Real estate continues to be a hot investment. Low interest rates are driving new and seasoned investors to grab property as fast as possible. It’s across the board: businesses, rentals, and single-family homes.
Property owners realize the monetary windfall they can receive. So, they’re putting their residences up for sale. While most are doing this through physical real estate agencies, others are trying a virtual concept called iBuyer.
What Is an iBuyer?
The iBuyer companies represent a huge technical shift in real estate investing. Instead of utilizing realtors, these companies rely on algorithms to determine the sales value of a property. In turn, buyers can see the true amount of the home and accept the provided offer.
The number of iBuyer companies has grown since its inception. The main entities — Offerpad, Opendoor, and Zillow, are sites real estate investors have gone to for years to determine estimated home costs. Now, these companies are using their technology and data analysis to be another layer in property sales.
This doesn’t mean real estate agents are completely taken out of the equation. They can still help to review offers. However, instead of reaching out to the selling agent, they accept it via the iBuyer interface.
How Did iBuyer Come About
iBuyer was created as real estate investing began to warm up after the Great Recession. Those looking for homes and other properties were frustrated at the pace and stress of transactions through a local agent. Buyers wanted to utilize perks that on-demand online companies started to offer.
Speed was one of these perks. They wanted their transactions to be completed quickly but have the same home details and inspections. In addition, they requested transparency in the process. Instead of a realtor taking the reins, buyers desired more control.
iBuyers And Home Flippers
Since the concept was introduced, there’s been some confusion on what iBuyers do. Those not familiar with the idea believe they are akin to home flippers. This isn’t true.
Home flippers purchase properties in fair or poor condition. Generally, they remodel these homes inside and out to improve its sidewalk appeal. In addition, the changes they make tend to increase the home’s value. The end goal of home flippers is to make a profit after the initial purchase and renovation.
iBuyers don’t handle renovations. Instead, they purchase a home at its fair market value. Instead of a total remodel, they make the necessary repairs to ensure it’s up to legal standards. When this is completed, the buyer puts the home back on the market.
How Does iBuyer Work?
The iBuyer process was created to streamline the purchase power of real estate investors. Thus, steps like home appraisals and negotiated offers have been removed. Instead, home prices are calculated through algorithms and home inspections.
It starts with the property owner. They fill out an online form with the necessary details. For instance, the type of home, what they feel it’s worth, and the number of bedrooms and bathrooms.
From this, the software that iBuyers use performs a quick valuation on the property. This number becomes the first offer. Normally, it’s based on the lowest comparables in the area. Then, the software subtracts five to 10 percent off of the value.
Next, the iBuyer sends an inspector out to the home. They look for anything that’s wrong with the property that can drive down their offer. This could reduce the selling price another five to 10 percent. iBuyers tend to purchase homes in good condition to minimize repair costs. Thus, anything over 10 percent is probably not viable.
With the new property value in place, an offer is made on their site. This is a take it or leave it proposal. If a buyer isn’t interested, the iBuyer moves on to the next prospect. Once approved, the purchase is normally completed as an all-cash transaction.
Why Use An iBuyer
Utilizing iBuyer to sell a home is not for everyone. Many people turn to traditional agents to get the most bang for their buck. Still, there are reasons why other real estate investors are starting to turn to iBuyers.
- No need to show the home. The hardest part of selling a house isn’t the wait for an offer. It’s keeping the house clean and well-maintained for showings. This can be an exhaustive task, so homeowners turn to iBuyer. There’s no need to have showings to sell the home.
- No updates or repairs needed Another frustration of a standard home sale is the investment required to make repairs or updates. Not only do they invest money but also sweat equity to make the necessary repairs. Even with the changes, offers can still remain low.
Homes sold through iBuyer platforms don’t need to be fixed or renovated. That’s the job of the buyer. As mentioned, they’ll square away the necessary items to put the home back on the market.
- Quick home sales The biggest benefit is how quick the home can sell. Investors are always on the lookout for decent properties that don’t need much maintenance. If they see one of those on an iBuyer platform, there’s a good chance they’ll snap it up. It’s especially true if they know it can be quickly turned around.
iBuyer Cons
Quick sales and non-negotiable offers are not always positives for some investors. That’s one of the potential cons of the iBuyer setup. Others include:
- Lack of a detailed evaluation of home features, neighborhoods, and schools to create an accurate offer.
- Extensive knowledge the agent has of the area
- Negotiations for the seller to make necessary repairs so the buyer doesn’t have to invest additional money.
In these situations, the buyer and seller do better with an agent than an iBuyer. It allows for face-to-face connections between the parties. As a result, negotiations feel personable.
Summary
In the end, iBuyer is for sellers and buyers who desire a no-nonsense turnaround of properties. Though potential homeowners may purchase a property through this environment, those into real estate investing will use it more to make their desired profits.