Let’s be blunt. The traditional way of selling your home is a pain, what with preparing it to look its best, hiring an agent, showing it, negotiating with buyers and starting over when deals fall through. There is an easier way. You can ask so-called iBuyers—the “i” stands for instant—to buy your house for cash, eliminating hassle and uncertainty. If you accept an iBuyer’s offer, you won’t need to hire contractors for updating or repairs, stage the house, keep it clean for the duration or leave for showings and open houses. You can shop confidently for your next home, with cash in hand and no contingency for the sale of your previous one. But you’ll pay a price for the convenience.
In 2021, iBuyers bought about 70,000 homes, or 1.3% of all residential real estate transactions in the U.S. We looked at the three largest based on market share and one more with a slightly different model: Opendoor operates in 50 cities across the U.S.; Offerpad, in 28 metro areas; and RedfinNow, in 30 cities. Keller Offers, which has a twist on the iBuyer model, is in 29 cities. We considered the process and the costs.
Three iBuyers: Opendoor, RedfinNow and Offerpad
Generally, iBuyers want homes of a certain vintage and price range that are in good condition with no more than an acre or two of property. Most homes are eligible, but they can’t have significant issues with their condition, foundation or structure. Sellers must have clear title.
With some regional exceptions, Opendoor generally wants homes built in 1930 or later and valued from $100,000 to $600,000. Offerpad considers homes built in 1960 or later and worth up to $1 million “depending on the market.” RedfinNow doesn’t specify. Because Keller Offers isn’t a buyer per se, but a facilitator between you and cash buyers in your market, the homes they will consider vary.
When you request an offer online, you provide the home’s address and some details about it. The iBuyer’s automated valuation model pulls publicly available data about the property, recent comparable sales in your area, and local housing market data before sending you a preliminary offer.
Next, the iBuyer assesses the home’s features and condition, identifying any necessary repairs but not cosmetic work or upgrades, like replacing Formica countertops with granite. Keller Offers will connect you with one of its agents who will review your home’s details with you in person. Offerpad and RedfinNow will ask you to provide photos of your home upfront, and Opendoor will schedule a walk-through of your home with a representative via live video on your phone. (Alternately, you can send photos or video.)
If you accept the preliminary offer, the iBuyer will send someone to inspect the home. You should be transparent and thorough about the features and history of your house, including what you love about it.
Within a few days of the inspection, you’ll receive a revised offer, based on any new information, like the home’s condition, new comparable sales and market trends. This final offer will show your cash payout at closing after deducting a mortgage payoff, the iBuyer’s fee, the cost of repairs and your share of closing costs. Depending on the iBuyer, you’ll have from four to seven days to accept or decline the offer.
If you miss the deadline but later decide you want to proceed, you can ask for a refreshed offer. You can bail out any time until you are under contract to sell your home to the iBuyer.
If you accept the final offer, you can choose a closing date in as few as two weeks or as many as 60 days with Opendoor and RedfinNow; it’s 90 days with Offerpad and Keller Offers. This gives you time to find your next home and coordinate the settlement for your old and new homes. With RedfinNow and Keller Offers, you can stay in your home for three days after closing. Opendoor lets you stay three days if you buy your next home from its for-sale listings. If you buy a new home from one of its builder partners, you can stay for as long as nine months to allow for construction.
Offerpad offers a perk: It will hire and pay for a professional moving company to move you within 50 miles of your former home (homes can’t exceed 2,800 square feet and belongings, 13,000 pounds).
Compare the Cost
A traditional real estate agent who sells your house typically charges a commission of 4% to 6% of the sale price. In 2021, the national average commission was 5.06%, according to Real Trends, a real estate publishing and consulting company. After costs for repairs, staging and closing, you can expect to spend about 10% of the final sale price, according to Rocket Mortgage. That compares with 7% to 18% of the home’s value that iBuyers will charge you for closing costs, repairs and service fees.
The low end of that range may sound comparable or even better than the 10% you’re likely to spend for a traditional sale, but there’s another cost that iBuyers generally don’t highlight in their sales pitch. Your home’s valuation in the preliminary and final offers before any fees could be less than your home’s current market value. The difference covers the risk the iBuyer assumes for selling your home. Meanwhile, you’re foregoing negotiating with buyers and potentially receiving multiple offers, which can increase your sale price. RedfinNow even says this explicitly: “You can typically expect to get more from selling to home buyers than going with your cash offer.” In 2021, the difference between the iBuyer’s offer and sale price was 4% to 12%, says Mike DelPrete, a real estate technology strategist and author of “The 2022 iBuyer Report.”
To estimate how much money you’re leaving on the table, get a comparative market analysis from a local real estate agent. Multiply the recommended list price by the average percentage of list price that homes in your area have currently sold for. Then, compare the result with the iBuyer’s valuation of your home before deducting costs.
Keller Offers combines the traditional and iBuyer approaches. Rather than buying your home, Keller connects you with cash buyers and assigns you a locally based traditional agent for in-person support, which some sellers may prefer. That agent can help you compare your payout for the traditional and iBuyer sales. Plus, Keller Offers says its goal is for every seller to receive more than one cash offer, and the agent can counter the buyer’s offer. That hand-holding, however, could mean you pay a commission, and because the agent also will receive a referral fee from the cash buyer, it’s hard to know whether your interests are truly being represented.
If your home’s value has risen strongly over the past several years and you plan to downsize to a smaller, less expensive place, you may not begrudge any money left on the table. If you need to sell fast, you may appreciate having an iBuyer purchase your home as is. But if you plan to buy an equally expensive home or need to conserve your equity to meet other future goals, you may not want to sacrifice a penny for convenience.
A Changing Market
The iBuyer option may become more appealing to home sellers as the real estate market cools. Over the past few years, sellers benefited from historically low interest rates and a dearth of inventory that led to bidding wars and pushed up prices. Now, as mortgage interest rates rise, many buyers have reached the limits of affordability.
The housing market has begun to slow, though tight inventory still favors sellers. In June, the median home price rose 13.4% to $416,000 from the year before, but sales of existing homes, down 14.2% nationally, fell for the fifth consecutive month, according to the National Association of Realtors. In most regions, sales have fallen among homes valued at $500,000 or less, but in the West, all price categories suffered. Most homes were listed for sale for less than a month.
Lawrence Yun, chief economist at NAR, sees a “fuzzier picture” for home prices. “Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers,” he says. CoreLogic, which tracks home-price trends, expects home prices nationally to rise 5% between May of this year and next.
Redfin, the brokerage company that owns RedfinNow, says offers written by its agents faced less competition and fewer bidding wars. More buyers are asking for contingencies for home inspections and financing. Sellers haven’t missed the boat yet, but it’s drifting away.
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