What are iBuyers? Are they really the future of Real Estate?
iBuyers have been making headlines all over the nation recently. An iBuyer is a real estate investment company that will make an immediate offer on your home. They make offers in days, hours, or even minutes, without looking at your house based on automated valuation tools. There are several big players that have gotten into this game. Startups like Offerpad or Opendoor are revolving their entire business model around this iBuyer concept. Other well-established real estate companies such as Zillow are now doing the same thing with what they call “Instant Offers”. Even national real estate brokerages like Keller Williams and Redfin are experimenting with buying homes this way.
There are a few reasons a seller might consider selling their property to an iBuyer?
- A seller may be relocating and want to sell there house quickly.
- The house could be in disrepair and the seller doesn’t want to do the work to get it ready for the retail market.
- A person might have an accepted offer on another property contingent on selling their current home. A quick offer and sale may prevent them from losing the house they want to purchase.
- A seller may just want to avoid working with a traditional real estate agent and prevent showing their home.
All of this sounds great, right!? Of course, there’s a downside. Any investor’s goal is to make a profit, and these companies can only make a profit by paying far less than retail for properties. If you submit a request for an instant offer, I think you’ll be surprised how low (some would even say offensive) the offer is. Investors have been making low cash offers for years with the goal of obtaining properties for a great deal. In fact, we have purchased several properties this way. One property we suggested some repairs and preparation for a seller to get their home on the retail market. They called us several months later and said, we need to sell ASAP, we are moving, have a house under contract contingent on selling our home, and we haven’t gotten our house ready yet. We talked again about what they need to do to get the house on the market, but also mentioned we were looking for investments to buy. They asked us to make an offer, and we made a win-win deal. They had an accepted offer immediately and closed quickly without having to make repairs or prepare for showings, and we let them stay in the house 2 weeks after closing (so they had time to move and close on their new home). This all helped them make their purchase work, and we got a good deal on a house which we remodeled and sold for a decent profit. My point is, this quick cash purchase in exchange for a discounted price is not a new concept. What’s new about the iBuyer concept is the automated valuation and internet buyer part of the strategy.
We are in the Madison, WI market and currently I don’t know of an iBuyers that have entered our market, but there are plenty of traditional real estate investors around. I’m sure the day is coming though when iBuyers move into our market. Some of the articles I’ve read have talked about how iBuyers are going to completely change how houses are bought and sold. I don’t think this is true at all. The majority of sellers are going to find it makes no sense to sell to an iBuyer, primarily because of the price. Most sellers will always be better off financially to sell their home on the retail market which is open to a large pool of buyers. The retail market will maximize the sale price for properties, even if they do need some work. This is no different than in the past when the only sellers that would sell to an investor for a discount were the sellers that needed to sell quickly and wanted to avoid the hassle of showing, preparing, or repairing.
Here’s a good analogy for you… I recently bought a new truck and I had a 2 year old car to get rid of. I bought the truck through a dealer who offered me a reasonable trade in price for the car, but their trade in offer was still below what I knew I could sell the car for privately. I put the car up for sale privately, but I also heard CarMax buys cars directly. Out of curiosity, I took the car to CarMax to see what they’d offer. They made me an offer within 15 minutes that was about 10% lower than the dealers trade in offer, and about 20% less than what I ultimately sold the car for. CarMax offered me a price that was a no brainer for them, in other words they were almost guaranteed to make money when they sold the car for a premium. Carmax was basically like an iBuyer in this scenario.
While I don’t think iBuyers will be a game changer for agents or traditional real estate sales, I do think they will influence real estate investors. Investors will now be competing against big well-known national players. This could make it more challenging for investors to find deals. Although, if you are considering selling to an iBuyer, I would suggest trying to find a local investor first. My thought is the local investor will likely be able to work out a deal that is more of a win-win deal for you rather than a one-sided deal in favor of an internet company.
If you are interested in selling your home, need/want to sell quickly with little hassle, and in the Madison area reach out to us. We do buy houses similar to these iBuyers through our company Badger Real Estate Investments, and for the right property we can close quickly with cash and sometimes no inspection. If it’s not right for us, we know many other investors we could connect you with. If you want to sell the traditional way through a retail broker to get maximum price, we can handle that for you through Great Rock Realty. We will offer you honest advice and options. With the option you have the power to decide what is best for your situation.