In 2014, “instant” buyers, or iBuyers, entered the real estate market and have grown in popularity during the pandemic. These online real estate investors use algorithms and digital tools to make instant cash offers on off-market homes, giving sellers a faster alternative to the traditional selling process. But are they worth it, especially in today’s shifting market? This blog will explain how iBuyers work and highlight the benefits and drawbacks associated with using them so you can decide.
What are iBuyers?
Not to be confused with house-flippers, iBuyers are online real estate investors who purchase homes directly from sellers, typically without ever seeing the home in person. A seller simply visits an iBuyer website, enters their address and fills out a quick questionnaire about their home, and within about 24 hours, they receive a cash offer. iBuyers buy the property “as-is,” allowing sellers to avoid a lengthy selling and closing process.
Current iBuyer Stats
Since 2014, it has been reported that iBuyers have expanded into 43 markets across the country. Although their market share was only 1.3 percent in the first quarter of 2022, that number was double and triple the shares seen in the previous two years, thanks in part to fully digital transactions gaining popularity during the pandemic. During Q1, the three largest iBuyers bought nearly 13,000 homes and resold a record 26,000+ homes, with a median price-tag of $347,000. Atlanta, Phoenix, Dallas-Fort Worth, Houston and Charlotte continue to lead the market with iBuyer sales.
WHAT iBUYERS TYPICALLY LOOK FOR:
- Single family houses, townhomes and condominiums
- Little to no need for repairs or renovations
- Median value close to the average market price (typically $100,000 to $600,000)
- Modern construction, though not necessarily new
- Lot sizes between 0.5 and 1.5 acres
WHAT iBUYERS GENERALLY AVOID:
- Fixer-uppers or homes that need considerable repair
- Prefabricated or mobile homes
- Luxury homes and homes that exceed the area’s median value
- Older homes built before 1960
iBuyers vs. Real Estate Agents
Here’s a side-by-side comparison of the services in the table below:
|
Aspect of Sale |
iBuyer |
Real Estate Agent |
|
Purchase price |
Offers below market value. |
Helps buyer find the best offer. |
|
Timeline |
Offers typically made in less than 10 days (sometimes within 24 hours), depending on the iBuyer. |
Typically, 1 to 3 weeks to attract an offer, plus a month or so to close. |
|
Home preparations |
Not required. |
Recommended (necessary repairs, deep cleaning, decluttering and staging for showings). |
|
Inspections/repairs |
Not required, though some iBuyers may make an assessment and deduct the cost from the final offer. |
If financing with a mortgage, the lender will require a third-party appraisal. |
|
Showings |
Not required, though some iBuyers choose to have them virtually or in-person. |
On average, there may be as many as 25 in-person showings. |
|
Title search |
A clear title is required. The iBuyer will hire a trusted title and escrow company to assist. |
A clear title is required, and agents will notify title officers immediately upon receiving a new listing. |
|
Commission |
None, but there is a service fee, often ranging from 5 to 13 percent. |
The national average agent commission is currently around 5.8 percent. |
|
Closing costs |
Title insurance, escrow fees and taxes on average can vary from 1 to 5 percent of the sale price (on top of the service fee). |
Title insurance, escrow fees and taxes on average can vary from 1 to 5 percent of the sale price (on top of agent commission). |
Based on this breakdown, the biggest advantages to using an iBuyer are speed, certainty of sale and all-cash offers. iBuyer services are particularly advantageous to sellers who need to sell their home fast, perhaps due to a sudden job relocation or life change like a divorce, or those who want the trade-in approach of buying and selling at the same time. Research shows that all-cash offers hit an eight-year high in home sales in the second quarter of 2022, proving that quick profit and monetary flexibility are appealing to some sellers.
And yet, all that convenience comes at a cost.
The main disadvantages of using an iBuyer are lower profit, limited availability across markets and strict eligibility criteria for the property to be considered. Working with an iBuyer is also a less personal, non-interactive transaction. Some sellers feel frustrated by their lack of insight into the process or control over the repairs iBuyers require them to pay.
Are They Worth It?
So, is selling your home to an iBuyer worth it? Everyone hopes to sell their property for as much as possible, but if time is more important than money, selling your home to an iBuyer may be a good option. Ultimately, the answer comes down to each seller’s situation and what they value more: cash or convenience.