In recent years, ads for internet-based home buying companies, a.k.a. iBuyers, have popped up seemingly everywhere.
They offer sellers an option to sell their homes quickly without having to list it on the market or deal with the traditional hassles of selling a home.
If it sounds too good to be true, it just might be. While iBuyers’ commercials make them seem like an attractive option, the truth is more complicated.
Many people choose iBuyers to avoid the hassle of preparing, listing, and marketing their homes. Unfortunately, there are steep costs associated with using an iBuyer that many don’t realize until they’re deep into the process.
Here’s the truth about the real cost of selling to an iBuyer.
What is an iBuyer?
What’s an iBuyer, also known as an “instant” buyer, and how do they work? iBuyers are companies that make offers for homes using technology and allow sellers a non-traditional selling method. Examples of iBuyers include Opendoor, Offerpad, and Zillow Offers.
In a traditional home sale, you go through a number of steps. In most cases, you make repairs and updates to your home, stage and arrange your home to make it appealing, and market to potential buyers.
Once you negotiate and accept an offer, you go through a home inspection and title search (and resolve any issues) before signing a purchase agreement.
Along the way, you overcome obstacles, and in most cases, a percentage of the sale goes to the listing and selling agents.
iBuyers exist to allow homeowners to skip this traditional process. An iBuyer sale is usually less complex. You visit a website, enter your address, and within a set time period, receive an offer.
If you accept the offer, the process is advertised to move quickly, sometimes closing within weeks.
Sounds great, right? In theory, sure. But the reality isn’t quite so simple. iBuyers are selective about the types of homes they buy. In fact, many homeowners don’t even qualify.
From a home’s location to its condition, the list of (dis)qualifiers is long.
Another significant drawback lies in the true cost of selling to an iBuyer. Unfortunately, many people don’t realize how much money they’ll lose until they’re far into the sale process.
Many people choose the iBuyer route because they don’t want to pay commission fees to listing and/or selling agents.
In most standard sales, 5 to 6 percent of the sale price goes to the agents’ commissions. Home sellers pay this price out of the proceeds of the sale.
For example, say you sold your home for $200,000. In a traditional sale, agents’ fees would take about $12,000 out of the proceeds.
That’s a big chunk of the profits, so it makes sense that people are looking for alternatives other than using an agent. But most iBuyers take even more.
According to research from real estate data firm Collateral Analytics, iBuyers cost home sellers an average of 13 to 15 percent of the home’s sale price and a large piece of that percentage comes from commission costs.
Though they may not always call them “commissions,” there are fees in for the same purpose as a standard commission.
That means an iBuyer could end up taking up to $30,000 on the sale of a $200,000 home… right out of your selling profits.
But the iBuyer isn’t done making money off your home sale yet. According to the National Real Estate Post, there are many fees added to an iBuyer sale that homeowners may not know about until they are have already started the selling process.
Many home sellers don’t realize they’ll be on the hook for a number of additional fees and costs when they use an iBuyer. For instance, some iBuyers might tack on something they call a “market credit + seller repairs” or a “repair credit”. Whatever they call it, they mean the same thing — your initial offer isn’t firm.
This fee is in addition to the standard commission or “convenience fee” and it is used to cover any repairs to damage that the iBuyer reports found in your home.
Offerpad, another iBuyer, calls it a “repair credit.” The name may change, but the idea is the same. Even though you are not on the hook for making any repairs yourself, you will be charged for them. You original instant offer will likely be lowered to account for damages or repairs.
iBuyers pay much less than market value to begin with. Not only are you making less money thanks to the many fees and charges, but you’re also starting from a lower price to begin with.
One study from Market Watch shows that homeowners who sell to iBuyers end up making 11 percent less on their home sale.
The Offer Could Change Later On
iBuyers require a full inspection before the deal is closed. This not only adds additional time and costs for the seller, but in most cases, the results of the inspection significantly lower the original offer after you’ve already committed. Why? Because iBuyers’ offer prices do not account for any damage or imperfections. Instead, they are added in later using one of the fees discussed above.
For many homes sellers, this throws a wrench in the works because they have already accepted the initial offer and may even be packed and ready to move on to their next home. Now, they have to decide if they want to start over with a new selling method or accept the lower offer.
A Better Way to Sell
Fortunately, there’s a better alternative. HomeGo offers a convenient and quick way to sell your home as-is without the hassles of the traditional home selling experience. We purchase homes in all conditions, not just new builds in pristine condition.
Best of all, HomeGo doesn’t charge commissions or fees. We never make an offer without seeing the property first, so our offers account for any needed repairs upfront. With HomeGo, you receive a firm, same-day offer that will not change later on.