Is It Worth It?
The real estate tech trend known as "ibuying", or an "ibuyer" is a company that will make an offer to buy your house sight unseen very quickly, and that figure is based on their own automated valuation model (AVM). Ibuyers, if you accept the offer, can usually close very quickly. They will offer a streamlined process that's fast and easy, less hassle than a traditional sale. This method can be a good choice when a seller needs to move quickly for a job, to be near family when older, a "distress" sale, where a seller needs to get out from under fast-- and other reasons. So, the model does work for some, that's true.
Sounds pretty good. Is there a catch? What, or who is actually behind the transaction? An investor. Or investors. An investor is buying the home. They're not "bad" people. They're not "stealing" homes, although there's a lot of negativity surrounding the Ibuyer model from traditional agents. And what do investors want? A profit. Can't blame them. After all, they're taking all the risk. They may end up "holding" the property for an extended period of time, which is costly and cuts into their profit margin. So, with risk in mind, Ibuyers will charge a full commission that may be greater than that of a traditional real estate agent. That's not mean or shady, it's just how that business model works. An Ibuyer will also discount the value of the home to offset the risk they're taking giving the home seller instant liquidity. They're giving the seller cash. The buyer, or investor, is using his own money. He's not financing.
So, what's the bottom line? In general, if a homeowner purchased the home with financing (a mortgage), he has a certain amount of "equity" in the home. As an example, on a $400,000 purchase, the seller probably put down 20%, or $80,000 of his own money. That's equity. If the value of the home remains the same and an Ibuyer offers $380,000 which represents a 5% discount (it can be more depending on the condition of the home), the loss in equity (your money) is $20,000. Then there will be a 5% to 9% commission. At the low end, 5%, that's $19,000. So, the net "loss" is $39,000, which amount represents roughly 50% of the seller's equity. All for a fast sale and "convenience".
The Ibuyer route isn't for everyone. In fact, Zillow reports from it's "instant offer" program, that typically 90% of home sellers decline to participate. What the overall experience ratios from Offer Pad, Redfin, Open Door, Purple Bricks, and others are, we don't have figures to report here. It's possible they're commensurate with Zillow, and possibly less compelling. But, if 9 out of 10 of sellers prefer selling with a traditional agent, the bottom-line figures aren't particularly attractive. Overall, your home is probably your largest asset, so you may want to discuss your sale with a local real estate expert!