You know all about iPod, iPad, iPhone, iHome, & iTunes…but have you heard of an iBuyer? If not, now is the time to become familiar, because their advertising will be at your door any day.
The term “iBuyer”, short for Instant Buyer, is being used to describe the major real estate corporations who are making cash offers to home owners to buy their homes. Companies like Zillow, Opendoor, Knock, OfferPad and HomeLight are amassing huge pools of money from investors all over the world and in many different industries, including those in the mortgage and insurance fields, and working hard to inform home owners of their programs. So how does it work?
While attending the Keller Williams Family Reunion in February, I was fortunate to listen to a panel of real estate agents who live and work in communities like Phoenix and Dallas/Fort Worth where iBuyer offers have become very common. These agents said iBuying sprouted up overnight in their cities in 2018. Home owners who are thinking about selling their home are going online to sites like Zillow or Opendoor and inputting basic information about their homes, often including a few photos. The companies respond within a day or 2 with a cash offer to purchase the home, with a closing date that suits the seller, from just a few days to often as far as 9 months out.
The offers are generally around 90% - 92% of the home’s present market value, making it very tempting for the seller, considering they won’t have to clean and declutter their home or be inconvenienced by showing it. Let’s give a real example to make this clearer. Let’s say Zillow says your home is worth $300,000 in today’s market. They will make an offer to purchase it for cash for $270,000, 90% of the market value. They tell you the 10% difference is to cover their closing costs and fees, which are generally not defined.
Something to mention, these iBuyers are not looking to buy “fixer uppers”. They want homes that are easy to resell with perhaps just a light cosmetic rehab. If a home needs a new roof, new HVAC or has foundation issues, they most likely will pass.
The panelists shared that these homes are being purchased sight unseen with a very lengthy inspection clause. These iBuyers will send a local inspector to the home after their contract has been accepted by the seller to do a detailed inspection. This is where the problems occur. Repairs of the home are not considered in the original offer. The iBuyer is coming back to the seller with a list of repairs, reducing the original offer by sometimes as much as $30,000-$35,000, far less than the home owner was planning to receive. According to the panelists, these contracts state that they can back out of the sale at any time up until the day of closing, so sometimes homeowners are faced with difficult decisions about reducing their sales price after weeks or months under contract.
Panelists said that in their communities, only 15% of the iBuyer offers are being accepted by the home owners, and articles in recent business journals seem to back up that claim. Gary Kelman, CEO of Redfin, said recently that most sellers reject the offers they receive from Redfin Now. That doesn’t seem to be deterring the companies, as Zillow Offers is currently operating in 6 cities with plans to expand to at least 3 additional in 2019. Within 3-5 years, they have stated they want to purchase 5,000 homes a month and plan to make an offer on a home every 5 minutes. They purchased Mortgage Lenders of America so that they can capitalize on these home sales by offering mortgages on them.
At The Chad Wilson Group, we feel one of our most important services is educating our clients. We want home sellers to be aware of the benefits and risks of every offer, including those from iBuyers. There are certainly some situations where an iBuyer offer may be a viable option for our sellers. In these cases, we believe the best way for home owners to manage this process is to let us guide you. If you are interested in learning what instant offers you could receive, let us solicit them for you so you are not bombarded by advertising and solicitations. We will gather offers from as many iBuyers as you like and present them to you as you consider your alternatives. Whether you decide that listing your home on the market or accepting a quick cash offer is the better option for you and your circumstances, we will represent your interests until closing.
As of the writing of this blog post, March 2019, iBuying was not yet available in the local St Louis market. Keller Williams is developing an iBuyer program that they plan to roll out in late 2019 which they say will be more advantageous and standardized than those currently on the market. We promise to keep you informed as the details become more available.