The pros and cons of the rise of iBuyers

Real Estate | 7 Jul |

Phoenix real estate has seen a serious technological shift since the beginning of the pandemic. The most notable shift is agents pivoting quickly from in-person showings to FaceTime tours, 3D walkthroughs and virtual open houses to keep serving clients while Arizona was shut down. Another digital alteration that’s becoming more popular is the rise of the iBuyer, an internet buyer who uses automated valuation model (AVM) technology to value a home and send an instant offer. Examples of iBuyers are sites such as Opendoor, Offerpad, Redfin Now or Zillow Offers, that will purchase a home sight unseen. Sounds simple and fuss-free, but as with anything, there are pros and cons.


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Trevor Halpern is the No. 1 independent agent at Phoenix-based North&Co. and the founder of the Halpern Residential real estate group.

Cash offers have many advantages most of the time. However, cash offers aren’t right for every seller. Pocket listings, also referred to as off-market listings, sell for between 6 percent and 20 percent less than those put on the MLS, which confirms that sellers do not always financially benefit from limited exposure in this marketplace. An iBuyer may offer what seems like a generous price, but sellers are likely to financially benefit by listing the home on the open market, which usually generates competition in this low housing inventory environment. Accepting a cash offer from an iBuyer prior to listing the home on the open market will also eliminate the possibility of a bidding war.

Another downfall of iBuyers is the high transaction fees. iBuyers charge a lot of money to complete a purchase, not to mention hidden fees. Typically, a seller is looking at fees of 7 percent of the price of the home, but sometimes that number can go up to 13 percent. That is much higher than the cost of closing and commission for traditional real estate sales. For an average commission of 6 percent, real estate agents can offer experienced advice, make introductions to other experts (moving companies, painters, attorneys, etc.), help negotiate a fair price of the home and help sellers find a new home, which doesn’t come easy. 

On the other hand, iBuyers are low risk. Traditional buyers often need financing, which adds time and risk to the sale of your home. That valuable time off the market could end up in a loan denial or an inability to close because the home did not appraise for the contract price. These issues do not exist with iBuyers, as they pay cash and do not need to be concerned with financing or appraisals. Additionally, cash offers often ensure a quick closing and streamline a speedy transaction, which is attractive if a Seller wants to get rid of their home quickly. Many iBuyers also allow Sellers to choose their closing date (within reason).

Ultimately, there is no one size fits all approach when considering a traditional sale or working with an iBuyer. It is important that sellers take time and consider all options. As iBuyers become more popular, it is equally important for real estate agents to constantly be prospecting, developing long-term relationships with clients, and offering concrete benefits to clients that they won’t find anywhere else.

 

Trevor Halpern is the No. 1 independent agent at Phoenix-based North&Co. and founder of the Halpern Residential real estate group.

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