Market Disruptors like iBuyers: Is it worth the cost?

At LEAGUE, one of our core objectives is to stay on the front lines of market trends and behaviors. That said, it’s interesting to observe how companies like Uber (in transportation) or AirBnb (in hotel) have altered their industries. In real estate, we have begun to see the influence of the iBuyer making waves in our market.

You may be asking,” what is an iBuyer?” This type of buyer offers convenience, immediacy and tech-friendly interaction. A few well-known examples in the real estate industry are Open Door and Offer Pad, and the list is rapidly growing!

Sound too good to be true?

Should I consider them as a buyer for my home?

What does the iBuyer offer to a seller?

In short, an iBuyer is a company that offers to purchase single-family real estate in certain markets like ours, with the intent to resell the property within 90 days for a price higher than they paid for it, charging the consumer fees for doing this. They offer sellers the convenience of a quick purchase offer without having the burden of showing their home. It’s refreshingly simple.

However, the offer price does not include the closing fees which are cited as “market risk fees” or “convenience fees” at generally 7.5-10%. Often there is another 4-6% reduction in price during the period of negotiations. All iBuyer offers are subject to inspection, and unlike a traditional buyer, they have never seen the property. When they make their offer, they assume that the condition is ideal. If it is not, they will negotiate down the offer during their inspection period. The real price is negotiated during the inspection period. For the seller, the downside of this model is that the seller trades realized equity for convenience.

I do believe that iBuyers serve a function in our housing market. I would liken this to a CarMax model. And like most vehicle trade-ins, this is simple, quick, and removes some of the inconvenience of selling. However, it should be viewed as a last resort for homeowners willing to give up precious home equity to a large corporation just for a quick sale.

The iBuyer company is only able to thrive because they operate in bulk. They must purchase properties below market value, and so far they have had the luxury of operating in mostly appreciating markets. Will this model survive? At some degree, I believe so. It is a great option for a small segment of sellers. However, my concern is that many of those selling to iBuyers are leaving money on the table–and sometimes a considerable amount! Since ownership in real estate is often a significant part of our financial portfolios, I would strongly encourage any seller to confer with a LEAGUE agent prior to agreeing to an iBuyer offer.

Here are some good questions to discuss with a LEAGUE agent when considering an iBuyer…

• • Is it worth paying for the ease and convenience to sell to an iBuyer?
  • Will it bother me to drive by my home in a few months and see it back on the market?
  • How much will equity convenience cost me?
  • Not all properties are consistent with market algorithms. Is mine?
  • What are the pros and cons of the iBuyer offer vs. other options?