3 Risks of Working with an iBuyer

    Whenever there’s a lot of money involved, you can expect someone to swoop in and disrupt the industry with the claim he has a quicker, faster, and more convenient alternative to the traditional approach. Over the past few years, iBuyers have attempted to do this in the real estate arena.

    Who is an iBuyer?

    According to Zillow, “An iBuyer is a real estate investor that uses an automated valuation model (known as an AVM) and other technology to make cash offers on homes quickly. Since they rely on a mountain of data points on comparable home sales, an iBuyer will often purchase homes sight unseen.”

    Officially, the “i” in iBuyer refers to the word “internet.” However, it could just as easily stand for “instant” or “institutional.” That’s because iBuyers tend to be companies that purchases homes online over a simplified timeline that condenses the process to days … rather than the usual period of weeks or months.

    The iBuying process can look a little different for every company, but the framework generally looks something like this:

    • A seller submits a request for his or her home to be purchased in as-is condition. This typically entails some kind of questionnaire and/or photos.
    • The iBuyer submits an initial cash offer based on the market value of the property.
    • The iBuyer may reserve the right to do some inspections, home evaluations, and other due diligence, then revise the initial offer based on the findings. This is known as an adjusted offer.
    • A purchase contract is signed and a closing date set.
    • The house is sold and the title transfers to the iBuyer.

    Zillow offers a form of iBuying — as do hundreds of other online companies. This method has been used as far back as 2013, when the first major iBuyer entered the market. However, it’s become a popular option only recently.

    Three Reasons to Think Twice Working With an iBuyer

    If you hope to unload your house quickly and don’t care to deal with the hassle of the traditional sales process, selling to an iBuyer may sounds like a terrific idea. But as the old saying goes: If it sounds too good to be true, it probably is.

    Here are some reasons you might want to pause before choosing to work with an iBuyer:

    1. You’ll Leave Money on the Table

    An iBuyer isn’t likely to offer you anywhere close to the true market value of your property. Plus, this person or outfit is apt to tack on an array of fees in order to make a profit.

    One study finds that sellers typically pay between 13 and 15 percent more in fees to an iBuyer than they would working with a traditional listing agent! If you aren’t careful, all your hard-earned equity could get swallowed up in one swift transaction, so proceed with caution.

    2. Limited Knowledge

    An iBuyer typically isn’t a good option if you have an older house that has character, charm, or unique characteristics (such as the view). iBuyers tend to be national companies, and that means they lack an understanding of your local market and its context.

    So they can look at data, but they can’t account for unique characteristics and details that add value to your house among local house hunters.

    3. They Sometimes Use Questionable Tactics

    iBuyers aren’t inherently dishonest, but they may use questionable tactics to fast-track the sale. An example would be asserting something like, “You’ll never be able to sell this house on your own.” Watch out for pressure tactics that attempt to back you into a corner.

    Weigh All of Your Options

    The fact that you were curious enough to research iBuyers is a positive sign. While they probably aren’t your best option, your willingness to perform the due diligence suggests you’re someone who is apt to make a smart choice.

    As you think about how you want to proceed, make sure you don’t overlook the other options on the table. Assuming you don’t wish to retain a real estate agent, you might be tempted to try the for-sale-by-owner (FSBO) approach. This will be time-consuming and fairly strenuous, however … depending on how much work needs to be done to get the property ready to list.

    A local processional cash home buyer is another alternative. The primary advantage of working with cash buyers is that they typically don’t require the commissions and fees that iBuyers will try to charge. A local professional cash home buying company also has a better understanding of values within their local markets and can often offer more money for the house than a Ibuyer company. That makes this route both easy and more cost-effective.

    Our hope is you’ve found this article insightful and inspiring. Continue to research your options and you’ll find the one that suits your situation the best. Good luck!