iBuying: What It Is And Why You Shouldn't Be Scared Of It | Quicken Loans
Rachel Burris6 minute-read
June 03, 2021
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Real estate professionals are painfully aware of the fact that technology is disrupting the industry. The most successful realtors and agents are finding ways to incorporate technology into their practices to increase their efficiency and draw in more clients, but the rising popularity of iBuying platforms has led to a whole new wave of trepidation.
You may already be aware of iBuyers and what they have to offer prospective home buyers and sellers. But for those who want to understand what all the hoopla is about and what it entails for buyers, sellers and agents alike, here’s what you should know.
What Is An iBuyer?
iBuyers are real estate companies that buy and sell properties through technology. They emerged on the scene after sensing a need within the industry. Noticing how complicated and drawn-out real estate transactions tend to be, companies like Opendoor, Offerpad, Knock, RedfinNow and Zillow decided to simplify the process.
These companies pride themselves on offering convenient, seamless transactions that improve consumers’ experiences buying and selling homes. Theoretically, iBuyers cut out the need for a realtor or agent by buying homes directly from homeowners and selling them directly to home buyers.
Unlike house flippers, iBuyers don’t seek out distressed properties or those that require a lot of work. Instead, iBuyers target homes that are already in good condition and only need minimal work. iBuyers want to unload properties quickly so their business models are centered around high volume but low margins.
iBuyers aren’t active in all U.S. markets, but they’ve been steadily expanding. They seem to choose areas where the market is highly active and filled with more homogenous properties in the $250,000 range.
How Do You Sell Your Home To An iBuyer?
Although there are some differences between companies (for instance, Knock’s platform focuses on home trading and enables homeowners to sell their existing home and buy a new one simultaneously), most iBuyers tend to follow the same procedures.
For homeowners looking to sell their property, the process begins by going online and requesting an offer. This first step merely requires the homeowner to fill out some basic information about their home including the property’s features and recent upgrades. If the property meets the company’s criteria, the iBuyer takes the information the homeowner uploaded about the home and uses Automated Valuation Models (AVMs) to estimate the property’s value.
The iBuyer uses the estimate to make an all-cash offer usually within 24-48 hours of receiving the request. With the offer, the iBuyer includes a breakdown to ensure the homeowner understands the fees involved and knows what the net proceeds of the sale will be. Once the iBuyer makes the offer, the homeowner has 5-7 days to accept it. Because iBuyers allege that they only make fair market offers on properties, they don’t negotiate their offers. That said, iBuyers tend to be willing to reassess offers when homeowners feel that they missed something in their evaluation.
After a homeowner accepts an offer, the iBuyer will set up and pay for a home inspection. If the inspector finds that the home needs certain repairs, the iBuyer will assess the cost of the repairs and give the homeowner the option of making the repairs or deducting the cost from the sale price.
As soon as the repairs have been made or the new price has been accepted, the homeowner chooses a closing date. While there’s a slight difference between companies, iBuyers tend to allow homeowners to close 7-60 days after signing.
How Do You Purchase A Home From An iBuyer?
For home buyers, the process begins by visiting the iBuyer’s website or downloading the company’s app to browse the homes for sale. The listings include property details, descriptions and photographs. Opendoor even includes market analysis graphs that depict how the properties’ prices and days on the market compare to other properties in the area.
After finding a home, the home buyer can self-tour the property without making an appointment. Properties are available for tours every day for over 12 hours a day.
The home buyer must be prequalified for a loan to make an offer, but once prequalified, they can submit an offer online or from the app. As soon as an offer has been received, the iBuyer assigns an agent to guide the home buyer through the process (unless the home buyer chooses to find another agent).
The iBuyer then reviews the offer and any other offers on the property. If the iBuyer rejects the offer, the home buyer receives feedback about how to improve future offers. If the iBuyer accepts it, the home buyer’s assigned or personal agent drafts a purchase agreement.
The iBuyer allows the home buyer to choose a closing date that’s 10-60 days after signing. The home buyer is responsible for scheduling and paying for an inspection and appraisal of the property. If there are any safety issues with the home, the home buyer can request repairs. If the iBuyer accepts repair requests, the iBuyer offers to either make the repairs or deduct the cost from the purchase price.
There are several questions that often arise for homeowners, home buyers and real estate agents who are considering working with an iBuyer. Let’s go over some of the more important details to understand about iBuying before getting involved with it.
What Does iBuyer Stand For?
The “i” in “iBuyer” stands for “instant,” which refers to the speed at which an iBuyer company’s algorithm calculates the AVM to make an all-cash offer on a home.
What’s Attractive About iBuyer Programs?
The advantages of iBuyers are convenience, speed and security. When selling to an iBuyer, homeowners don’t have to worry about cleaning, staging, marketing or showing their home because the iBuyer handles all of that after sellers have moved out. iBuyers make offers online without third parties and within 2 days of a request. This way, homeowners don’t experience those nail-biting moments when it seems like their home has just been sitting on the market growing stale. Furthermore, homeowners don’t need to stress about buyer contingencies or offers that may fall through. Closings are fast and homeowners are in control of choosing when they want to close. Offerpad will even pay for professional movers when sellers relocate locally.
When purchasing from an iBuyer, home buyers can view a property immediately after seeing the listing without having to set up an appointment. Buyers are thus able to view homes on a whim at different times of the day and in varied weather conditions. And they have the added benefit of not having to deal with the hassle of coordinating with sellers’ or agents’ schedules. With Opendoor, home buyers also don’t have to agonize over buyer’s remorse. If they have any regrets about their purchase, the company has a 90-day buyback guarantee (though it’s subject to a 3% fee).
For homeowners, the idea of selling to an iBuyer may sound like a dream come true: Offers are all-cash and instantaneous, closings are guaranteed but flexible and agents are seemingly unnecessary. As a result, there are no commissions to pay out in the end. However, it turns out that many of these benefits are far more rare than homeowners realize.
To begin with, the offer is based on evaluations that iBuyers do through AVMs. iBuyers insist that these calculations provide them with fair market values of homes. Yet, however low their margins are, iBuyers are still investors (and professionals at that). They’re out to make a profit, which is why their offers are lower and their negotiations are nonexistent.
According to Melissa Zavala, the broker of Broadpoint Properties in California’s North San Diego County, “There have been several studies that have shown that people who sell without the assistance of a REALTOR® sell for an average of $47K less. Some of these platforms do offer to sell your home for a nominal fee, but they also make an offer which is lower than what the property might garner when listed on MLS.”
iBuyers may allow homeowners to choose their closing dates, but homeowners still have to pay for closing costs and make any necessary repairs to the home. And while the thought of not having to pay agent commissions may make homeowners giddy, iBuyers still charge homeowners service fees. These service fees are 6%-8% on average but can run as high as 14%, so the homeowner can end up paying the same amount as an agent’s commission or more. When iBuyers, like Opendoor, say that homeowners pay far more for traditional sales, they’re assuming all homeowners also pay for seller concessions and the cost of owning two homes at once. So iBuyers aren’t just offering homeowners convenience and speed, they’re making them pay for it.
What’s Misleading About iBuyer Programs For Buyers?
For home buyers, the drawbacks are more apparent, which is why more buyers choose to work with personal agents when buying from iBuyers. The knowledge, experience and resources agents have are invaluable when it comes to selecting a property, determining an offer price and negotiating a counteroffer.
Home buyers are often unfamiliar with real estate laws, market trends and other details that surround the entire process of buying a home. If they aren’t sure of what the most reliable sources of information are while trying to educate themselves, they may end up entering their home buying journeys with significant knowledge gaps. iBuyers, on the other hand, are expert investors, so home buyers may be at a disadvantage when buying directly from them.
What Does iBuying Mean For Real Estate Agents?
Although iBuying programs enable homeowners and home buyers to complete transactions without using a traditional real estate agent, they also provide individuals with the option of working with one. While homeowners usually work directly with iBuyers, it’s quite common for home buyers to use their own agent to represent them.
For agents, the process is very similar to any other real estate transaction. Listing agents can contact iBuyers directly to request an offer on their clients’ homes while buyers’ agents can visit iBuyer homes with their clients and submit offers on their behalf.
Moreover, some iBuyers, like Opendoor, Offerpad and Zillow, have agent partnership programs and provide participating agents with leads. Opendoor will even give agents a 1% fee if they refer unrepresented sellers.
So while there’s no doubt that iBuyers are changing elements of the industry, that doesn’t mean there isn’t a place for traditional agents within it. Some real estate agents have started to view working with iBuyers as an extension of their professional role.
Zavala explains, “We are a consumer-based industry, and if we want to be successful, then we need to figure out a way to work with consumers – particularly iBuyers. This may mean that we need to advertise or list our properties on iBuyer sites, and that’s OK. Our job is to represent our clients in the best way possible and also to offer their homes to the widest range of potential buyers possible. This means embracing iBuying.”
Why Shouldn’t Real Estate Agents Fear iBuyers?
There will always be some homeowners and home buyers who need to act with urgency and are willing to pay more as a result. However, the vast majority still want to make sure they’re getting the highest price when selling their homes and the lowest price when buying them. They really want to ensure they’re making informed decisions and not getting taken advantage of.
iBuyers may be propelling the real estate industry in a new direction, but this isn’t the first time that an agent’s worth has been called into question. If you’re an agent, your value stems from your expertise and the personal relationships that you’re able to forge with your clients. So if you continue to increase your knowledge and make sure you’re always available for clients, you’ll have nothing to sweat when it comes to iBuyers.
Which iBuyer Is Best?
While there’s no definitive “best” option, major iBuyer companies like Opendoor and Offerpad have grown popular for a reason. Their services simplify the process of selling or buying a home and take a lot of the responsibilities involved in a real estate transaction off of the shoulders of the seller or buyer. If you’re looking to buy a home, though, it’s wise to conduct your own research or to look into consulting with other real estate professionals before working with an iBuyer. This way, you can ensure that you’re able to advocate for yourself and get the fair treatment you deserve during the transaction.
However, should you decide to take a more traditional route to sell your property or buy a new home instead, a Verified Partner Agent through our sister company Rocket HomesⓇ can help to make your real estate experience simpler and more efficient.
The Bottom Line: iBuying Is Here To Stay, But There’s No Need To Be Afraid
As our societal reliance on technology continues to expand, iBuying is likely to become an increasingly common facet of the real estate industry. The convenience of iBuyer programs can make the idea of working with them extremely appealing for buyers and sellers, and real estate agents who choose to embrace collaboration with iBuyers will be doing themselves a favor in terms of their ability to stay relevant and fully engaged in the field.
While the thought of potentially being taken advantage of as a buyer or having your expertise disregarded as an agent can make interactions with iBuyers a little more nerve-wracking, remember that knowledge is power. For all participants in iBuyer programs, familiarizing yourself with the current state of the real estate market and equipping yourself with as much information as you can is key to feeling empowered in your role in a transaction and ensuring that you will be treated fairly.
If you’re a prospective home buyer and feel ready to start your journey toward homeownership – whether it’s through an iBuyer or a more traditional real estate transaction – apply for a Prequalified Approval through Rocket MortgageⓇ today!
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