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Pros and Cons of iBuyers Like Opendoor, Offerpad, & Zillow

iBuyers like Opendoor, Offerpad, and Zillow Offers are a speedy, stress-free alternative to the traditional home selling process — but how much do these services cost and who qualifies?

iBuyers like Opendoor, Offerpad, and Zillow Offers are a speedy, stress-free alternative to the traditional home selling process — but how much do these services cost and who qualifies?

A new type of real estate service — known as iBuying — aims to streamline the home selling process with technology, offering a quick, low-stress option for homeowners looking to offload their properties in a hurry.

The primary advantage of selling to an iBuyer is speed: most of these companies make preliminary offers within 24-48 hours. All will require on-site inspections before finalizing their offers. Closing typically takes between 10 and 30 days.

Because these services are relatively new, most companies are only active in a handful of major cities across the U.S.

Also know that iBuyers charge service fees, typically ranging between 6-15%, to ensure a decent margin on each transaction.

Read on to learn everything you need to know about iBuyers, and some other options to consider when you need to sell fast.

What Is an iBuyer?

An iBuyer is a company that uses technology to make near-instant, all-cash offers on qualifying homes, often sight unseen.

These companies use what's known as an automated valuation model "AVM" to crunch vast amounts of data and arrive at fair, competitive offer prices for the homes they buy.

The approach represents a radical departure from the conventional real estate industry's status quo, offering sellers more convenience, flexibility, and speed while simultaneously removing the stress (and potential high costs) of the traditional listing process.

In exchange for this service, most will charge a built-in fee. This helps offset the carrying costs that the iBuyer assumes by purchasing the home outright (e.g., taxes, utilities, etc.).

While each company operates using a different model, most generate revenue through short-term market appreciation. While the margins are slim — typically between 0-5% — these companies are operating on an immense scale. Those slim individual profits, spread across thousands of transactions per year, end up yielding a huge amount of revenue, taken together.

This is what separates iBuyers from traditional cash buyers and flippers: scale. Flippers will only handle a small number of transactions per year, meaning they need to maximize the margin on each (by buying low and selling high) in order to remain profitable. iBuyers can can pay a fair price and net a small profit on each sale because they're operating at such a high volume.

The iBuyer Selling Process

Here's a general example of how an iBuyer sale might play out:

  1. You submit a form on the iBuyer's website with some general information about your property
  2. They get back in touch and let you know if they're interested in your home — if so, they request additional information, including pictures, unique features, your remaining mortgage balance, etc.
  3. An analyst will crunch the numbers and get back to you with a cash offer within 24 to 48 hours
  4. If you're happy with the offer, you accept and fill out the initial paperwork online
    Before closing, the company will send a representative to perform an on-site inspection
  5. You pick a closing date and fill out the final paperwork at a local title transfer or attorney's office, the sale is recorded, and the funds are transferred

It's this speed and simplicity that make iBuyers such an attractive prospect. Instead of repairing and renovating your house, staging it for weeks of showings, waiting for an offer, going through negotiations, and then waiting up to 90 days for closing, you can get an offer and close in a little over a week, if desired.

How Does an iBuyer Compare to Listing with an Agent?

The key difference between to an iBuyer and listing with an agent on the open market is certainty.

In an iBuyer sale, you're guaranteed a fair price for your home and typically have the flexibility of defining your own sale timeline. Need to move in a week? No problem. Need to wait a few months? That works too.

When you sell with an agent, there's obviously going to be less certainty regarding both the sale price and how long it's going to take; however, that uncertainty comes with the possibility of getting an above-market-value offer for your home.

Ultimately, it comes down to your specific needs and priorities.

Are you looking to sell as quickly or with as little hassle as possible? Assuming your home qualifies, an iBuyer is probably a great option for you.

If you have a bit of flexibility and want to try your luck getting a better price on the open market, it definitely worth giving a shot.

Keep in mind that this doesn't have to be an either / or scenario: assuming your home qualifies for an iBuyer purchase, you can always try the open market first, then pull the plug and go with the cash offer if things aren't going your way.

Either way, it's definitely worth exploring both options before making a final decision. Requesting a cash offer and interviewing real estate agents are both free and come with zero obligation, so you've really got nothing to lose on either front!

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Jamie Ayers

Jamie is the Director of Content at Clever Real Estate, the free online service that connects you with top real estate agents and helps you save thousands on commission. In the past, Jamie has managed columns for clients in a variety of leading business publications, including Forbes, Inc., CEO World, Entrepreneur, and more. At Clever, Jamie's primary goal is to provide home sellers, buyers, and investors with the information they need to successfully navigate the ins and outs of the real estate industry.

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