The housing market is hot, and many sellers are wanting to fast track a sale by accepting a cash offer from an iBuyer like OfferPad, Zillow Offers or OpenDoor. Selling to an iBuyer can eliminate the back and forth between buyer and seller and is viewed as a low hassle option to sell your home fast. However, sellers may net far less than if they had chosen a traditional selling method using a real estate agent.
What is an iBuyer?
iBuyers are corporate entities, online real estate investors that offer cash for homes and act as a middleman to resell them. This business model is based on an iBuyer making a profit at two points: first in service fees charged to the seller, and second from the difference between what it buys the house for and what it sells it for. Here are four things to consider when deciding how to sell your home.
An iBuyer offers convenience to a seller and that convenience costs the seller money. The old saying goes, “If it’s too good to be true, it probably is.” Though an iBuyer may not call it a commission, their total fees fall somewhere between 8 and 9%, but can be up to 12% for riskier properties or markets. On the other hand, the average real estate listing commission is 6% of a home’s sale price.
Their profit is in the pricing
To turn a profit, an iBuyer must purchase a home for slightly less than Fair Market Value (FVM). In comparison, a real estate agent lists a property at or above FVM. This is an important comparison, particularly if a seller’s goal is to net as much as possible.
Not on the open market
When a seller chooses to work with an iBuyer, they are paying for a service that does not list the home on the open market. However, as we all know, our current market has extremely low supply, steady demand and historically low interest rates. These conditions are favorable for sellers, so not listing on the open market would be a missed opportunity to make the largest profit on your home.
Negotiation is a no-go
iBuyers also do home inspections and the costs of any repairs are taken out of the cash offer base price with no negotiating room. When working in a traditional purchase contract scenario with a real estate agent, a seller makes the final decision on whether to address a buyer’s list of disapproved items.
Working through a middleman means the home price may unnecessarily be inflated. The profits an iBuyer is making is paid by buyers. Remember, realtors must uphold a Code of Ethics and Standards of Practice, which includes to “pledge themselves to protect and promote the interests of their client.” The loyalty of iBuyers is to the investor, not you the consumer. Realtors have been helping sellers and buyers for 111 years, so don’t miss out on an agent’s local knowledge and expertise. A qualified realtor has the skills to help a seller no matter the situation.
Aaron Carter is an Associate Broker and co-founder of CarterMosier Group with HomeSmart. Follow on Instagram at @cartermosiergroup and for more tips, trends, market updates, and a free Seller’s Guide, sign up at cartermosiergroup.com/subscribe.