RE: iBuyers, Have you heard of them?
iBuyers have been creeping into the market for the past 5 years, beginning with the launch of OpenDoor in 2014 and then leading to OfferPad, Zillow Offers, Redfin, and others. They have a great sales pitch of “making the process easy” for sellers with their instant cash offer, quick closing, no home showings, etc. Yes, these items do make it a little bit more convenient and sellers clearly appreciate that, given their growth of more than 25% annually in recent years. However, are they equal in terms of what the seller pays and proceeds the seller receives compared to the traditional method of working with a real estate agent?
According to Collateral Analytics, a real estate analytics firm, home sellers often end up paying higher fees while also receiving lower purchase price offers, thus reducing their proceeds, as outlined below:
- iBuyers request 3-5% to cover their liquidity and carrying costs
- iBuyers inspect the home and request a large repair allowance
- iBuyers offer below market value with the perk of closing quickly
- iBuyers charge a “convenience fee” or “service credit” typically in the range of 6-9.5%
In total, based on research, sellers end up paying 13-15% MORE in fees than working with an agent and have no idea if they are even receiving a fair market value purchase price to begin with.
For home sellers who can’t do home showings or who just need the money quickly, this might be a good option for them. For the other ~95%, clearly working with an agent will net you more money in your pocket.
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