4 Reasons Not to Sell a Home Online to an iBuyer
If you’ve ever checked out your home on major websites like Redfin or Zillow, chances are you’ve seen a tantalizing number. These sites give you a ballpark of what your home may be worth. And they aren’t alone. For the past few years, iBuyers – online portals that offer cash up front for your home – have been on the rise. And based on their marketing, they want you to get those dollar signs flashing in your eyes.
In order to get a snapshot of what iBuyers are advertising, all you need is to perform a basic search. Our first three results – all paid ads – came up as follows:
- Sell Your House Fast for Cash
- We Buy Houses (All Cash)
- We’ll Beat Any Serious Offer – Get an Instant Cash Offer
Now these might sound a whole lot like the cardboard signs you might see on the side of the street offering cash for old cars. Well, that’s because many of these companies operate using the same principles. Get quick cash for your property, no muss no fuss. But the lie to look out for comes in the third search result. Do iBuyers actually give you fair market value, much less the best price you could get? To find out, let’s first take a look at who the big iBuyers are and how they operate.
If you’re unfamiliar, an iBuyer is a company that makes a cash offer for your home as an alternative to the traditional selling method. The increased use of online marketing in the real estate market has shown to be crucial in the rise of iBuyers. Some companies – like Offerpad and Opendoor – operate solely as iBuyers. Others, like Redfin and Zillow, have launched their own iBuying programs, RedfinNow and Zillow Offers. And you’ll often see iBuyers cite technology as a crucial element in how they approach their pricing.
1. An iBuyer is the Opposite of a Market
Instead of putting your home on the real estate market and obtaining the best offer, you’ll simply accept the iBuyer’s single offer. This is a real estate investor’s dream, to buy a house off-market. To make a single offer for a home and not face any competition in obtaining it. iBuyers, at the end of the day, are nothing more than another ploy to buy people’s homes for less than they are worth (market value).
2. iBuyers Cash Offers Drop Before Closing
So you may be wondering, how do iBuyers use technology to settle on a value for your home? To start, they’ll likely give you an estimate of what they think your home may be worth, based on similar homes that have recently sold in your area. They also use computer algorithms to value aspects such as kitchen appliances. (If you have elements that don’t easily fit into their algorithms, such as any special or custom features, you risk losing out.) Next, many iBuyers will send out someone to value the home. Put bluntly, your offer will typically decrease (a lot) after that visit. Zillow’s Zestimate, for example, is notorious for overvaluing homes in order to hook potential sellers. Once they’ve got you on the hook and you take the time to let one of their representatives inside your home, the cash offer often goes down.
And Zillow isn’t alone in engaging in less than reputable advertising. Let’s remember the third result from our search list above, which promises to beat any “serious offer.” What constitutes a serious offer isn’t specified. And you can be fairly certain that the phrase “too good to be true” applies here.
3. iBuyers have No Fiduciary Responsibility
If what we’ve told you so far has you feeling cold towards iBuyers, congratulations! You’re headed in the right direction. But you may be wondering at this point why iBuying is so successful, when it’s obviously not in the customer’s best interest.
The most commonly cited reason by far for choosing an iBuyer is convenience. It’s true that you don’t have to deal with the nitty gritty of marketing your home if you sell directly to an iBuyer. It’s a one-and-done, streamlined real estate transaction. This model has its advantages, mainly for those who are looking for cash fast. But if you’re willing and able to hold out a little longer in order to get proper value for your home, don’t consult an iBuyer.
Keep in mind, too, that advertising truly does play a big part here. It’s tantalizing to see that big number that Zillow’s Zestimate sends to you on a regular basis. But beyond the sketchy advertising, lies the spin these companies put on the convenience angle. Opendoor, for example, claims to “take on the burden” of marketing and reselling the home.
First of all, let’s remember that by “taking on the burden,” what they mean is they intend to give you a lower offer and then resell at a higher price. While it’s phrased in a way that makes it sound like they’re doing you a favor, the burden they’re taking on translates to more money for the iBuyer and less money for the seller.
4. iBuyers Charge High Fees
By now, we’ve painted a solid picture of how iBuyers operate. But how does this compare to an experience with a traditional real estate agent? The biggest difference is that it’s in a real estate agent’s interest to get you the best price for your home, whereas it’s in an iBuyer’s interest to quote you the lowest possible price. The “burden” we described above, that the iBuyer takes on? Frankly, it consists of many of the same tasks a traditional real estate agent takes on happily.
What about cost? A traditional real estate agent charges a percentage as a fee. In 2019, Forbes reported that iBuyers cost sellers an average of 13-15% of a sale price. Typical seller’s agents charge much less than this (ours is a very competitive 4.5% maximum) – all while fighting for the best price for you.
Perhaps the jig is up, though, as iBuyer performance has declined significantly despite the pandemic’s impact on the importance of the internet in home sales. But if you’re being barraged by iBuyer ads and it’s piqued your curiosity, there’s one truth you should know. At the end of the day, a traditional real estate will fight for a good price for you – it’s mutually beneficial. On the other hand, it’s in an iBuyer’s interest to give you the lowest price possible so they can turn the biggest profit for themselves. It is about fiduciary duties (to put their client’s interests before their own), a licensed Realtor has them toward their clients, an Ibuyer does not.
When you’re ready to put your home on the market, check out our top 1% sellers agents. They bring experience, local knowledge, and dedication to their clients – things you won’t see when going through an iBuyer. We’re ready to work hard for you and your household today.May 31, 2021