Ahhh… the temptation of just “getting rid of the house” or “saving commission” or “skipping the hassle” by selling to an “iBuyer” for a cash closing.
Wait, What is an iBuyer?
An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. If you choose to accept the price and terms, you can often close in as little as a couple of days. (I am sure you have seen the ads and signs “We pay CASH for houses” or “instant offer” around town.)
Sounds good right?
As of 2018, 91% of homeowners chose to list their house with a real estate agent instead of using cash for houses companies. Why? This is the right route for many sellers because their top priority is to fetch the highest price point possible. Agents wear a lot of hats to make that happen by guiding the seller to get a house prepped, staged and ready for the market and assisting them through negotiations and closing.
So as an agent, I should be scared about consumers selling to these big conglomerates with deep pockets instead of calling me, right? Nope. A little disruption and competition is not only something to not fear; it should be embraced. It makes us better as service providers when we are in a constant state of learning and skill development. However, false advertising and flat-out misinformation that leads consumers to lose a big chunk of equity from their investment all while basically maligning agents as an unnecessary expense and speedbump in the home-selling process is not something we as REALTORS could stay quiet about.
In today’s world of 24/7 information (and often misinformation), the time to be diligent as an agent about staying sharp, informed and skilled is right now. If not, lack of knowledge … and failure to share that knowledge… is costing consumers in our market thousands of dollars.
That’s why Darryl Davis, best-selling author for McGraw-Hill Publishing and publisher of iBuyer Beware: Why IBuyer Is the Worst Thing to Happen to Homeowners, put more than a month of research into investigating what these companies are doing and saying so that agents could get the real information out consumers across the country. That way, when REALTORS who have brushed up on the iBuyer programs are speaking to people in their sphere and community, people like you, they can do so with all the facts and data they need to help protect consumers as the advocates and resources they truly are. So here goes…
The Truth about iBuyers
Here’s what Darryl’s research found:
- *iBuyers are investors, not regular buyers.
- *They are looking out for their interest, not the consumer’s.
- *They purchase homes based on what they say it’s worth.
- *They tell consumers that they’ll pay a seller’s concession fee with an agent, which is untrue.
- *They are buying to flip it for a profit and make sellers pay them a 6-13 percent commission, which they call a “service fee.”
- *In addition to their commission, they charge another commission called a “market risk fee”—another 2-6 percent.
- *They make sellers pay for repairs they want done.
- *They control the process, not the consumer.
Forbes featured an article (June 2018) about iBuyers and makes many similar points.
- When selling to an iBuyer, the other side of the transaction is a company or an investor. Investors like to make money, and the quick and easy experience for sellers doesn’t come cheap.
- The iBuyer will typically charge a full commission, plus build in a discount to fair value to compensate for the risk they take by providing you with “instant” liquidity. Those who work in finance would call that a “liquidity premium” because the buyer has to use their own money to buy an asset. The iBuyer runs the risk of being unable to resell the property quickly enough, having costs add up, or being unable to sell the property for a profitable price.
- While there isn’t a lot of data available yet, some (paywall) estimate that these costs can add up to more than 10% of the fair market value of a home compared to the commissions of a traditional agent.
Forbes also noted that while iBuyers provide the convenience of selling quickly, matching expert investors against consumers isn’t always the best thing for the consumer. Zillow recently explained that 90% of sellers who engaged its Instant Offers platform decided against the iBuyer offer and chose a traditional agent instead. If 9 out of 10 consumers pass, the pricing can’t be that compelling.
Real estate professionals running small, local businesses are committed to service and referrals, not just sales. The underlying greed of these programs is problematic as they aren’t invested in the communities where they are scooping up homes at discount prices and taking money out of local communities.
There is a time and a place for investors in the market… not every homeowner has the time or finances to do a traditional sale… or maybe they don’t care about the money. But as a local community supporter, maybe there is a local investor you could sell to if you want to go that route. (Hint, I know some.)
Homeowners can count on informed agents to help protect their best interests. By coaching consumers in our market to better understand the facts about iBuyer programs and other programs that may prey on homeowners, we develop long-term trusted relationships and represent professional agents as a resource.
Oh… and I found this video from a guy that also tested these iBuyers…
And this guy digging into it…