What Is An iBuyer?
What is an iBuyer? In a nutshell, it’s a new way to buy and sell homes that’s catching on in the real estate world. If you’re a home seller who wants to sell your home fast and with minimal fuss, selling to an iBuyer is an option worth considering.
Traditionally, selling a house requires a number of steps—like making repairs, staging your home so that it looks its best, holding open houses, soliciting offers, negotiating with home buyers, and signing a purchase agreement—plus overcoming any roadblocks along the way. Even if you hire a real estate agent to help you navigate this process, selling a house can take time and work, and some maneuvering before you cross the finish line.
Selling real estate to an iBuyer, though, is typically a more streamlined transaction. Here’s how the process usually works: You go to an iBuyer’s website, plug in your home’s address, and fill out a questionnaire about your home.
Within about 24 hours, you will receive a cash offer on your home. (The “i” in “iBuyer” stands for “instant,” which is why they’re also called “instant offers.”) From there, you can decide whether or not to move forward with the deal. Depending on your preference, the transaction can close in a matter of days.
The big downside of iBuying is that all this convenience comes at a price. Selling to an iBuyer often means you make less money on your sale than through the traditional route—working with a real estate agent who preps your home for sale and negotiates the best offer.
Wondering whether selling your home to an iBuyer is right for you? Here, we’ve outlined the pros and cons of iBuyers and instant offers, to help you as a homeowner to make the right decision.
How iBuying began
Opendoor, which was launched in 2013, was the first major iBuyer to market. Since then, a number of others have entered the business. This includes new online companies like Offerpad and Knock, as well as some traditional real estate firms and brokerages, like Keller Williams and Coldwell Banker.
iBuying is not offered everywhere, and statistics on the total number of iBuyer transactions are not readily available. Nonetheless, the industry leader Opendoor claims to have purchased over 10,000 homes in 2018, and has expanded to 20 cities across the United States. According to a recent study by Collateral Analytics, a real estate analytics firm, iBuying has been growing in market share, at over 25% per year.
Want to see whether there’s an iBuyer in your area? This map from ATTOM Data Solutions is a good starting point.
How iBuying works
Simply put, iBuyers are companies that have the financial means to buy homes in cash. To formulate an offer, iBuyers typically rely on similar properties in your local real estate market, or “comps,” much as a real estate agent would in order to formulate a listing price on a home (or an offer).
After a home is purchased by an iBuyer, in most cases these companies will do some renovation work to optimize the resale price, then list the property on the multiple listing service (MLS). Some iBuyers hire third-party real estate agents to sell their homes, while others employ their own on-staff listing agents. Generally, these listings indicate in their description that the seller is an iBuyer.
Instant offer options
iBuying and other forms of instant offer programs work in a variety of ways that resolve several distinct pain points that home sellers can encounter. Here are three leading approaches, and the sellers they’re best suited for:
Type 1: Traditional iBuying
Best for: Home sellers who need to sell their home fast
Let’s say you’ve been hired for a job in a new city and need to sell your home within a week. A traditional iBuyer can get the job done. With a traditional iBuyer (like Opendoor), you get a cash offer on your home within a day or two, and you can use that influx of cash either to rent or to buy a new place elsewhere.
Type 2: Trade in
Best for: Home sellers who want to buy and sell at the same time
Home sellers who want to sell their current home and buy a new one often struggle to time these two events simultaneously. That’s where the trade-in approach of certain iBuyers (like Knock) can help. In a nutshell, they’ll make an all-cash offer on a new home you want. If the offer is accepted, you move into your new home, and the iBuyer works on selling your old house. Once it sells, it settles any costs incurred prepping your old home for sale, and then transfers your new house to your name.
Type 3: Bridge financing
Best for: Home sellers who want to buy and sell at the same time but maximize profits
This type of iBuyer (like Homeward) is similar to a trade-in, in that the iBuyer fronts you the money to purchase a new house. The difference is that if your offer is accepted and you move in, you then lease the house from the iBuyer and list your old home using a traditional real estate agent. If your old home doesn’t sell within a certain period (typically six months), the iBuyer will buy it off you at a pre-agreed price, giving you the capital you need to end your lease and get a traditional mortgage for your new home.
Article originally appeared on Realtor.com.