buying a house online? Nowadays, you can use the internet to buy and sell practically anything – and real estate is no exception.

If you’re curious about selling or buying real estate but don’t necessarily want to go the traditional route of renovations, staging, house tours and multiple offers, iBuying might be of interest to you. 

iBuyers are companies that use algorithms to determine how much they’re willing to pay for your home. With iBuying, an iBuyer uses technology to evaluate your home and make you an all-cash offer, usually within 24 – 48 hours. Though iBuyers are known for purchasing homes, they also sell them, giving you the option of buying a home completely online.

While iBuying presents a convenient way to buy or sell a house online, it’s important to consider all the pros and cons of iBuying. We’ll explain everything you need to know about how iBuying works and what to expect when working with an iBuyer. Then, you can make an educated and informed decision about whether iBuying is right for you.

iBuying: What Is It? 

The general idea behind iBuying predates the internet, with investors making cash offers on homes and closing quickly, then fixing those homes and selling them to buyers for a profit. This is a process known as flipping.

In its modern form and current business model, iBuying hit the scene in 2014, led by Opendoor, an iBuyer based out of San Francisco, CA.

iBuying began as a way to simplify selling and buying a home entirely online, empowering homeowners with more freedom and flexibility when making real estate transactions. Many people use iBuyers when they want to make a quick home sale without having to renovate or repeatedly show the home to potential buyers.

Instead of going through a weeks-long or even months-long process, iBuyers take you through the process of buying or selling a home through your phone, tablet or computer. 

Today, some of the leading iBuyers include:

  • Opendoor 
  • Offerpad 
  • RedfinNow
  • HomeLight Simple Sale

Despite their name, iBuyers don’t just buy homes. They sell them, too. People often ask how it’s possible for iBuyers to make offers so quickly and how they’re able to make money if they offer you a reasonable price for your home. Keep reading to learn how iBuyers work, what they can do for you and whether you should work with them.

How Do iBuyers Work?

The goal of iBuyers is to streamline and simplify selling your home (of course, iBuyers are also in the business of making money in the process). iBuyers work by making instant, all-cash offers to buy homes. Some iBuyers might choose to make an offer that’s slightly below market value, while others might pay a higher price but charge the seller a service fee.

Unlike some traditional buyers (like a couple who wants to buy a house and live in it), iBuyers won’t generally ask for any repairs to be made or for any seller concessions at closing. 

Once an iBuyer closes on a home, they’ll usually make any necessary repairs or upgrades. Then, they’ll sell (or even trade) the home to a buyer. 

Let’s compare using an iBuyer to the traditional process of selling a home.

Traditional Sale Selling to an iBuyer
Request OffersSign a listing agreement with a real estate agentFill out an online form, take pictures of your home
Home PreparationsUsually includes repairs of any major defects, plus painting and stagingNone
ShowingsOften as many as 25 or moreUsually one, and it may even be virtual (after the offer is accepted)
OffersNo guarantees; could take weeks to receive an offerOffers in as little as 24 hours
Seller ConcessionsSometimesNo
ContingenciesOften includes financing, inspection and appraisalInspection
Closing TimelineFlexible. 10 – 14 days or up to 90 days if requestedAfter an offer is accepted, usually a minimum of 30 days
FeesReal estate agent commissions (5% – 6%)Service fee (often 5%)
Closing CostsRoughly 1% – 3%Roughly 1% – 3%

Selling to an iBuyer

When you sell to an iBuyer, the sale process is designed to be convenient for you. Still, there are a few things you as the seller will have to do to facilitate selling your home to an iBuyer.

Gathering property information 

To determine how much they’re willing to pay for your home, an iBuyer will usually request certain information about your home. This can include basic features of the home like the size and number of bedrooms and bathrooms, as well as photos of the property’s condition.

Requesting and reviewing an offer

After you request an offer from an iBuyer and complete the necessary online forms, you’ll receive a cash offer to review. Sometimes, the offer can be made in under 24 hours, but it will almost always come within a couple of days. Most of the time, these offers are valid for a period of 5 days.

Accepting the offer

If you accept the iBuyer’s offer, they’ll usually send someone to the house for a walkthrough and inspection. If the visit reveals major defects with the home, the iBuyer will adjust the purchase price to account for the cost of repairs. At this point, you’ll either sign an agreement stating your acceptance of the revised price, or you can choose not to sell the home to the iBuyer.

Selecting a move-out date and closing

Once you accept the iBuyer’s final offer, you can select the move-out and closing (settlement) dates. An iBuyer can often close in as little as 10 – 14 days, but if for any reason you want to extend closing to 45 or 60 days, for instance, most iBuyers offer a flexible closing.

Buying from an iBuyer

Buying a home from an iBuyer is very similar to buying a home on the open market. Here are the basic steps in purchasing a home from an iBuyer:

Get preapproved

If you plan on financing your home purchase, you’ll want to get preapproved for a mortgage. A preapproval can help you determine how much home you can afford, in addition to qualifying you as a serious buyer who is ready to make offers.

Search for homes online

iBuyers list their inventory of houses online, allowing you to browse their available homes. 

Schedule showings

When you’re ready to schedule a showing, you can either call the iBuyer directly, or you can have your real estate agent schedule a showing.

Make an offer

iBuyers, like ordinary sellers, list their homes for sale at a certain price – but that doesn’t mean those prices aren’t negotiable. If you like a home an iBuyer is selling, you can make an offer that the iBuyer can choose to accept, reject or counter. 

Closing

When you buy a home from an iBuyer, the closing process is virtually identical to the closing process of buying a home on the open market. You’ll finalize any necessary inspections and the appraisal and can collect your keys after the transaction is complete.

How Much Does It Cost To Work With an iBuyer?

iBuyers are for-profit companies that are in the business of making money, so, as you can imagine, they don’t offer their services for free. Let’s look at how much it costs to work with an iBuyer.

Buy low, sell high

Some iBuyers make money by paying below fair market value for a home, fixing it up and selling it for a profit. In these cases, the iBuyer might offer slightly less than fair market value, provided the home is in good condition. If the home needs work, the iBuyer’s offer might be significantly less than the fair market value to account for the time, effort and cost of repairs.

Fee-for-service model

iBuyers who make their money by charging service fees are more likely to make you an offer at fair market value. However, you’ll have to pay a service fee for the convenience of a quick and easy online sale. Though these fees can vary from 4% – 7%, some of the leading iBuying companies – like Opendoor and Offerpad – charge 5% of the sales price.[1][2][3]

Other fees

In addition to the fee some iBuyers charge, you should also expect to pay closing costs of roughly 1% – 5%, as you would with any real estate transaction. In the event you have already signed a listing agreement with a real estate agent and you sell to an iBuyer, you may also have to pay the agent’s commission, which is typically 2.5% or 3% of the sale price.

Should You Sell to an iBuyer? 

Selling to an iBuyer isn’t a perfect solution, but it does come with some distinct benefits. Ultimately, only you can decide if you should sell to an iBuyer. Before you rush to sell your home to an iBuyer, you should evaluate your priorities and conduct your own research to determine if iBuyers are worth it for you.

PROS of Selling to an iBuyer👍

Speedy sales with less hassle

An iBuyer can work on an accelerated closing timeline, so if you’re in a hurry to sell, there are few (if any) ways to sell your home faster.

Cash offers

iBuyers almost always make all-cash offers, which are part of the reason they’re able to close quickly. Cash offers make selling your home easier by eliminating the need for an appraisal and the risk of financing falling through.

As-is purchases

iBuyers will purchase your home as-is, so you don’t have to worry about making repairs. However, if you sell your home to an end-user, you might have to make repairs prior to closing.

Fewer showings

If you list your house on the open market, you’ll probably have dozens of people traipsing through your house. Showing your home can be inconvenient and stressful. Selling to an iBuyer usually only requires a single visit, which can sometimes even be done virtually.

Save on real estate agent commissions

Most people who sell directly to an iBuyer save on real estate agent commissions, which can often amount to as much as 6%.

CONS of Selling to an iBuyer👎

Less than fair market value offers

An iBuyer will make a quick offer on your house, but you might find it’s at a price below fair market value. Selling quickly and conveniently comes at a price, which often means accepting less than what your home is worth.

High service fees

If you sell to an iBuyer, like Opendoor, Offerpad or RedfinNow, you’ll have to pay a pretty steep service fee, often to the tune of 5% or more. On the sale of a $500,000 house, a 5% fee is $25,000, which is quite a chunk of change.

Should You Buy from an iBuyer?

Before buying a home, it’s important to understand your home buying needs. After doing your research on purchasing from an iBuyer, you can be the judge of whether or not an iBuyer is right for you.

PROS of Buying From an iBuyer👍

Frequent new listings

iBuyers are constantly purchasing new homes, giving you the luxury of choice. Even if you don’t see something you like right away, iBuying companies usually add new listings frequently.

Move-in ready homes

A home sold by an iBuyer will be move-in ready, which can go a long way for your peace of mind. Buying a house on the open market can leave you with a lot of question marks and, oftentimes, repairs that you’ll be responsible for.

CONS of Buying From an iBuyer👎

Little wiggle room

Compared to ordinary home sellers, iBuyers are less likely to have much wiggle room on the price. iBuying companies usually have plenty of cash, so they probably won’t feel any pressure to sell, and will often wait to get an offer at or near the asking price.

Higher prices

You can expect a higher home price. In exchange for a home that’s in excellent condition, you’re likely to pay a bit of a premium.

Is iBuying the Future?

Though iBuying represents a tiny fraction of all real estate transactions, it’s becoming an increasingly popular way to sell and buy homes. iBuying provides a valuable service that appeals to a diverse audience, and it may be right for you if the price isn’t the number one priority. But, for now, the reality is that most people still prefer selling and buying homes through more traditional means, and do appear to value price over all else.

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  1. Opendoor. “What is an iBuyer – How it works and is it worth it?” Retrieved June 2022 from https://www.opendoor.com/w/guides/what-is-an-ibuyer

  2. Redfin. “FAQs.” Retrieved June 2022 from https://www.redfin.com/services/redfinnow?inquirySource=512

  3. Offerpad. “Questions about selling.” Retrieved June 2022 from https://www.offerpad.com/faq/sell-your-house/

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In Case You Missed It

  1. iBuyers may be worth it if you want to sell your home quickly and without the hassle or if you want to shop online for a house that’s in move-in-ready condition

  2. When an iBuyer purchases your home, they’ll often charge a service fee of around 5%

  3. Weigh the pros and cons of iBuying to decide if working with an iBuyer is a good fit for your home selling or home buying needs

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