Welcome to Summary School
What is an iBuyer and how does it affect you?
Hello Everyone, thanks for joining me! Today we are discussing iBuyers and their impact on Buyers, Sellers and Investors.
I want to discuss the iBuyer companies and what you should know about them. I’ll cover four main points: What is an iBuyer, Who are the iBuyers, What do they buy and How do they work.
First, an iBuyer is essentially an internet-based company that purchases real estate virtually. This concept has been around for years but has recently exploded with the financial backing of Wall Street. There are multiple levels to iBuyer classifications but today we are going to focus on the big names.
The bigger players in the iBuyer business might vary depending on your market. Here in Atlanta we have Opendoor, OfferPad, Knock, Zillow and Redfin. Each company is different, but they share more similarities than not.
Most iBuyer’s have very specific buying criteria for the homes they purchase, these are the property types excluded by iBuyers:
- They won’t buy homes under $100K or over $500K, nor homes built before 1960
- In most situations they don’t buy Condos, Townhouses or Duplexes
- They don’t buy Triplexes, Quadraplexes, Commercial buildings, Vacant land or homes in 55 and over communities.
- Homes are also excluded if they have fire damage, water damage or if the home needs more than a light cosmetic renovation
- Also, homes that are facing short sale, foreclosure or have serious tax liens don’t meet their standard.
Let’s say your home meets the selective criteria of your local iBuyer, how does the process work:
- You call or click to request an offer on your home.
- They run the numbers, compare similar home values, research your property and then generate an offer. Usually the offer price is right around 90% of Retail Value, I’ll cover the reason for this later.
- They schedule home inspections during a due diligence period that may last up to two weeks.
- Step 4 is the renegotiation period based upon the inspection and then the final offer is formalized.
- Finally, there are the fees: On almost all the offers I have seen, the iBuyer charges an average of 13% in additional fees. So really your final sales price is much less than the retail price for them to handle carpet, paint and some minor cosmetic improvements.
The logic behind the 90% of retail value purchase price numbers is based upon Buyer Psychology.
Agents and Neighbors will tell you, homes for sale by iBuyers are overpriced and tend to sit vacant for a long time. When a new buyer is evaluating the property they see the iBuyer paid close to what the list price is. The new buyer figures there’s not much room to negotiate and is more willing to pay the higher price.
So, here is my take on the iBuyer revolution and where I see it going.
First, they have disrupted the real estate industry for Investors, Agents & Brokers. I think the disruption is positive and overdue. The Agents and Investors negatively affected the most provide marginal service and needed to be pruned from the industry.
Second, they have spent millions of dollars promoting an alternative way to sell your home. Local real estate investors have been buying homes like this for decades, but without the financial resources for the same massive marketing campaign.
Third, the disruption has helped traditional real estate brokerages see they need to improve technology and provide better services and options to homeowners. Alternative ways for real estate transactions to occur will ultimately help more homeowners and buyers.
Finally, I believe these organizations are pushing to capture market share as fast as possible. They are not primarily concerned with profitability. I think we will see the closure and merger of many tier 1 and tier 2 iBuyers into one or two national companies.
That is my take on iBuyers, as an active Broker and local home buyer I don’t see them as a threat, just another group looking to help homeowners in the way they can. However, I truly believe most sellers will see better results by using a local home buyer or real estate professional.