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HOMEOWNER, BEWARE! [The IBuyer]
by Elizabeth Ann Stribling-Kivlan
FORBES Real Estate Council
Anyone who has ever worked with a good real estate agent knows how invaluable they are when it comes to buying or selling a home. However, these days it seems more companies are trying to spin the role of a real estate agent as “problematic,” while offering cheaper and quicker “solutions.”
Enter the iBuyer, a platform where the transaction takes place online — and in my opinion, is impersonal as well as a detriment to homeowners and real estate agents alike. Consumers likely won’t empathize with the fact that as a real estate broker overseeing hundreds of agents, I see every day how hard they work to make a living off transaction commissions. Therefore, I’ll take the bottom line approach: IBuyers purport to make selling a home more seamless and cost-effective for sellers, when in reality, these companies often undervalue properties and swipe profits from sellers.
What Is An IBuyer?
As one definition states, iBuyers are online real estate investors who aim to reduce the costs of property transactions by using digital tools such as an automated valuation model (AVM), rather than an appraiser, to make instant offers on homes. Many of these companies offer to buy your home in cash very quickly and allow sellers to choose their move-out date. In return, these companies charge a fee. It sounds really enticing, but the reality is not so rosy.
IBuyers Short Sellers
A recent investigation of multiple transactions involving iBuyers shows that their “offers would net their customers, on average, 11% less than owners who choose to sell their homes on the open market, when fees and other costs are considered, translating to tens of thousands of dollars lost.” In addition, the report found that the all-cash offers were not instantaneous, but rather were contingent upon a home inspection. Presumably, the iBuyers will relist each of these homes for a profit — a profit that could have benefited the initial sellers.
Fair Market Rules
Unless sellers are in serious financial straits, homeowners are better off investing in their own homes before listing — and aiming to achieve the best price possible. Think about this: If I sold someone my car for $1, and that person put another few bucks of work into the car and then sold it for $13 a month later, the clear financial winner is the person who bought my car. I would have been better off spending a couple of dollars to repair my car, selling it for a better price and pocketing the profits myself.
Alternatively, sellers could invest more money in their homes through staging or small home improvements that could increase their homes’ values. Sellers could fix up their properties with cosmetic improvements before bringing homes to market, or stage them to be most inviting to potential buyers, so that the sellers could fetch as much money as possible on the open market.
There Goes The Neighborhood
If a homeowner sells to an iBuyer at an 11% discount, then not only is that seller undervaluing their property, but also the properties around them. Comps are standard in real estate, and if the house next door sells for a lot less, that could drive down prices across the board. IBuyers aren’t invested in communities the same way that real estate agents and their buyers are.
In closing, iBuyers talk a good game, but in reality, they offer less, charge fees and profit from resale. They tout easy transactions and seamless processes in the same way that Amazon promises two-day shipping — not everything Amazon sells is the best price or the best quality, but you will likely get it faster. Don’t underestimate sweat equity because when it comes to your wallet, it’s worth the wait.
