Offerpad makes near-instant cash offers on homes in 14 U.S. cities. Its two main advantages are speed and convenience — but they can come at a high cost. Read on to learn more about how the company works, typical fees, pros and cons, and other options to consider when you need to sell your home fast.
Offerpad is an online real estate service that makes near-instant cash offers on homes, then resells them for a profit. The company is part of an emerging trend in real estate known as iBuying and currently operates in 14 U.S. metro areas.
Offerpad's biggest advantage for sellers is speed. Most qualifying homes will receive a preliminary cash offer within 24 hours. In select markets, you can close in as few as 10 days after accepting an offer.
Of course, this speed and convenience can come at a high price. Offerpad charges service fees between 6-10%, with the average being 7%. In comparison, the average commission for listing with a realtor is 5.45%.
Read on to learn more about Offerpad: how it works, its pros and cons, and alternatives worth considering.
What is Offerpad?
Put simply, Offerpad is an online real estate platform that makes all-cash offers on qualifying homes within 24 hours of your request.
The company determines how much to offer using a proprietary algorithm — which weighs local housing market prices and trends against the features and condition of the home being sold — and the advice of in-house, local market experts.
After accepting the offer, Offerpad will send a representative to do an on-site inspection. If the inspector discovers any undisclosed issues or necessary repairs, they will be deducted from the offer price or require you to make repairs.
If homeowners accept the final offer, they can close in as little as 10 days — considerably faster than the average 35-45 days it takes to close in a traditional real estate transaction.
It's also worth noting that Offerpad removes a number of time-consuming and costly pain points from the home selling process, such as prepping and staging, marketing, showings, and negotiating with buyers.
What's more, it removes the possibility of a deal falling through due to a buyer's cold feet or financing-related issues.
But it's important to remember that in exchange for these benefits, you're likely going to end up leaving cash on the table because of service fees and the potential costs of repairs.
How does selling to Offerpad work?
While you may be somewhat familiar with the traditional home selling process, Offerpad does things a bit differently. Understanding how selling to Offerpad works will help you decide if aligns with your situation and needs.
1. Request an Offer
To initiate the process, you'll fill out a short form on Offerpad's website answering some basic questions about your home. After giving your home's address, you'll be asked about:
- Your home's square footage
- When it was built
- The layout of the house
- Permitted and unpermitted additions
- Countertops and flooring
- Your desired closing date
After submitting your contact information, you can upload photos of your house to help Offerpad determine an accurate value.
2. Offer Calculation
Using the details you provide, Offerpad uses its valuation software — also known as an automated valuation model (AVM) — and in-house experts familiar with your area to determine what it believes is a fair offer price.
Traditionally, agents use recent sales of comparable homes to come to a listing price or offer amount. It can be a subjective process. Offerpad's system comes to its initial home value by computing a wide range of data about your home, its features, the neighborhood, and current market. Then Offerpad area experts double-check the offer and refine it if necessary.
3. Accepting the Offer
In most cases, you'll receive your preliminary offer within 24 hours. You can either accept it or decline; there's no option to counteroffer.
At this point, if you want to move forward, you'll also be able to select any additional services or features that will make your move easier. You can set the close date, opt for Offerpad's free local move service, or sign up for its Extended Stay option.
You have four days to make a decision. If you decide to accept the preliminary offer, you can sign all of the necessary paperwork online.
4. Home Inspection and Repair Credits
Within 15 days of signing the initial purchase agreement, Offerpad will send a representative to inspect your house and verify its condition. It may be an Offerpad employee or a licensed, third-party inspector.
Once at your house, the Offerpad representative will make a list of any required repairs or additional specialty inspections they think may be necessary. Inspection costs are included in Offerpad's service fees.
If Offerpad identifies required repairs, sellers have three options:
- Credit the cost of the repairs: Offerpad will write an addendum to the contract that lowers the price of the house to account for repairs they'll need to make before listing the property.
- Handle the repairs yourself: You can hire a licensed contractor to fix the issues. Offerpad will require documentation of the work (before and after photos, receipts, contractor's license number) before it finalizes its offer. Unless you are a licensed contractor, the DIY route is not an option.
- Refuse to honor the repairs: If you choose this option, Offerpad can (and most likely will) decide to back out of the sale. The initial purchase agreement will become invalid and neither you nor Offerpad faces any penalty.
Offerpad does its due diligence prior to closing by hiring a title company or attorney of its choosing. These third-parties will conduct a title search and handle escrow accounts.
On closing day, you'll go to the title company or attorney's office to physically sign the documents. The sale is recorded, the title transferred, and then you get your money.
The Offerpad Fine Print
Offerpad is not available nationwide and it will not buy every type of home. As of October 20, 2020, Offerpad will only buy homes in:
- Phoenix, AZ
- Tucson, AZ
- Birmingham, AL
- Orlando, FL
- Tampa, FL
- Jacksonville, FL
- Atlanta, GA
- Las Vegas, NV
- Charlotte, NC
- Raleigh, NC
- Austin, TX
- Dallas-Fort Worth, TX
- Houston, TX
- San Antonio, TX
In addition to being in one of the cities listed above, in order to qualify for an Offerpad offer, a home must also be:
- A single-family residence
- Built after 1960 and are
- Worth less than $500,000-$600,000
- On less than one acre of land
Offerpad will not make offers on manufactured, pre-fab, or mobile homes; homes with significant foundation or structural issues; and homes where the seller doesn't have clear ownership.
There's also an Offerpad trade-in program that helps homeowners align their home sale with the purchase of their new house to avoid paying multiple mortgages. However, the trade-in program is not available in all locations.
How much are Offerpad fees and costs?
Offerpad charges sellers a service fee between 6-10% of the home's offer price. Your fee is based on how much time and money Offerpad believes it will have to invest to resell your home. The average service fee is 7%.
The exact for selling your home will depend on the associated costs Offerpad assumes by purchasing your home — e.g., taxes, property maintenance, basic utilities, etc. Moreover, once it finds a buyer, it will likely have to pay the buyer's agent commission and typical closing costs for sellers.
If you live in an area without many buyers, it will cost Offerpad more to close the deal because it might have to agree to more buyer's concessions. To account for this, your service fee will be higher.
And as a business, Offerpad needs to maintain its bottom line. The service fee allows it to create some financial padding to mitigate its chances of taking a loss on the transaction.
Importantly, your closing costs are not covered by the Offerpad service fee. Expect to be on the hook for an additional 1-3% of your final sale price. And don't forget about the possibility of required repairs.
Pros and Cons of Selling a Home to Offerpad
- No need to prep, market, or list your home: Sellers have to do no work before getting an offer on their home. As long as the house is in good condition, you can avoid the time and costs of putting it on the market.
- Fast closing: Since Offerdoor's offers are all cash, there are no lenders involved in closing. This removes the lender requirements that typically extend the closing process.
- Free local moves: If you've sold your home to Offerpad and are moving within 50 miles, Offerpad will schedule and cover the costs of your move. Offerpad works with third-party moving companies, so there are variations and limitations of the move depending on your location.
- Flexible closing: Offerpad allows you to coordinate closing and moving around your schedule. If need be, sellers can even stay in the house three days after closing through its “Extended Stay” program.
- Service fees: When you sell to Offerpad you don't have to pay realtor commissions (typically 5.45%) — however, between closing costs, the service fee, and the potential for a lowball offer, there's a good chance you're going to leave a lot of cash on the table.
- No negotiations for sellers: Offerpad says they will re-evaluate your house if you think it missed something, but that's the seller's only recourse for negotiation. You can either take the offer or leave it.
- Limited availability: Currently, Offerpad only buys homes in 14 U.S. markets.
- The repair process: Some sellers report that when issuing repair credits, Offerpad sometimes overcharges by considerable margins.
- Offers are typically below fair market value: How close to fair market value Offerpad will pay for a home depends on a number of different factors; however, because the company needs to maintain a decent margin when it turns around and resells, it's safe to assume your offer is going to be well below what you could net on the open market.
Offerpad for Buyers
As you may have guessed, Offerpad resells the homes it buys. If you're considering buying a home from Offerpad, the primary advantage is their Instant Access option — i.e., the ability to visit homes on your own, without an agent. Here's a general overview of how the process works.
1. Search for a Home
Offerpad lists its available properties on its website. Depending on its inventory in your specific market, you can sort listings by price, size, amenities, etc.
Once you've lined up your top choices, you can visit any of the properties between 6 a.m. and 11 p.m. Monday through Sunday. After downloading an app, you get your own entrance code and can use it to enter homes, with or without an agent.
2. Make an Offer
When you're ready, submit a non-legally binding offer online. Within a day or two, an Offerpad representative will contact you to talk you through the next steps of the buying process.
If you're pre-qualified for financing and Offerpad agrees to your offer, it will draw up the purchase agreement. If you're not working with a buyer's agent, double-check that the inspection and appraisal contingencies are included in your contract.
Offerpad will schedule closing based on when you'd like to move into your home. Assuming your financing is approved, closing will take place at the offices of the local title transfer company or real estate attorney Offerpad has hired to handle the process.
Once the paperwork is signed, the title will be transferred to you and you'll receive the keys to your new home.
As a buyer, there are a few unique pros and cons of working with Offerpad.
Pros of Buying with Offerpad
- Flexible move-in: Offerpad will work with you to time closing and move in to fit your schedule.
- Works with your agent: If you're already working with a buyer's agent, Offerpad still covers their traditional 3% commission, which gives you an advocate during the process.
- No service fees: Unlike selling to Offerpad, there's no service fee for buyers.
Cons of Buying with Offerpad
- Limited availability: Currently, Offerpad sells homes in the same 14 U.S. markets it buys in. Even within these areas, buyers' choices can be limited.
- Low-quality repairs: Both buyers and sellers have found issues with how Offerpad handles repairs. Whether the repairs were made by previous owners or Offerpad's contractors, buyers have reported subpar work.
How does Offerpad make money?
Like most iBuyers, Offerpad has two primary revenue sources: its service fees and reselling homes for a profit.
According to Offerpad, its service fees are predominantly designed to cover its holding and selling costs. This means its main way of making a profit comes from reselling the properties it acquires.
Since Offerpad doesn't have time to wait and let homes appreciate in value, it has to buy them for less than market value and spend as little as possible on getting them ready for resale. Otherwise, the margins on its transactions won't facilitate growth — or even maintain its bottom line.
How narrow those margins actually are is a matter of debate. Data from 2018 estimates Offerpad makes around $33,600 on each home it's able to resell. However, this may be a conservative estimate, as some real estate experts report receiving offers up to 30% below fair market value.
Offerpad boasts a 94% customer satisfaction rating based on its internal customer surveys from the last 30 days.
However, third-party reviews are not as steller. As of October 20, 2020, Offerpad's average customer rating is 2.1/5 based on 53 reviews.
- Reviews.io: 2.17/5 (6 reviews)
- Yelp: 1.5/5 (20 reviews)
- Sitejabber: 2.53/5 (27 reviews)
- Better Business Bureau: A+
Alternatives to Offerpad
Offerpad isn't the only iBuyer in the game. Check out our in-depth guides below to learn how Offerpad stacks up against some of its top competitors:
» LEARN: More about iBuyers.
Make Sure You Consider All of Your Options
The key takeaway here is that when you sell to an iBuyer like Offerpad, you're going to be leaving some amount of money on the table. Between the fees, lowball offer, repairs, and closing costs, you could be missing out on upwards of 20-25% of your home's value.
This may be a necessary concession for some sellers — especially those that are on tight timelines due to extenuating circumstances, such as a new out-of-state job, foreclosure, divorce, inherited property, etc.
That said, regardless of your situation, your home is an incredibly high-value asset. Don't make any rash decisions — it's worth exploring every option before choosing how to sell.
If you haven't spoken to a real estate agent already, it's worth scheduling a few interviews to see if they can't help you get a better price within your required timeline.
If you're looking to sell your home fast and are unsure of which way to go, Clever can help!
Get in touch to speak with our team of real estate experts who can help assess your situation and connect you with the best solutions, given your needs.
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