Mon, March 20, 2023 at 10:19 AM EDT·7 min read
10’000 Hours/Getty Images
Homeowners who want to sell quickly and skip the hassle of showings, repairs and wading through a lengthy closing can speed up the process by using an iBuyer. These speedy sale platforms — the “i” stands for instant — are typically large tech companies that purchase homes from sellers directly. They can make an offer on your home, often in all-cash, in as little as 24 hours. They can often schedule closing dates to suit your timetable as well. But, if this all sounds too good to be true, be aware that iBuying transactions do come with some drawbacks. Read on to learn more.
What is iBuying?
The iBuying approach to selling a house has roots that predate the internet. Years before real estate websites came along, companies would put signs up offering to pay cash for homes and then flip the properties for a higher price, making a tidy profit. Today these companies can be easily found online, following the same general approach: making quick cash offers for homes and reselling them.
“The iBuyer is typically a company whose business model is to buy properties from homeowners, do minor, usually cosmetic repairs, and then sell at a profit,” says Rick Sharga, a former executive vice president for ATTOM Data Solutions. “For the home seller, the benefits are speed — the transaction typically happens very quickly once the offer has been accepted — and certainty, as the deal closes immediately, as opposed to putting a property on the local multiple listing service and waiting for offers.”
This approach can be very attractive to sellers who need to close a sale quickly, whether for lifestyle or financial reasons. But it’s not always as simple as it sounds.
How iBuying works
The iBuying process itself is very straightforward. In most cases, a seller provides some basic information about their home, or sometimes even just a street address, and within a short period of time, the iBuyer makes an offer — sight unseen.
Jade Lee-Duffy, a San Diego–based Realtor with TXR Homes, says that iBuying companies use algorithms to base their valuations on a property. “Then, an iBuyer makes a cash offer, sometimes as quickly as within 24 to 48 hours,” she says. “This process is meant to streamline buying and selling property, essentially cutting out the middlemen of banks and real estate agents.”
The convenience of this process, however, comes at a price for sellers. Because iBuyers need to make a profit, they typically purchase homes for much less than their estimated market value. “Keep in mind iBuyers are not going to pay premium prices for homes, so the offer will most likely be low,” says Ralph DiBugnara, president of the real estate video series Home Qualified.
In addition, while an iBuyer’s offer is made sight unseen, if the seller accepts, the next step is typically a professional home inspection. If any unexpected or costly issues are discovered during the inspection, that will likely impact the initial offer. “It could cause them to lower the offer, or cancel it,” says DiBugnara.
Is it worth it?
Selling your home this way may be worth it if you have to relocate quickly or don’t want to deal with the hassle of showings or a lengthy closing process. Selling to iBuyers also does away with any uncertainties about when your home will sell, and because they pay in cash, you won’t need to worry about your buyer’s financing falling through.
However, if your main goal is to get top dollar for your property, iBuyers are not the best choice. In addition, many charge steep fees that can be equal to, or more than, what you’d pay in real estate agent commissions on a traditional sale.
The rise of iBuyers
Even though iBuying has thrived in recent years amid the highly competitive housing market, it still represents a very small share of the overall real estate market. In 2021, for example, iBuyer purchase activity doubled compared to 2019, according to data from CoreLogic. Yet, as of 2022, iBuyer sales still only accounted for about 1 percent of total home purchases.
“iBuying represents a pretty miniscule percentage of overall home sales, but is becoming a more accepted practice and happening in more markets across the country,” says Sharga.
Historically, just four companies have accounted for the lion’s share of iBuying business: Opendoor, Offerpad, Redfin and Zillow. Combined, these companies have made up more than 95 percent of iBuyer purchases since 2017, according to CoreLogic.
Opendoor racked up the largest share of iBuyer purchases overall, with 56 percent of purchases. Offerpad came in third. Fourth-place Redfin shuttered its iBuying business, RedfinNow, in November 2022, and Zillow, which claimed second place in the CoreLogic study, shut down its iBuying business even before that. However, it has since returned to the iBuying market, in a sense, through a partnership with Opendoor. The two companies announced in August 2022 that they were joining forces in a deal that allows home sellers on Zillow to request an offer from Opendoor.
The iBuying process is different from a traditional home sale in many ways.
In addition to closing more quickly than a typical transaction, which involves real estate agents and lenders and scheduling hassles, there are fewer uncertainties associated with iBuying.
“There are [less] little headaches from a seller’s standpoint: no showings, no open houses and fewer potential contingencies to deal with,” says Bill Gassett, a RE/MAX Realtor and owner of Massachusetts-based Maximum Real Estate Exposure.
Most importantly, the speed with which the deal goes through means the seller gets their money that much faster — crucial for those who need cash quick or need to relocate in a hurry.
The flipside, however, is that a seller will net less money when working with an iBuyer.
In addition to the lower offer price, you will likely get hit with fees that can add up to the same amount you would have paid in real estate commissions. The fees may even be higher than a traditional agent commission: iBuyers often charge a fee that amounts to 6 to 8 percent of the purchase price, says Gassett.
Sellers also typically get less personal service or one-on-one attention when working with an iBuyer. “There’s a lot less contact with a specific agent,” says Lee-Duffy. In iBuying, much of the process is done online. In a more traditional transaction, a real estate agent spends time consulting with the homeowner before, during and up-to closing the transaction.
If you want to sell your home fast but are unsure whether iBuyers are the best approach, there are alternatives to consider. One such option is companies that proclaim “We buy houses.”
Similar to iBuyers, these companies will make a quick, all-cash offer for your home and can often close the deal very quickly as well. And also similar to iBuyers, the offer you’re likely to get could be far less than fair market value. One benefit of homebuying companies is that they will typically purchase your home as-is, meaning you won’t need to make any repairs, even if your home is significantly run-down.
If you want top dollar for your home, the best alternative to iBuyers is selling the traditional way, with the help of a real estate agent who knows the market well and will help you price your home competitively. An agent will guide you through negotiations with prospective buyers and help manage the closing process. Having this type of assistance can make selling your home far less stressful.
Consider iBuyers like Opendoor and Offerpad if you need cash fast, want to sell your home as quickly as possible, or if your home is in poor condition and you don’t want to make repairs. If you have the time, it’s often best to sell your home traditionally, listing with the help of a professional real estate agent and negotiating the best sale price possible on the open market.
Are iBuyers a good idea, and do they make fair offers?
If you want to sell your home quickly, need the cash ASAP or simply want to streamline the sale process, iBuyers can be a good idea. However, these companies do need to turn a profit, which means they will likely offer you less for your house than you might make otherwise.
Who are the biggest iBuyers?
The biggest iBuyers are Offerpad and Opendoor. However, they don’t operate in every market in the U.S., so be sure to check online whether they are buying homes in your area.
What does iBuyer stand for?
The i in iBuyer stands for instant — these companies are able to make you an offer nearly immediately after you provide your information.