Real Estate Investing

Everything Real Estate Investors Need to Know About iBuyers

May 29, 2024

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iBuyers In Real Estate

We know that technology is changing the world, but how is it changing the world of real estate? iBuyers are one of the many ways technology has infiltrated the real estate investment space.  

Interacting with iBuyers can be game changing due to their speedy transactions and unparalleled convenience. However, iBuyers come with their own important considerations and impacts on the real estate market. In this article, we’ll explore the ins and outs of this modern-day phenomenon compared to the same process with a traditional real estate agent. Keep reading to learn more about how to use this innovation to your advantage.  

What is an iBuyer? 

What is an iBuyer? iBuyers, or “instant buyers,” are online quick house buyers and sellers.  

iBuyers purchase properties directly from sellers then estimate their value using an automated valuation model (AVM), an automated pricing tool. This computerized appraisal method will take nearby and similar properties into account and use that data to produce an estimation of a home’s value. The online method of buying and selling takes much less time than a traditional real estate transaction, since much of the process is automated. This is the chief advantage of an iBuyer over a traditional home sale with real estate agents –  their speed. iBuyers can sometimes present an offer in under 24 hours using their automated pricing tool, and their offer will be a cash offer. 

When they first came on the scene, iBuyers were predicted to substantially unsettle the real estate market. There are some big names that surely have had an impact—Zillow and Opendoor are a couple recognizable quick house buyer sites that have found success. However, many investors overestimated how much change iBuyers would bring. In 2023, only about 1% of sellers sold their homes to an iBuyer, according to the National Association of Realtors.  

That said, knowing your options for buying and selling a home will always be better than being unknowledgeable. iBuyer companies are a great choice for some investors, and you could find yourself being one of them. 

How Can I Sell My Home to an iBuyer?  

Selling to an iBuyer can be a great option for some homeowners, especially those on a tight timeline seeking an instant cash offer. Think of iBuyers as a sort of online “house flipper.” iBuyers’ business model is to use an AVM to buy properties via an all cash offer, fix them up, and sell them for profit. The only difference between what an iBuyer does and what a house flipper does is that the iBuyer won’t typically buy homes that are in distress—the homes iBuyers purchase are usually in good condition and need minimal (but high profit-yielding) repairs.  

iBuyers are not present everywhere. In fact, iBuyers are typically only seen in major metropolitan areas for now. Make sure that a reputable iBuyer is present in your neighborhood before diving further into this process. 

If you are planning on selling your home to one of these sites, you will be asked to submit basic information about your property. Sometimes, websites will ask you to present evidence on the current state of the home, like photos. Keep in mind that iBuyers will usually only buy detached, single-family homes.  

The algorithm will offer a tentative initial offer number, but they will typically customize that offer as the process continues. It’s possible that the iBuyer will also send out a home inspector to evaluate the condition of your property. If you aren’t happy with the offer, remember that you aren’t required to move forward. 

The next step is to accept or deny the offer the iBuyer sends you. As with any traditional offer, the agreement will have its own closing costs and considerations that you should carefully think over before accepting. The iBuyer company will subtract the cost of any needed repairs from the offer or may extend the opportunity for you to hire your own contractors to conduct those repairs. Many iBuyers will allow their customers to back out at any point prior to the closing date—this is a more flexible arrangement than most traditional contracts.  

If you decide to move forward with the iBuyer offer, many sellers can expect payment within a week. It may be possible to more or less set your own closing date. Of course, each transaction is unique, and depending on what kind of iBuyer you utilize, the payment timeline could vary.  

How to Buy a Home from an iBuyer 

iBuyers can be used to buy a home as well as sell one.  

Once you have decided your budget for a home and have shopped around for good mortgage rates, you can start browsing listings on iBuyer websites based on that range. If you find a property that you are particularly interested in, you can contact the seller through the iBuyer site and ask for more information. If you’d like to schedule a tour, you can do that through the iBuyer website. 

iBuyers will usually advertise homes that are ready for move-in immediately. The company will already have completed any necessary repairs, but it’s always a good idea to get your own inspector and complete an independent home inspection prior to making an offer.  

Once you feel comfortable making an offer, do so and negotiate with the iBuyer on price. The iBuyer will use data from recently sold homes in the area to inform its negotiation and how much it is willing to accept on the property.  

If you have signed the contract and successfully secured financing, you will most likely be able to move in relatively soon. In traditional home sales, you could have contingencies or timeline specifics that keep you from moving in until the seller’s next home is bought. iBuyers eliminate many of these delays since you are interacting with a company rather than an individual seller who may have their own timelines. 

Pros of Working With iBuyers 

iBuyers should be utilized by sellers who want to receive cash offers quickly and avoid the uncertainty that comes with traditional home selling.  

Working with iBuyers can offer real estate investors a streamlined and efficient way to sell properties quickly and without hassle. iBuyers can often provide fast offers and an overall accelerated timeline, allowing you to sell your property in a matter of days. 

Another advantage is the convenience factor. You can avoid the traditional home-selling process, including staging, showings, and open houses. This can be especially beneficial if you’re looking for a quick and straightforward sale without the usual complexities of the real estate market. 

Cons of Working With iBuyers 

One major drawback of partnering with iBuyers is the potential for receiving lower offers than fair market value for your property. While iBuyers offer convenience and speed, their offers often come in below what you could potentially get on the open market. It’s a good idea to also work with a real estate agent who can offer guidance on current fair market values and help you evaluate the opportunity cost of using an iBuyer. 

iBuyers also charge service fees that can eat into your earnings. Service fees can be anywhere between 5-6% of the sale price. These fees do not include closing costs like escrow fees or title insurance. iBuyers also do not cover the costs of any repairs they need fixed.  

That being said, iBuyers typically focus on properties that require minimal repairs, so if your property needs significant work, you might receive an even lower offer or be rejected altogether. 

Conclusion 

iBuyers offer convenience and speed in selling your property with almost instant cash offers, but they may come with higher fees and lower offers. It’s important for real estate investors to weigh the pros and cons before deciding to work with iBuyers. 

Their presence in the market is changing the traditional real estate landscape, providing a new option for sellers looking for a quick and hassle-free transaction.

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