There is a trend that is taking off across the country that may radically transform how real estate agents conduct business in the years ahead. More and more sellers are considering selling their home to an iBuyer rather than engaging the services of a real estate sales professional. Well-funded companies are utilizing an iBuyer platform and are tempting sellers with quick cash. Make no mistake about it, even though this service is only available in larger markets right now, iBuyers are coming to Central Pennsylvania; and when they arrive, will you be ready?
What’s an iBuyer?
iBuyers are not actually people, but companies like Opendoor, Offerpad and Zillow. They receive requests for an offer from a potential home seller online then evaluate what a home is worth and make an instant cash offer. Sellers that accept iBuyer offers can usually settle on their property in as little as two weeks.
How do iBuyers calculate an instant offer price?
Most iBuyers use some form of Automated Valuation Model (AVM) to compute the offer price. It is kind of like a Zestimate that is found on Zillow. The iBuyer’s AVM takes into consideration a lot of different variables such as square footage, property amenities, age of structure and area transaction data. They also usually ask the potential seller a number of questions designed to uncover potential pricing red flags.
How close is the iBuyer instant offer to true market value?
Well . . . that depends. I can almost certainly say that it’s not true market value; but it’s close (and getting closer). Add a 6-9 percent fee for the convenience of an iBuyer service plus the cost of repairs to get the property ready for the market and you’re getting into the right ballpark.
Isn’t iBuying another name for home flipping?
Nope. Typically home flippers try to buy a distressed home from a seller who is desperate to dump the property then make major renovations and resell it.
iBuyers usually are more focused on homes that are in good condition and only need minor repairs or touch-ups to bring the home to market.
Home flippers focus on making a profit. iBuyers aren’t as concerned about making a profit as they are with earning fees for their service.
Other than a seller asking for an instant offer from an iBuyer, what is the process like?
When a potential seller requests an instant offer from an iBuyer, the homeowner is also usually asked some questions about the condition of the home:
- Have you made upgrades to your home?
- Are there special amenities that would enhance the value of the home?
- Are you willing to make some repairs to get your home ready for the market, or would you prefer the iBuyer service to take care of them?
- How soon do you want to sell?
After the initial contact online, the iBuyer will conduct a complete home inspection to assess the market readiness of the home. Then they will input all this information into the AVM and ***POOF*** an instant offer is generated.
Why do sellers choose to engage iBuyers versus a traditional real estate agent?
The thought of fast CASH is very appealing to a lot of sellers. What kind of seller? Hare are a few:
- The ‘Family Issues’ Seller — We’ve all been there. A couple is going through a divorce and are at each others’ throats and just want to move on. Maybe the home has been inherited and is part of an estate which consists of seven children spread across continental North America. Cash in two weeks sounds pretty good.
- The ‘Relocated’ Seller — If your new job in Raleigh starts next week, leaving behind a vacant home for a couple of months while it is being sold can cause real stress.
- The ‘High-Strung’ Seller — It’s hard to believe, but some sellers don’t relish the idea of packing away the kids and dog into the SUV every time a strange person traipses through their home over the next couple of weeks.
- The ‘I’m Building a New Home’ Seller — If you’ve ever tried to coordinate the settlement of your existing home with one that is going to take seven months to build, well, you get the issue.
- The ‘I’ve Got Two Vacant Apartments in My Investment Property’ Seller — Every day those apartments sit vacant, it is burning a hole in the landlord’s pocket.
- The ‘I’m Not Very Handy’ Seller — To some sellers, the thought of patching holes in drywall – or – fixing a toilet – or – painting two bedrooms – or – replacing a light fixture, is not their idea of fun.
Obviously, not all sellers fall into one of the above categories; and there will continue to be plenty of situations that need and require a qualified real estate sales professional. However, iBuyers are real. They will secure a little bit of the market. It’s not a matter of ‘if’ they will start issuing instant offers in our area. . . it’s a matter of ‘when’.
How will you react and what will you say when that potential seller you’re sitting across the table from drops the following on you for the first time, “I’m considering taking an iBuyer offer instead of listing with you.”
Stick around . . . Part II of this post will give you some tips to not only compete with iBuyers, but also to win the listing and create raving fans.
All the best!
Tom Blefko, Berkshire Hathaway HomeServices HomeSale Realty
Facts, opinions and information expressed in the Closing Comments Blog represent the work of the author and are believed to be accurate, but are not guaranteed. The Lancaster County Association of Realtors® is not liable for any potential errors, omissions or outdated information. If errors are noted within a post, please notify the Association. Posts represent the author’s opinion and are not necessarily the opinion of the Association.