Calculating the Cost of iBuyer Services

November 5, 2019

There’s no question convenience is a prime value for many people today. We’re willing to pay more so our TV programs are available at the push of a button, a driver can provide door-to-door service, and our toothpaste and sparkling water can be delivered overnight. But when it comes to selling your home—one of the most monumental financial transactions of most people’s lives—convenience may come at too high a price.

For some homeowners, an “iBuyer” service, such as OpenDoor, OfferPad, Zillow Offers or Redfin Now, may appear to be a simple solution for getting their home sold. These companies provide nearly instant purchase offers, bringing with them the certainty of a sale on a specific date and relieving sellers of the need to make repairs and open their homes to buyers.

Recent research by Collateral Analytics, however, compared the fees associated with a traditional real estate brokerage with those charged by iBuyers and found that sellers pay a premium for convenience. Collateral Analytics found the total cost of working with an iBuyer comes to 13% to 15% of the sales price, compared to 5% to 7% for a traditional real estate sale.

The iBuyers charge a convenience fee from 6% to 9.5% of the sales price, compared to traditional brokers fees, which range from 5% to 7%. Some iBuyers also charge the sellers for some fees typically paid by buyers at the closing, adding another 1% or more for a total of 7% to 10+%.

In addition, sellers using an iBuyer service may have to allot funds for repair allowances that could result in a lower sales price. Collateral Analytics’s research showed sellers appear to be paying an extra 3% to 5% of the estimated value of their home to iBuyers, in the form of a lower sales price and repair credits.

How iBuyers work

The iBuyer trend started about five years ago, and it’s grown in popularity in markets like Atlanta, Charlotte, Houston, Las Vegas, Nashville, Orlando, Phoenix and Tampa. Those areas are particularly attractive to iBuyer services because they have lower housing costs than markets like D.C. or Philadelphia, and many homeowners there want to sell quickly to relocate or move into a newly constructed home.

The process for sellers can be enticing, since it typically requires just entering basic information on an iBuyer site to receive a tentative offer based on the service’s algorithms. The offer is usually confirmed after an inspection of the home to check its condition. Sellers can then accept or reject the proposal.

The iBuyer offers are based on data analysis of market trends, seasonality, comparable inventory, sales periods and estimated repair costs, as well as related carry costs between the time the iBuyer service purchases the property and when it’s resold.

Collateral Analytics’s research found the 2019 median iBuyer purchase price in four major iBuyer markets (Phoenix, Atlanta, Charlotte and Las Vegas) ranged from 2% to 4.5% lower than estimated market values, based on the research company’s automated valuation model.

What professional real estate agents offer

The convenience of a quick sale may be attractive to some sellers who are more concerned about moving immediately than maximizing the value of their home. But selling directly to an iBuyer, without consulting a real estate professional, skips the step of finding out the true market value of your home.

Some homeowners work with both a real estate agent and an iBuyer. If they’ve contracted with a listing agent, they can still request an offer through an iBuyer and then discuss the offer with their trusted real estate agent. Depending on the circumstances, the agent may recommend accepting or rejecting the iBuyer offer. In other cases, a seller may start with the iBuyer and then request the support of a real estate agent to evaluate the offer and provide advice about the potential of marketing the house to a broader range of possible buyers.

A property that’s listed on the multiple listing service (MLS) and marketed by an experienced real estate agent has a greater chance of garnering the maximum possible sales price because it will be evaluated by agents and consumers who are in the market for a home right now. An agent can help you evaluate your home in the context of valuable features an iBuyer may not realize, such as neighborhood amenities, as well as more granular attributes like the amount of natural sunlight in the home. An agent can advise you on simple ways to improve your home’s appearance, attracting more buyers or a higher offer without affecting profitability.

Once you establish your goal for the sale—whether it’s completing a quick transaction, matching a specific closing date or maximizing your profit—a real estate agent can help you position your home to achieve that objective. An agent also can negotiate for the best terms and conditions and manage your transaction from start to finish.

When you’re ready to sell your home, it’s important to look at all your options, generally alongside a professional real estate agent with deep knowledge of your local market conditions. At Long & Foster Real Estate, we have the resources to research every aspect of your home sale to provide advice and support your individual needs. Our companies provide the convenience and peace-of-mind of one-stop shopping for the smoothest possible transaction.