What Is an iBuyer? (And Should I Sell My House to One?)

By 

Andrew Whytock

Updated 

May 26th, 2021

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iBuyers

What is an iBuyer? | Top iBuyers | Pros & Cons | Should I sell to an iBuyer? | How pricing works | The selling process | FAQs

🔑 Key takeaways
  • iBuyers buy houses to resell them on the open market.
  • Most iBuyers charge sellers a service fee that can range from 5-15%.
  • The main benefits of working with an iBuyer are speed and predictability.
  • The largest iBuyer, Opendoor, operates in over 30 markets across the US.

iBuyers are large, venture-backed companies that buy and sell homes using technology to streamline the process.

The “i” in iBuyer stands for “instant” because most iBuyers can make an offer on homes in 24-48 hours and close in as little as two weeks.

iBuyers charge service fees to home sellers that range from 5-15% of the purchase price.

Although iBuyers are generally unable to pay what you’d get for your house on the open market, they are an option that’s worth exploring if you need to sell quickly.

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What is an iBuyer?

iBuyers leverage data and proprietary algorithms to provide home sellers with instant offers on their houses. Their goal is to purchase houses that can be resold for a small profit on the open market.

iBuyers charge customers a service fee for the speed and convenience that they offer. This fee helps to offset the iBuyer’s carrying costs (utilities, property taxes, etc.) and ensure profitability.

Along the way, iBuyers make money by offering other built-in services for buyers and sellers, like title insurance and mortgages.

Currently, the largest iBuyers on the market are Opendoor, Zillow Offers, Offerpad, and Redfin Now.

👍 iBuyers are good for…
  • Sellers who are in a rush and need to close quickly.
  • Sellers who have inherited a home and are not concerned with getting the most possible money — they just want a way to sell as easily as possible.
  • Buyers who want a streamlined, end-to-end digital purchasing experience.
👎 iBuyers are bad for…
  • Sellers who want to get the most possible money when they sell their home.
  • Sellers who have time to do prep work and are comfortable working with an agent.
  • Buyers who would rather have the added back-and-forth communication of negotiating with an agent or private seller.

Top iBuyers in 2021

Opendoor

Opendoor

Full Review

Service Fee

3.5-5%

Closing Date Window

14-60 days

Average Rating

4.05/5 (1,159 reviews)

Editor's Take
Pros & Cons
Locations
Reviews
Contact

Opendoor is a good option for home sellers who need a fast, predictable sale with minimal hassle. While the price that Opendoor pays might be slightly below the value of comparable homes on the open market, the difference might be worth it for people who value convenience and speed.

Pros

  • Low service fee compared to competitors
  • Additional in-house services, including Opendoor Home Loans & OD Title
  • Highly rated in customers' online reviews


Cons

  • Pays fair market value at most
  • Limited ability to negotiate
  • Buyers may find Opendoor's repairs insufficient

Opendoor is currently purchasing homes in 23 locations.

  • AZ: Phoenix, Tucson
  • CA: Los Angeles, Riverside, Sacramento, San Diego
  • CO: Denver 
  • FL: Jacksonville, Orlando, Tampa
  • GA: Atlanta 
  • MN: Minneapolis-St. Paul
  • NC: Asheville, Charlotte, Raleigh-Durham
  • NV: Las Vegas
  • OR: Portland
  • TN: Nashville
  • TX: Austin, Dallas-Fort Worth, Houston, San Antonio
  • UT: Salt Lake City

As of February 15, 2021, Opendoor's weighted average is 4.05/5 based on 1,159 reviews.

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Offerpad

Offerpad

Full Review

Service Fee

6-10%

Closing Date Window

10-90 days

Average Rating

1.8/5 (57 reviews)

Editor's Take
Pros & Cons
Locations
Reviews
Contact

Offerpad promises the certainty of a cash offer and a fast closing on a date you choose. But its restrictive purchase agreement, hidden cancellation fee, and negative online reviews suggest it's riskier than other iBuyers.

Pros

  • Generous closing window compared to competitors
  • Late checkout option gives sellers up to 3 days to move out after closing
  • Access additional services, such as free local moves within 50 miles


Cons

  • You'll have to sign a binding contract before knowing the final offer price
  • You might face a 1% cancellation fee
  • Offerpad reserves the right to back out at any time

Offerpad is currently purchasing homes in 14 locations. 

  • AZ: Phoenix, Tucson 
  • AL: Birmingham 
  •  FL: Jacksonville, Orlando, Tampa 
  • GA: Atlanta 
  • NV: Las Vegas 
  • NC: Charlotte (+ neighboring parts of SC), Raleigh 
  • TX: Austin, Dallas-Fort Worth, Houston, San Antonio

As of February 15, 2021, Offerpad's average customer rating is 1.8/5 based on 57 reviews.

  • Website: www.offerpad.com
  • Phone: 844-388-4539
  • Email (Sellers): info@offerpad.com
  • Email (Buyers): buyers@offerpad.com
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Zillow Offers

Zillow Offers

Full Review

Service Fee

6% + 1.5-9%

Closing Date Window

7-90 days

Average Rating

Not available

Editor's Take
Pros & Cons
Locations
Reviews
Contact

Zillow Offers can be a convenient option for sellers — but its fees can potentially be higher than competitors. If you're in a market where there are multiple iBuyers, it's worth shopping around to find out which will give you the best cash offer.

Pros

  • Extra time to decide: Initial cash offers are valid for 5 business days
  • Generous closing window compared to competitors
  • Offers are typically within 1-2% of fair market value


Cons

  • Fees could total up to 13.9% (6% selling fees plus a maximum 7.9% in service fees)
  • Upselling: Zillow will try to get you to work with a premier agent, even if you decline its cash offer
  • No option to do repairs yourself

Zillow Offers currently purchases homes in 25 locations.

  • AZ: Phoenix, Tucson 
  • CA: Los Angeles, Riverside, Sacramento, San Diego 
  • CO: Colorado Springs, Denver, Fort Collins 
  • FL: Jacksonville, Miami, Orlando, Tampa 
  • GA: Atlanta MN: Minneapolis 
  • NC: Charlotte, Raleigh 
  • NV: Las Vegas 
  • OH: Cincinnati 
  • OR: Portland 
  • TN: Nashville 
  • TX: Austin, Dallas, Houston, San Antonio

As of February 15, 2021, Zillow Offers does not have any verified customer reviews on reputable third-party review sites.

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RedfinNow

RedfinNow

Full Review

Service Fee

6-12%

Closing Date Window

10-30 days

Average Rating

Not available

Editor's Take
Pros & Cons
Locations
Reviews
Contact

Compared to its competitors, RedfinNow handles a relatively small volume of iBuyer sales. However, RedfinNow shines in several niches, thanks to its willingness to accept older homes and its availability in a wide range of California cities. 

Pros

  • Expanded presence in cities across California, including several not served by other iBuyers
  • Large and trusted corporate brand
  • Older homes (built after 1930) are eligible in select cities


Cons

  • Relatively expensive services fees (up to 12% of the offer price)
  • Relatively limited flexibility on closing window, compared to competitors
  • Verified customer reviews are unavailable

RedfinNow is currently purchasing homes in 14 locations.

  • AZ: Phoenix 
  • CA: Inland Empire, Los Angeles, Orange County, Palm Springs, Sacramento, San Diego, San Francisco 
  • CO: Denver 
  • TX: Austin, Dallas, Houston, San Antonio 
  • WA: Seattle

As of February 15, 2021, RedfinNow does not have any verified customer reviews on reputable third-party review sites.

SHOW MORE

Orchard

Service Fee

6%

Closing Date Window

14-60 days

Average Rating

4.6/5 (97 reviews)

Editor's Take
Pros & Cons
Locations
Reviews
Contact

Orchard is a home trade-in service that allows you to purchase a new home by getting access to your current home's equity. You can then list your old home on the market with an Orchard listing agent.

If you need to move quickly, but still want to get top dollar for your home, Orchard is worth considering. However, Orchard only accepts newer homes compared to its competitors.

Pros

  • You'll have a generous 7-day window to consider Orchard's offer
  • Use Orchard's Offer Boost program to make a cash offer on a new home
  • If your home doesn't sell in 120 days, you can accept Orchard's guaranteed cash offer


Cons

  • Homes must be relatively new, compared to competitors (built after 1972 vs. 1930-1960)
  • Orchard's cash offers will likely be much lower than what you'd be able to sell for on the open market

Orchard is currently operating in nine locations.

  • CO: Colorado Springs, Denver 
  • GA: Atlanta 
  • NC: Charlotte, Raleigh-Durham 
  • TX: Austin, Dallas-Fort Worth, Houston, San Antonio

As of February 15, 2021, Orchard's average customer rating is 4.6/5 based on 97 reviews.

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iBuyers may be new but they’re already making waves

iBuying transaction volumes have been increasing year-over-year for several years, with 2020 being an exception.

In 2019, iBuyers conducted roughly 60,000 transactions. In 2020, iBuyer transactions dropped by 50% as a result of the pandemic.[1]

iBuying is still a relatively new phenomenon as it’s only available in a couple dozen cities across the US. However, Opendoor, the largest iBuyer to date, is on the path to being in 100 markets, which would give them a 4% market share.[2]

These trends could change the way that houses are bought and sold, even if iBuyers only end up capturing a small percentage of the overall real estate market. iBuyers provide a hassle-free, predictable experience that realtors could have a difficult time matching.

Pros and cons of selling to an iBuyer

Pros
  • Speed. The entire sale, from initial contact to closing, can happen in as few as 10 days. There's very little waiting or uncertainty involved.
  • Convenience. Most of the process takes place online. Simply fill out a form and get a preliminary offer. The company will send a representative to your house to do the inspection. If repairs are necessary, the cost can be deducted from the offer, and the iBuyer will take care of them.
  • No prep work. Since the iBuyer is purchasing your home outright, rather than helping you find a buyer, you don't have to worry about staging, marketing, and open houses. You also don't have to worry about paying cash for repairs since the iBuyer can deduct these costs from your offer.
❌ Cons
  • High service fees. Some iBuyers have a variable service fee that can amount to 10% or more. Long story short, if the iBuyer thinks your house is going to be difficult to resell and their fee isn't fixed, expect your costs to be higher.
  • No negotiation. When you get an offer from an iBuyer, it's usually a take-it-or-leave-it deal. If you feel the company overlooked something important, some will allow you to make your case and submit additional evidence to support it; however, most will be unwilling to budge on price.
  • Limited coverage. Most companies are only operating in a handful of major metro areas across the U.S. In other words, selling to an iBuyer isn't actually an option yet for the vast majority of Americans.
  • Strict criteria. iBuyers are strict about the types of properties they buy. Most will only make offers on properties that are relatively new (post 1960), worth less than $500,000-600,000, and sit on less than one acre.

Should I sell to an iBuyer?

Selling to an iBuyer makes sense if you need a fast, predictable sale and don’t mind getting less money than you might on the open market.

However, if you have at least a few weeks to spare and want to get the maximum value for your home, working with a realtor is a better option.

Most iBuyers offer free, no obligation estimates, so it’s worth requesting an offer to see how much an iBuyer would be willing to pay for your home.

✍️ Editor’s note
If you aren’t satisfied with the offer that an iBuyer gives you, connect with a real estate agent and tell them that you’d like to sell your home quickly. Agents can adjust their approach to help you find a buyer quickly while still getting a fair price for your home.

Most agents can provide you with a free comparative market analysis (CMA) that will show you what your home is worth by comparing it to similar homes on the market.

How do iBuyers price homes?

iBuyers rely on several inputs when they are pricing a home, including:

  • Local comparisons
  • Proprietary algorithm with advanced data sets
  • Input from local pricing experts
  • Inputs from you on features, upgrades, and condition

While iBuyers are able to use all of this information to provide you with an instant offer, they do need to send an inspector to your house who can assess repair costs before you’re presented with a final offer.

Repair costs could range from 1-2% and may make your final offer lower than the initial estimate.

How are iBuyers different from cash buyers?

Unlike iBuyers, cash buyers seek out distressed properties that they can force appreciation on through significant repairs and upgrades.

Cash buyers typically use a comparative market analysis and their own local knowledge to establish a price for houses.

iBuyers, on the other hand, pay close to fair market value for homes but charge service fees to help them make a profit.

How does selling to an iBuyer work?

Most iBuyers follow several steps that begin with the offer request form you submit online:

  • Complete the iBuyers online submission form
  • Preliminary offer is sent within two days
  • If you accept, sign a purchase agreement online
  • iBuyer conducts an on-site inspection of your home
  • The adjusted offer is finalized and accepted, and the closing date is scheduled
  • Paperwork is completed on the closing date. Sale is recorded and payment is wired to the seller

How long does selling to an iBuyer take?

iBuyers typically give sellers an estimate on their home's value within 24-48 hours of receiving a request. After that, the sale can be closed in as little as 10 days if you’re in a hurry — but the closing date is flexible.

That’s very fast compared to the 2020 national average selling time of 25 days, plus an additional 30-45 days to close.[3]

However, the speed the iBuyers provide comes at a price: services fees and a lower sale price than you’d get on the open market.

It’s hard for realtors to match this speed, although some can in a hot market.

If you are working with a realtor and you absolutely need to sell quickly, they can adjust their approach to expedite the process. To do so, they may have to lower the original asking price.

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FAQs

What does iBuyer mean?

The “i” in iBuyer stand for “instant” since iBuyers are companies that make instant cash offers on houses.

What is an iBuyer in real estate?

An iBuyer is a company that buys houses at or below fair market value to resell them on the open market. iBuyers use a combination of proprietary algorithms, local comps, and pricing expertise to generate offers for potential sellers.

How does iBuying work?

  1. iBuyers have online portals where home sellers can request an offer by filling out a simple form.
  2. After the iBuyer has received the customer’s information, they’ll evaluate the details of the property and offer an estimate.
  3. If the customer still wants to proceed, the iBuyer sends an inspector to the home to note any necessary repairs that will be deducted from the offer price.
  4. The iBuyer then presents the seller with a final offer which they can either accept or reject.
  5. If the seller accepts, they can pick a closing date.
  6. The iBuyer will resell the home after they take possession and list it on their website.

ARTICLE SOURCES
[1]

Mike Delprete. "iBuyer Market Share Set to Drop by Half in 2020." Accessed February 12, 2021. Updated November 21, 2020.

[2]

Opendoor. "Opendoor Investor Presentation." Accessed February 12, 2021.

[3]

Zillow. "What is the average time to sell a house?." Accessed February 12, 2021.

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