Should You Sell Your House Online? 5 IBuyer Options
There’s no getting around it: the importance of an online presence for buyers is growing. In 2019, 93% of people shopping for a home used an online website in their search. But what about sellers?
It’s likely that by now you’ve seen advertisements for companies that will buy your home hassle-free. These “iBuyers” pitch themselves as the easiest way to sell your home fast. Redfin and Zillow have been expanding their home buying programs for years now, with Zillow announcing in 2019 an intention to focus even more attention on Zillow Offers. And more iBuyer startups have joined the game.
But how exactly does selling your home online work, and more importantly, what will it cost you? We’ll lay it all out for you, including exactly how five of the top iBuyers structure their fees.
What are the Advantages of Selling Your Home Online to an Ibuyer?
The iBuyer model is designed to streamline the selling process, making it appealing to sellers who want to get the deed done quickly. Generally, they use artificial intelligence to analyze a combination of information supplied by the seller and real estate market data in order to reach a price offer. The idea is to make selling your home like everything else in the era of the internet: a few clicks and bam! You’ve got a cash offer.
Why isn’t everyone in the world selling their home online then? Well, as usual, convenience comes at a cost. Most iBuyers will advertise that their rates are on par with a traditional Realtor’s fees. But when you read the fine print, that doesn’t turn out to be the case. Not even close.
How Much Does It Cost to Sell Your Home Online to an Ibuyer?
Typically, the seller covers the cost of commission for their own agent as well as the buyer’s with the seller’s agent 1-3% and the buyer’s agent getting 1-3% (in general). The national commission real estate average for both is 5%, according to our 2020 real estate commission report. So 5% for full Realtor representation on both sides is a good place to start the comparison. (Our max. charge to sell a home is 4.5%.)
So how do iBuyers match up? Let’s look at five of the top competitors.
1. Zillow Offers
Zillow is undoubtedly one of the biggest names in the game. They see more traffic than any of their competitors, so having your home listed there is a good idea.
But how does Zillow Offers, their program for buying your home, work? To their credit, their pricing breakdown is relatively straightforward. They charge 6%, which does include the buyer’s commission fees. But that doesn’t include the separate Zillow service charge, which averages an extra 2.5% but can go up to 7.9%. So in essence you’re looking at 8.5% to 13.9%. And that is assuming they are giving you fair market value, to begin with. Not an assumption I’d recommend taking lightly. We often sell for more than the Zillow Zestimate – for example. And there is nothing like a “multiple offer situation” in the Ibuyer world, a tremendous advantage for sellers in a low inventory real estate market.
Redfin, of course, is also one of the most popular websites for people shopping for a home. And they’ve been expanding their outreach to sellers for a while now with Redfinnow, their iBuyer program.
Will Redfin buy your home, for cash, and quickly? Yes. What’ll it cost you? Their service fees average at a whopping 6-12%. They also assess a charge for any repairs they deem necessary. It’s a normal part of the process for a buyer’s agent to negotiate price or coverage of closing costs based on needed repairs. Opendoor would save you some of the back and forth, but it also takes the power out of your hands when it comes to that negotiation. On top of that, they’re likely to lowball you, whereas a licensed Realtor is guaranteed to fight for the best price they can get for you.
Founded in 2014, Opendoor recently went public, so you can expect to keep seeing them around too. They truly embody the spirit of the iBuyer model, offering instant offers.
Opendoor’s “service fee” (read: commission) is currently set at 5%. But they note that is subject to change and has historically been as high as 14%. This doesn’t include cost of repairs, and as with Redfin, it’s left up to Opendoor to determine what repairs are necessary so you have no power to negotiate. Also, keep reminding yourself that the price Opendoor sets for your home might be set for Opendoor’s interests – not yours. Is the price they are offering fair market value? Or would a Realtor on the open market be able to generate a 1 to 10% higher sales price?
REX is making an aggressive push to make inroads in Oregon. Their model involves bypassing all MLS systems. They advertise a fee of 2.5% in the Portland area with a four-month contract. They are not a true IBuyer, but their model to sell your home online is different enough that it should be mentioned here.
That sounds pretty low – what’s the catch? REX focuses on its own website and banner ads for traffic, meaning your home will not be listed on the MLS where the vast majority of Realtors search for homes for their clients. Instead, buyers visit REX’s website, and if they check out your home there, REX will have it pop up in banner advertisements elsewhere in the buyer’s online activity.
There are over 10,000 licensed Realtors working the Portland metro area. According to the National Association of Realtors, nearly 90% of all home buyers are working with one already and will use a licensed agent connected with an MLS to purchase their next home. Offering zero to all the licensed buyer’s agents doesn’t sound like a good idea to me! In fact, the MLS is so important to me that whether we are selling in Oregon or Washington, we list on more than one MLS system. In Oregon we list on the main 3 and in Washington, we list on the main 2 MLS systems. There is no possible scenario in which I would want to miss out on the enormous buying power of Realtors’ clients who represent nearly 90% of the entire industry.
Offerpad doesn’t operate in Oregon – yet. But they are expanding with vigor, down to becoming the sponsor for the Arizona Bowl. They’re a company to watch out for because they charge some of the worst fees in the business.
Their typical service fee is 7%, but can range up to 10%. This does not include any seller concessions or repairs requested by Offerpad. Unless you’re pretty desperate to get rid of a property fast, Offerpad is not a good bang for your buck.
iBuyer Tricks to Buy your Home for Less Than It’s Worth
You can read the long list of complaints against Opendoor on the Better Business Bureau site. A common complaint of Opendoor and other iBuyers like Zillow, is the initial price they offer a homeowner looks good, but then right before closing – the price drops. Remember, there is no responsibility for the Ibuyer to operate in your best interest – not like the legal Fiduciary responsibility of licensed Realtors – to represent your interest above their own. If the iBuyer can make more money off of you, for whatever reason it can, it will.
Hidden Costs of Selling Your Home Online
We’ve criticized instant offer companies before for their exorbitantly high fees. Even those that have lowered their rates, though, have found ways to make up the difference. Extra service fees, potential repair fees, and buyer’s commissions are some of the ways that iBuyers drive up the cost.
Keep in mind that a traditional real estate agent’s primary goal is to get you the best price they can, while many iBuyer models are intended to buy houses at a cheaper rate and turn them for profit. The part of the iBuyer industry that makes me laugh, is every iBuyer will turn around and sell your home for more on the open market with a Realtor. Sellers may already be catching on since iBuyer’s sales went down drastically in the latter quarters of 2020. Portland is situated strongly in a seller’s market at the moment, so it doesn’t make sense to take the easiest, cheapest offer.
Should You Sell Your Home Online?
The user-friendly ubiquity of these companies may have you wondering, should I sell my home online? But at the end of the day, they aren’t the best option if you want to get the most out of selling your home. The numbers show that what iBuyers are selling is convenience, not savings. And you know what they say about convenience: it’s what you pay for.
We offer a transparent fee structure and a personal touch to take the intimidating factor out of selling your home. At a maximum of 4.5%, which includes buyer’s agent commission, we offer reasonable rates and excellent results. We list on multiple MLS systems and pay extra to the top real estate portals to feature your home above others. To take full advantage of the Portland real estate seller’s market right now, check out our top 1% sellers agents today.January 20, 2021