What to do? You have a job offer in a distant city and need to get youself and your family moved there fast … or … You are really concerned about COVID being spread throughout your home by “Lookers” … or … You really don’t like the ongoing inconveniences of the typical listing-sale process. Are services of iBuyers worth considering?
Is it a good thing to do … ever?
If you watched a big sporting event on TV recently, you likely saw an intrusive, in-your-face real estate broker ad. And just like with a circus barker hawking something of interest, if you are considering a real estate sale, it may seem like a good thing to do. But, is it a good thing to do?
As a Realtor®, I must say … under some circumstances, it is.
I also say … tread very, very carefully here.
What is an “iBuyer”?
Answer … a corporate buyer, or sales broker, for residential real estate.
iBuyer … Instant-Buyer … and/or … Home Transition Service.
iBuyer companies are trying to provide for housing part of what Amazon provides for retail sales … quick delivery … except charging a premium price for the convenience … rather than a discount as with Amazon.
Two statements prominently made in iBuyer TV ads … The price we will get listing and selling your home will be tens-of-thousands more than a sale by another broker … or … The price we pay for homes is typically tens-of-thousands above comparable sales … are … OBVIOUSLY … NOT feasible!
Why would home buyers pay more for any one broker’s listings? They don’t!
How could any business survive buying products for re-sale at extraordinarily high prices? They couldn’t!
The people in the ads bragging about getting tens of thousands above their expectations are revealing that they were very mis-informed about the market for their property … which speaks poorly for the honesty and/or competence of the real estate agents advising them and controlling the sale of their property. That the current housing market is “crazy” is part of the insight that the listing agent should provide.
The business models of these companies
- At the most basic level are the “flippers” … they buy low to sell rather quickly for a profit … but a flipper can get you out very quickly.
- At the next level are iBuyers that are a combination of flipper and conventional agent: they list your home and if it doesn’t sell promptly, they will buy it … obviously, at a price they expect to provide a profit.
- Since an immediate exit and extreme benefits are what they are selling, “magical” home sellers are appropriately included here. Of course, there is no magic to selling real estate. The quality of property preparation and marketing presentation, the extent of exposure, as well as negotiating skills, determine the time to complete the sale and the net cash to the seller … all else is pure hype
- Then there are those that provide a “transition” service.
- In one version, they buy the home you want and allow you to move in. Then they list and sell your current home, after which there is a settlement and the title to the new home is transferred to you.
- In another, they buy your home and allow you to rent it from them, or even “post-closing-possess” the home without paying any rent, for up to six months while you shop for another home. Please note: “post-possession” as part of a purchase agreement may be negotiated by any Realtor®. This is NOT at all unique to iBuyers.
Not all homes “qualify” for transition services. The most common requirement is that you, the owner, have significant equity in the property. A chunk of that equity is the plum iBuyers are after.
I hope it’s obvious that the cost of a transition service is certain to be high. Even worse, as for the first transition service listed above, you could not know the overall cost until that final part, the sale of your property, at which point you could have limited control or choice.
As explained below, your contractual agreement with any transition service should specify all costs and have you in control of all terms and conditions of the sale of your property, else use of that transition service is just NOT prudent.
Insidious iBuyer Trick
A trick iBuyers use is with repairs demand. 10 days after Acceptance, the time period in the AAR Purchase Contract for inspections, the iBuyer submits a BINSR list that’s a mile long, commonly with much of it being rather trivial items. It’s just a lever to towards a lower price.
You can minimize the impact of this iBuyer trick by insisting on a 5-day inspection period as a term in the purchase agreement. If the iBuyer refuses that, reject the offer.
If the iBuyer agrees to a 5-day inspection period then plays this trick, you can respond with “No!” to all repairs. If the iBuyer then cancels the deal, you will have minimized your time off-market.
But … do you need to sell and move in a hurry? Are fixups that you know are needed an issue … because of timing, or lack knowledge, or lack of necessary funds? Are you looking for an easier transition from one home to another … and to move just once?
If solving your unique problem/preference is worth the extra cost of an iBuyer, then that’s the logical way to go. Just be certain you know what that cost is likely to be.
Critical: Do your homework
Have an in-depth discussion with a Realtor® … or two, or three … focused on the current market value of your home, the specific marketing to be done for your home, the expected marketing time, and the recommended sale-preparation … so you are confident you have good information for what your price should be as-is and after needed renovation, and what the process and transition issues are likely to be.
Then, if you want benefits an iBuyer might provide, get a presentation from a couple of those.
An experienced, knowledgeable, full-service Realtor®, especially at a discounted commission, is definitely the best place to start, and is very likely the best solution, except only for the most unique problems.
Lastly, “Attitude is Everything”! Whoever you choose needs to hold your interests above all else. In addition to appropriate experience, knowledge and skills, agent attitude is a major factor to your likely satisfaction with your property sale results.
First, do NOT commit, even mentally just to yourself, to any one presentation. Insist on getting several presentations … after all, you are selling a most-valuable asset.
Second … Fundamental … insist on an in-writing right to cancel the listing agreement if you would reimburse the agent for any documented expenditures specifically made toward marketing of your property. This can simply be written onto the listing agreement then initialed by all parties. Do NOT commit your property without this written right.
Any self-respecting Realtor® will agree to this. In fact, every Realtor® I’ve discussed it with would agree to a listing cancellation without any sort of written right to cancel.
Third, for any form of transition service be certain you have in the agreement document that
- You have absolute discretion/control of the terms, conditions and price of your home sale just as if it were a “normal” listing. If it takes several months to sell to your satisfaction, so be it. Of course, you will be paying for the mortgage, maintenance, utilities, etc., while it’s on the market. No problem! As long as you are in control of the trade-off sell decision.
- All costs are specified including BINSR /repair/renovation costs. The most solid way to do this is to include as part of the agreement a complete, detailed estimated Settlement Statement prepared by the escrow company where the only contingent number is the sale price and escrow/title costs based on price. Any transition service not willing to put a limit on their total charge are either not good enough at what they are proposing to do, or are devious.