Technology is changing the face of real estate, and it looks like 2019 will be the year that iBuyers are put to the test. As the housing market cools off, home sellers are looking to get top dollar for their homes, especially in large markets like San Diego. The good news is that there are more options than ever when it comes to selling a home, and you can do it all on a phone, tablet, or computer, from the comfort of your home. When choosing whether to list your home on the market or sell to an iBuyer, it’s important to understand how iBuyers work, how much money you could make, and who is a good candidate for an iBuying program.
What is an iBuyer?
An iBuyer is a real estate company that will make an instant offer on a home. iBuyers use statistical modeling algorithms – known as AVMs – to evaluate your home’s worth based on comparable market data. With iBuyers, sales can close in under two weeks, in contrast to the typical listing process that can take months. After buying the home, the iBuyer will then repair and try to resell it for a profit.
What is an Automated Valuation Model (AVM) in real estate?
An Automated Valuation Model (AVM) is a computer program used by home appraisers, real estate professionals, and iBuyers to estimate a home’s value. AVMs use statistical linear and multiple regressions to predict the home’s worth based on market data. An AVM takes into consideration age, historical data, transaction records, property features, and similar data points.
The Redfin Estimate is a free tool that relies on an AVM to calculate the market value of individual homes. It has been able to predict the value of a home with about a two percent median error rate, providing a good frame of reference for a home’s value instantly.
How much do iBuyers pay?
While iBuyers charge higher fees than a typical real estate transaction, they provide value for the seller in the form of a quick cash sale. iBuyers generally pay 75-100% of market value for a home. For example, if you have a $1M home and the iBuyer gives you 85% of value and charges a 7% fee, you’d end up with 16% less than selling on open market if you paid 6% on agent commissions. But after repair costs, seller concessions, and potential mortgage and rent overlaps from a traditional sale, the seller won’t get to keep all that extra money, and it’s easy to see how iBuyers can provide similar or superior value.
Often the best way to get top dollar for your home is to make it shine and list it for sale with a local real estate agent, but sometimes you don’t have the time, energy, or money to go through that process. If you’re on the fence, the best thing to do is explore both options. Listing your home gives you the opportunity to test the market and see if iBuying is right for you.
How does iBuying work?
To start the iBuying process, the seller goes online and answers some questions about the condition of the home. For example, the RedfinNow iBuyer program asks:
- How many bedrooms and bathrooms does your home have?
- Have you made any improvements on your home?
- Does your home have any amenities such as a pool, solar panels, gated community?
- How soon do you want to sell?
The iBuyer will then do a home inspection to determine any issues like structural damage, mold, asbestos, oil leaks, etc. These aren’t necessarily deal breakers, but may impact the home’s sale price. After running the numbers, the iBuyer will come back with a full cash offer, which the seller can choose to accept or reject. If accepted, the property sale can close in as little as seven days.
In most cases, iBuyers will take on the work of rehabbing the house, and then try to resell it for a profit. Selling to an iBuyer can be a great option for those who don’t want to put the time and energy into remodeling, repairing, listing, showing, negotiating offers, and waiting for the house to sell. iBuyers simply take the property off your hands, so you can bid confidently on your next home, knowing you will have guaranteed cash at a predictable date.
Why sell to an iBuyer?
iBuying is an ideal solution for people who want to sell a home quickly for cash. There are many reasons someone would want to sell a home fast, including:
- Relocation: If you’re moving to a new city and need to be on the job ASAP, you may not have time to wait around for your home to sell. iBuying gives you more flexibility to choose when to move, because you don’t run the risk of paying double rent or mortgage payments. Most iBuyers will make an offer within days and close within weeks.
- New home: If the purchase of your dream home requires the sale of your current home, you may need access to the equity tied up in your current home. An iBuyer can give you quick cash for your current home to buy your next one.
- Ease of service: A quick cash sale through an iBuyer is like flying first class: more costly upfront, but ultimately a smoother ride without the hassles. With iBuyers, there’s no prepping the house for market, herding kids and pets out the door during open houses, or worrying over whether a potential buyer will back out of the sale. iBuying is user-friendly and you can get a cash offer within days by answering some questions online.
- Repairs: Doing home repairs can be expensive and time-consuming. If you can’t or don’t want to do the work to upgrade your property before you sell, or don’t have cash to pay for repairs and renovations out of pocket, iBuyers will deduct this from your offer price, so there’s no cash outlay from you.
- Rental properties: If you’re an investor with a vacant rental that is costing you money every day it’s empty, a quick sale to an iBuyer can be very attractive.
- Family circumstances: Maybe you’re going through a divorce and want to split the assets and move on. Or, you’ve inherited a home you don’t want to live in or manage. iBuying offers the convenience of a quick cash offer.
Regardless of the situation, iBuying provides a quick cash option in exchange for a discounted offer, allowing you to bypass the listing process, sell the house quickly, and move on your own terms.
With today’s technology, there are more options than ever for buying and selling real estate. iBuyer programs use data to calculate a quick cash offer on your home, allowing you more speed, flexibility, and choice than a traditional sale. If you’re on the fence about iBuying, the best thing to do is explore both options. Find out if an iBuyer can get you an offer you’d be happy with, and compare that to how much you could make selling with an agent.
Have you worked with an iBuyer before? Let us know your experience in the comments below.