Is The Convenience Worth the Cost? IBuyers Have Contracts, Too

iBuyers v. traditional buyer offer

The iBuyers have been a  certain presence on the market for a while.  Often they are bulk buyers or investors looking for profit and will offer to pay cash for your home, sight unseen.  They may be able to close in days, and maybe for some reason a seller would wish to consider such an offer under certain circumstances.  These buyers claim to speed up and simplify the transaction while removing hassle and inconvenience for sellers and buyers.  But despite iBuyers' claims to revolutionize the real estate transaction, some agents are not finding their transactions with iBuyers to be quick or seamless  ("Selling to an Algorithm", REALTOR Magazine, Sept.Oct 2018).  Typically, the inspection is held after the acceptance of the offer.  In one instance, a team of five Opendoor contractors "went through the house with a magnifying glass".  When all was said and done the requested repairs came to about $16,000 on a $300,000 home, this was for replacement of tubs and toilets, retiling of showers, all at the seller's expense.  The sellers relied upon their agent for help, but still made less than if working with a traditional buyer.

The story above is one example, but both the story and the graphic illustrate that their is a price for "convenience".  And would it work if, for example, you have a lien on your property to pay back at close, or heirs to consider for whom you would want to get your highest and best price? 

Realtors are bound by the Code of Ethics set forth by the largest trade organization in the country: the National Association of Realtors, which means they are governed in such matters by their local Board. Realtor contracts and transactional forms are carefully set up and reviewed to comply with all professional standard and state and federal laws.  The investment company or investor buyer may not have any such professional trade affiliation, use their own contracts, and any potential legal recourse must be taken directly to the courts.  It pays to know the features and clauses of the investor company's contract, and a seller would be wise to take the contract to an attorney for review before signing.  If a seller is truly interested in seeing what such companies offer, obtaining multiple offers before signing anything is possible, if only to use for comparison purposes.  Be aware that their motto is true to the concept of buy low, sell high--their goal is to slip the property and make money from it.

There's no harm in checking out an iBuyer offer, but there are also concessions and fees for such a buyer, and perhaps a much lower net at close. The iBuyer company may claim to not charge a commission, but the seller should ask about all other fees and costs, including their terms about any repairs requested before the close of escrow--don't be surprised if the seller is asked to pay, so check the contract before signing.

If you are thinking of selling and you would like to see a further explanation and comparison scenario for your property, please let me know for a no obligation valuation and comparison of estimates.

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

What Is An iBuyer?

.... an internet buyer making an offer through one of several companies which claim to speed up and simplify real estate transactions, appealing to the convenience factor for both buyers and sellers. Offers are made sight unseen, based on a proprietary valuation model.  Maybe the speed is appealing, these after all are investor buyers, and you may need to sell quickly because you're in foreclosure, or some other type of distressed situation.

But the seller doesn't always know that these companies will still charge full commission, plus discount the fair value of your home in exchange for all that ease of sale. While this type of sale is relatively new to the market, some estimates are that the actual costs to the seller amount to a fullj 10% of the value of the home, whereas selling with a traditional agent could mean a 6 percent commission. 

"So what does this really mean for the homeowner’s bottom line? Most homeowners purchase their home with a mortgage. If you purchased your home for $400,000 with 20% down, you showed up to closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers you $380,000 for your home — a 5% discount to fair value — you will lose $20,000 on the value of your home, plus pay a 5% commission (an additional $19,000). This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $39,000 to your original down payment of $80,000 -- you will be giving up close to 50% of the equity you put into your home partly for the convenience of a quicker sale. Does the added cost make sense for the consumer?" *

 In 2018, Zillow said that 90 percent of sellers who engaged its Instant Offers platform did not follow through and chose a traditional agent instead. A traditional agent is there to guide the seller through the many disclosures and legal requirements of selling a home, and in California there are many. Before a seller considers this type of transaction, he or she should carefully investigate the actual costs, the home's fair market value, and the completeness of the transaction.

For an estimate on your home, please contact me.  I've been helping buyers and sellers for almost 25 years!



*Forbes Magazine, June 5,2018

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996