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I (Almost) Sold My House to an iBuyer!

iBuying is the most recent tech innovation that is supposed to disrupt the real estate industry. iBuyers claim to simplify the home selling process by making an instant offer on your property. They claim to provide several advantages over the traditional home sale model:

  • No need for real estate agents—save your commission.
  • Skip the hassle of preparing and showing the property to potential buyers. You don’t need to make repairs or even clean your home to make it look presentable.
  • Choose your closing date that fits your schedule.

Sounds good right? Of course! But there are a few things you should know before you commit.

 

My Experiment with an iBuyer

I went to one of the major sites and requested an instant offer on one of my properties. For context, I purchased this property about 4 years ago for $410k. The estimated offer range was up to $483k. I knew that a model match had sold for exactly $480k about 6 months ago. So far, so good.

To move forward, they scheduled a local agent to look at my house in person. He came on time, was very courteous, and the process was quick. He took a few pictures, jotted down some notes, and was in and out in less than 20 minutes.

I received an offer five days later for $456k.

 

Analyzing the Offer

Luckily, I had a recent sale to directly compare with the iBuyer offer. The model match that sold for $480k had a few more upgrades (nicer appliances, and updated bathroom) so I wasn’t surprised that the offer I received was lower. However, a $24k difference on a small condo seemed a bit excessive since we could completely remodel it for about $35k.

The real kicker in the offer, however, was a 7% fee that would be deducted from the offer price. That fee would bring me down to about $424k. On top of that, the offer would deduct any repair costs discovered during a third-party inspection (estimated at 1-2% by the iBuyer) on top of the already reduced price. After the fee, repair costs, and closing costs, I would not net much, if anything, after four years in a red-hot housing market that saw close to 20% appreciation in my area. Here’s a breakdown comparison of the model match that was sold (based on MLS data) and the iBuyer offer:

 

iBuyer Offer

Model-Match

Sales Price

$456,000

$480,000

Fee/Commission

-$31,920

-$24,000

Repairs

-$9,120

$0

Closing Costs (est. 2%)

-$9,120

-$9,600

Net Proceeds

$405,840.00

$446,400.00

 

Final Thoughts

I was surprised to see that this iBuyer charged a 7% fee, when one of their biggest selling points is that you can save on the Realtor commission (about 6%). Interestingly, when I dug deeper, I found the 7% fee I was quoted was on the lower end for iBuyers as some charge up to 14%! Obviously, iBuyers need to make money on the purchase and resale to make this a viable business model. But you would be sorely mistaken if you thought you were going to get anywhere close to what you would earn on the retail market. Think my property was an outlier? Another investigation found that selling to an iBuyer would net 11% less, on average. To make matters worse, offers may get even lower because iBuyers are only making a small profit, if any

I acknowledge that I’m biased. iBuyers are trying to bypass real estate agents, and as an agent, I’m automatically opposed to them. I firmly believe that I bring my clients great value so I get defensive. But even when putting this bias aside, my biggest issue with the iBuyer process is the lack of anyone looking out for the best interests of the seller. Agents have a fiduciary duty to their clients—that’s the same duty of care required by attorneys to their clients. A good agent can properly price the property, negotiate the best price and concessions for repairs, and make sure that the purchase agreement includes provisions protecting the seller. An iBuyer will not do any of these things because it’s in their best interest to get the property for the lowest price possible.

The real benefit of selling to an iBuyer is convenience. However, that convenience comes at a cost. Even if you’re one of those sellers who are willing to give up money for convenience, you should still explore all your options. There are plenty of cash investors out there who will be willing to purchase your house uncleaned, unrepaired, and at your convenience.

Contact me for a free, no-obligation consultation so we can figure out what’s most important for you, and all your options.

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