What Is An iBuyer
October 12, 2021

What Is An iBuyer? Everything Real Estate Agents Need To Know

by The CE Shop Team

What Are iBuyers & How Are They Impacting The Real Estate Industry?

The real estate landscape is always changing, but unlike some trends that erode over time, iBuying or the iBuyer is one that’s likely here to stay. For those of you who aren’t familiar, iBuying is the practice of selling a home, often sight unseen, based on figures provided by an automated valuation model, or AVM, to an iBuying company. The technology, first introduced in 2014, takes current market data and applies an algorithm to produce pricing figures for buyers, sellers, and investors. 

In many ways, iBuying is a reasonable, calculated, solution for those looking to act fast or sell large swaths of suburban property. The COVID-19 pandemic, along with housing markets hot enough to melt titanium, has helped popularize the practice — especially among younger homesellers. 

As tech-forward as this all may seem, however, it’s not without limitations. The overwhelming majority of homebuyers, home sellers, and investors still prefer to work with a real estate brokerage to conduct real estate transactions. 

How Does The iBuying Process Work In Real Estate? 

The selling process begins online, which should come as no surprise. According to the National Association of REALTORS® 2020 Home Buyers and Sellers Generational Trend Report, 84 percent of home buyers used the internet to search for homes. Naturally, many home sellers also turn to web-based platforms as well. 

After a home seller submits a request through an online iBuyer program like Redfin Now, Zillow Offers, Opendoor, or Offerpad, the iBuyer makes an immediate offer to purchase a home from the seller in as-is condition. In some cases, the offer will be adjusted if an in-person evaluation is performed. Closing is also largely in control of the home seller, allowing them to be flexible in finding another property, which could be a bit if they choose to purchase the traditional way.  

What Is An iBuyer Program? 

An iBuyer program or iBuying company is a place where sellers can submit their online requests for an offer. Not every property is eligible, though. Generally speaking, iBuyers typically operate in places where homes are newer, are generally in good condition, and there are plenty of data points. Think suburban areas that have popped up over the past few decades. 

What Is An AVM & How Does iBuyer Pricing Work? 

The AVM is the secret sauce that makes iBuyer model a mouthwatering recipe for tech-y investors. Short for “automated valuation model”, the AVM goes much deeper than competitive market analysis. Traditional competitive market analysis performed by humans is limited, time-intensive, and is subject to both bias and human error. The AVM, on the other hand, can quickly analyze myriad data points including number of rooms, construction features, whether or not a property has a pool, etc —  and give an accurate market value within seconds. According to Forbes, the AVM’s error rate is roughly 6% for properties less than $1 million. Comparatively speaking, the human error rate is around 16%. 

Home Flipping vs. iBuying 

Sometimes flipping homes and iBuying are mistaken for the same thing, but we’re here to tell you that the two are very different approaches to real estate. In theory, a flipper who’s recently renovated a home could sell to an iBuyer, but that’s generally not the modus operandi. On the homebuying end, flippers look for properties that need serious repairs or renovations and negotiate a low purchase price while iBuyers make offers, albeit usually on the lower end of things but still fair, on properties that don’t require work. When it comes time to make a sale, both are looking for a quick resale but flippers tend to opt for traditional home selling methods through traditional real estate companies to highlight the work that’s been put into the property on the open market. 

When To Sell A Listing To An iBuyer

As a real estate professional, your goal should always be to recommend what’s best for your clients and their current real estate situation. Even if it doesn’t pay off now, it will down the line. With that said, there are certain instances when you might want to suggest selling to an iBuyer:

  • Needing To Sell A Property Quickly: The main reason people use iBuying platforms is to sell a property quickly. More often than not, iBuyers are able to make an instant offer on a property and won't require a home inspection.  
  • Selling A Property Remotely: With remote work becoming an increasingly common practice, property owners could be anywhere in the world. Remote owners looking to free up some capital might want to choose the convenience of using an iBuying platform. 
  • Inherited Properties: After the passing of a loved one, settling the estate might be a timely affair. If property is inherited, the beneficiary or beneficiaries might want to quickly liquidate the assets and distribute the funds. 
  • Selling A Property With Tenants: Sometimes selling a property with tenants can be a tricky venture. That’s why some landlords choose to use iBuyer companies when trying to sell. 

Pros & Cons Of Selling To An iBuyer 

While iBuying seems like it might be a straightforward solution, it’s not for everyone. The National Association of REALTORS® 2020 Profile of Home Buyers and Sellers shows that, over the past year, 88% of buyers and 89% of sellers used a traditional real estate agent. In many cases, using an agent to conduct real estate transactions is preferred. Here are the pros and cons one might want to consider before selling real estate to an iBuyer.  

Pros: 

  • Most iBuyers make cash offers instantly
  • The closing date is on the seller’s terms, allowing for flexibility when it comes time to move out
  • Convenient for remote sellers and landlords with tenants who don't want to hassle with selling and just want to find an instant buyer 
  • Service fees can be lower than an agent’s commission

Cons: 

  • No chance of bidding wars in a hot real estate market
  • Offer price may not reflect unique or historic aspects of a property
  • Not available for every property - iBuyers usually prefer to purchase a fairly new home
  • Limited marketing means no open houses or other tactics to fetch a higher sale price
  • An iBuyer's offer can expire in a short amount of time  

iBuyer Real Estate Scams 

Lastly, those interested in iBuying should be on the lookout for scams. It’s your duty to communicate with your clients, friends, and family the nature of the latest real estate scams. Sites that seem sketchy or unprofessional, offers that are too good to be true or well over market value, and transactions involving foreign parties with odd fees should all be thoroughly vetted, if not avoided — especially if a client is selling through an iBuying platform but choosing to buy their next home through you. Purchasing or selling a home is often one of the largest financial decisions many people make in their life so keeping a list of reputable iBuyers on hand could help avoid a truly costly mistake.

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