The popularity of iBuyer companies making offers across the country inspired this review. Home sellers want to know: “iBuyer vs. Agent, Which Is better For You When Selling Your Home?”
You will learn how iBuyers earn profits and charge fees while demanding more repairs than typical buyers.
What is an iBuyer?
An iBuyer is a company relying on their proprietary technology to make quick offers to buy homes. It stands for “instant buyer” offering cash for a fast sale.
In essence, iBuyer estimates the value of a home and makes an offer to buy it. When a seller agrees, iBuyer takes on the burden of ownership, marketing, and reselling the house.
However, there is a catch as you will see below.
How Did iBuyers Start?
The first iBuyer company began in 2014 called Opendoor. Then, Offerpad began as the second iBuyer company. Since then, a few more iBuyer companies entered the market including Knock, Redfin, and Zillow. Source
Is Zillow an iBuyer?
Yes, Zillow is an iBuyer. Back in 2019, our broker, Big Block Realty, wrote a blog post titled, “Zillow Offers 2019 Reviews”.
It included negative reviews from these respected business and real estate publications:
Consumer Affairs (Zillow earned 1 Star out of 5 Stars);
Inman; and
It concluded that Zillow offers low purchase prices and lowers the price even more after their home inspection requiring many repairs. Also, sellers made more money selling the traditional way.
What is the iBuyers Business Model?
Many consumers confuse iBuyers with house flippers. Flippers target depressed homes to buy low, do some renovations, and sell high for a profit.
In contrast, iBuyers focus on houses in good condition. They make an offer to purchase below fair market value. They make the sellers do the repairs (or give repair costs credit to iBuyer) and seek a buyer. They profit when they sell the repaired home at fair market value.
Another way iBuyers profit is by charging a “service fee” close to what a real estate broker charges as a typical commission. Depending on the location, their service fee ranges from 5% to 6%.
How Does iBuyer’s “Automated Valuation Model” (AVM) Differ from a Comparative Market Analysis (CMA)?
Instead of using a traditional real estate Comparative Market Analysis (CMA), iBuyers use an “Automated Valuation Model” (AVM). This is an iBuyers “proprietary software” program that processes a house’s data and arrives at an offer price.
The CMA traditionally compares similar recently sold homes near the one ready to sell. While no two homes are alike, a CMA looks at common features like:
Neighborhood;
Home architecture style;
Age;
Square Feet of the lot and home;
Number of bedrooms and bathrooms; and
Other features.
Then, the CMA comes up with an estimated value based on an analysis of the similar features (comps). This usually becomes the listing sales price for the home.
In contrast, iBuyer’s “Automated Valuation Model” (AVM) uses its own data compared to information uploaded by home sellers about their home. They also claim reliance on their “local pricing experts”.
Which is better?
Critics of iBuyer’s AVM system point out that their data is like a “secret sauce” with no way to verify its ingredients. If you don’t know what you are eating, be careful.
Realtors and real estate agents’ CMA spell out the exact features they compare similar homes in order to estimate your home’s fair market value.
Are AVM Systems Racist?
The Urban Institute, a 50-year-old nonprofit research organization dedicated to “the well-being of people and place in the United States” criticizes the AVM.
On March 5, 2021 they published an article titled,
Their informative article stated:
They concluded,
“Lower sales prices heighten the percentage magnitude of AVM error in majority-Black neighborhoods.”
They also claimed, these findings highlight the racist roots underpinning the systematic undervaluation of homes in majority-Black neighborhoods.
You can read their entire report here.
What Are iBuyer’s Repair Requirements?
iBuyer doesn’t buy your home “As Is”. Here’s how their process works:
First, you must answer many questions about the condition of your home;
Second, they send an offer to your email, but its contingent on a home inspection;
Third, one of their “home assessors” visits your home for an inspection which determines if the original offer stands or if you must repair items on the inspection list;
Fourth, if you refuse to make the extensive repairs yourself, you must give iBuyer credit towards the repair costs. Thus, your sales price become lower due to the repair costs;
Finally, if you agree to make the repairs according to iBuyer specifications (or give credit to iBuyer for the repairs), you can sign a contract for the sale.
Their “repair request list” covers everything from your attic to your basement and yards.
Note: These repairs often end up as deal killers making you waste a lot of time.
How Do iBuyers Differ from Real Estate Agents?
Realtors and real estate agents represent their sellers when listing homes. State licensing laws require real estate agents to responsibly represent you when you list your home for sale. Likewise, Realtors Rules of Ethics adds clearer duties on behalf of our clients than state licensing laws.
On the other hand, iBuyers represent themselves and not you as a seller or a buyer. That’s why you must carefully ask all important questions to the iBuyers offering to sell your home or selling a home to you. As the old saying goes, “Buyer Beware”. It also applies to sellers.
You must treat iBuyers as strangers looking to sell your home for a fee or selling a home to you for a fee.
The National Association of Realtors (NAR) conducted a survey in 2018 showing 87% of buyers chose to work with a real estate agent. Those numbers remain high in 2021. Maybe because real estate agents try to help their sellers and buyers more than iBuyers?
What Do Unbiased Real Estate Experts Say About iBuyer?
Better Homes and Gardens magazine (which owns Metrobrokers) after comparing iBuyers with real estate agents came to this conclusion:
“The singular goal of iBuyers is make money… With the right agent and pricing strategy on your side, you will come out on top every time.”
Quicken Loans wrote this about iBuyers: “What’s Misleading About iBuyer Programs For Sellers?...Their offers are lower and their negotiations are nonexistent.”
Forbes points out: “iBuyers tend to ask for a lot more repairs and a lot more money for repairs than traditional buyers… The one huge advantage of selling the traditional way is the seller typically makes a lot more money.”
American Financing points out: “With an iBuyer, you may pay heavily for the convenience and quick sale time. Using a Realtor will likely get you a better price on your home but within weeks instead of days.”
iBuyer vs. Agent, Which Is better For You When Selling Your Home - Conclusion
Now that you read our “iBuyer vs. Agent, Which Is better For You When Selling Your Home”, let’s summarize.
iBuyer makes offers on homes based on their unique “Automated Valuation Model” (AVM). However, they are not “As Is” offers.
After, they make an initial email offer, you must allow their “home assessor” to make a thorough home inspection. The assessor looks at everything inside from top to bottom and the outside yards. The assessor gives you a list of necessary repairs.
Often, these repairs end up too costly and time-consuming resulting in a “no sale”. In the meantime, you wasted a lot of time.
The Urban Institute recently criticized the AVM system for under valuing majority Black neighborhoods.
iBuyers do not represent buyers or sellers. As a home seller, you must treat iBuyers as buyers and not Realtors or real estate agents required to watch out for your interests.
In a nutshell: iBuyers make offers to buy homes based on their controversial AVM home value estimate. Also, purchase offers depend on sellers making all the repairs they require. Or, give credit from the sales price to cover what they claim as repair costs. iBuyers determines the repair costs. On top of that, you must pay their services fee.
Does this seem like a good deal for you?
If not, use a qualified Realtor to list your home at a sales price based on a fair CMA home value.
Use a San Diego Realtor to List Your Home at a Fair Market Price
Our SoCal Lifestyle Realty Realtors will give you a fair market value listing price. We will watch out for your interests during the entire listing and sales process.
Contact us to learn more about our services in the greater San Diego area.