Home sellers must be VERY careful dealing with iBuyers

iBuyers – What every Home Seller needs to know … Where Buyers should go shopping

What is an “iBuyer”? Answer … sizable corporations that buy and sell residential real estate.

Opendoor, Offerpad, Knock, Instant Offer (a Zillow company), and “Redfin Now” are examples of these.House Cash

Their “selling point” to sellers … a simple, quick, all-cash sale.

Some of the questions … At what price?  What are the service fees?  What is the process … inspections, appraisals, escrow, etc.?  What is the seller recourse for nonperformance?  What are the terms and conditions of the contract?

More importantly … Are the transactions simple and quick?
Answer … likely not … except where the seller gives the property away.

Promptly after a purchase contract is established, the iBuyer company typically sends in a “team” of inspectors … all contractors … electrical, plumbing, roofing, foundations, etc. … for a detailed inspection. The resulting list of repairs can be long and significant, providing the iBuyer company an opportunity to negotiate a price reduction in lieu of those repairs.

In a case reported in the October issue of Realtor® Magazine, Opendoor requested replacement of toilets and bath tubs, and re-tile of showers plus other items, amounting to a basic remodel of the property. In this case, the seller had Realtor® representation so negotiations considerably reduced this burden, but that took weeks. Even then the net from the transaction was about $10,000 less that a traditional sale. And closing was no quicker.

Opendoor claims their business model involves buying and selling properties at market value, making a profit on fees … reported by Inman to be 7.5% to 9%. How would you like to pay those fees  … compared to 6%, or less, for a traditional listing?

Reported experiences suggest that Opendoor is like everyone else …  they make a profit where they can.

Another negative with some iBuyer companies is the variety of people the seller must deal with:  one agent for the showing, another for negotiations, another for transaction details, another for the final walkthrough. Along the way, the process will likely be rather disjointed.

So, what should a seller do? Answer … if you feel you must investigate this alternative, invite the iBuyer companies to make written offers to include submission of blank samples of the contracts, forms and the other paperwork involved. Thoroughly review all to determine the likely best choice. NegotiateHalt Hand to include in the contract (1) that the iBuyer must perform the process in a timely manner and (2) solid cancellation options at seller’s sole discretion for nonperformance, unacceptable repair demands, etc. Move on from any iBuyer who will not deliver the sample paperwork.

Given a solid contract, it’s possible to estimate the net from the sale reasonably accurately. This may be a case where a lawyer review of the contract is prudent. And the negotiations might take longer than the escrow.

The “Net” should be the deciding factor to the seller, absent timing demands.

And the estimated iBuyer net is likely to be considerably less than that from a “traditional” listing. If they have the time, most sellers will likely conclude the added net from a traditional listing is worth the stress and inconvenience.

If the estimated net is OK, list with the iBuyer … and keep the cancellation “hammer” handy … you’ll likely need it … and then hope it works.

The Realtor® article reports that selling to iBuyer has worked ok for some sellers … likely because the iBuyer made mistakes. Otherwise, the combination of factors must be just right for the seller to realize a decent net from the sale. For sure, in a soft market, either generally or in a local area, that combination is going to be very rare.

Of course, for desperate sellers, an iBuyer may be the only answer.

Buyer experiences have been much better with iBuyer listings. In fact, buyers should look at iBuyer listings much like the value propositions of a short-sale or bank REO. Just be ready to do some work on the property prior to move-in.

iBuyers are NOT likely to “fizzle” and be gone any time soon. They are making good profits on service fees plus their net from the re-sales … primarily because the sellers they buy from leave that money “on the table” through desperation and/or ignorance.

Sellers… you know this … the iBuyer people are real estate professionals.

Hire a real estate professional to be on your side of the table … and maybe to sell your property … you’ll be really glad you did.

Another view …  Forbes

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