The Truth About iBuyers - A Must Read

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There’s A New Sign Buyer In Town

They’re ubiquitous - bandit signs on every street corner, often in hand scrawled Sharpie that read “We Buy Homes” and “We Buy Houses/Fast Cash!” followed by a phone number. They are so commonplace you probably barely notice them anymore. These signs are placed by individuals who are targeting homeowners who need to cash out quickly. The sign buyers will offer to close and pay you cash within as little as two weeks. You soon discover that their offers are only 65-70% of your home’s value. In exchange for quick cash, you are expected to forfeit a substantial chunk of your home’s value.

Not An Ideal Scenario

A homeowner’s primary residence is quite often the largest single asset or investment that they own and in our market as long as you’re current with your payments, you’re building equity you can use for your next home. The last thing you want to do is lose money on that investment in exchange for “quick cash” unless you have to. This is not an ideal scenario for most homeowners.Enter the iBuyerThere’s a new “sign buyer” in town and they’re called “iBuyers”. A number of them have popped up recently in Houston. By now you’ve seen their ads on the web and most recently in your Facebook newsfeed when yet another iBuyer arrived in Houston. Instead of hand scrawled Sharpie signs on your street corner, their ads (signs) are following you around the internet and popping up in your newsfeed as such, “Skip the hassles of selling your home the old way. Get a free home purchase offer from (iBuyer) today!”

Where a sign buyer might  target the roughest homes in the neighborhood and pay 65% of value because they must perform sometimes significant repairs and upgrades; iBuyers prefer homes that only need minor cosmetic improvements so they don’t need such a large spread. Also, they are counting on turning and burning a larger volume of homes, thus their business model doesn’t require large margins. At least that’s what they’re touting on their websites. If your home fits their criteria, they claim that you can expect an offer of 98% of “market value” within 24 or so hours. That sounds pretty fantastic, right?

A Real iBuyer Scenario From the Field

One iBuyer offer I was privy to went as such: The listing agent, who is local and knew the neighborhood, market and sales data determined the home had a market value of between $294K - $305K. The home was well-maintained and had some bells and whistles that homes like it were lacking in the neighborhood. All in all, it met the criteria of a home an iBuyer would purchase. If we want to be really conservative, understanding that neither sign buyers nor iBuyers are ever going to offer top dollar, let’s take 98% of the lowest value as determined by the Realtor who knows the market. That comes out to $288K ($294K x 98%). These sellers could have reasonably expected a fair offer from an iBuyer of at least $288K. This iBuyer also said they would help them move and let them pick any closing date between 2 weeks and 6 months after offer acceptance which is pretty darn flexible.

The Sellers waited 24 hours and received an offer of $243,350, far below 98% of value! There were no savings on commissions, closing costs or concessions. There was also a caveat that the seller would need to pay for any repairs found during the inspections.  Even with the iBuyer paying for moving expenses, this was no bargain. In fact, this was starting to look a lot like an offer from a sign buyer.

Who Decides Market Value?

First, you need to understand what Market Value is and is not. Market Value is not the list price. It’s not the Tax Value. It’s definitely not the Zestimate. The real estate definition of “value” is literally “the price at which a buyer is willing to buy and a seller is willing to sell” a home. The operative word in “market value” is market. When your home is only being evaluated by one buyer (an iBuyer), the value is whatever that one buyer is willing to pay. You eliminate competition for your home by keeping it outside the marketplace - the Multiple Listing Service (MLS), or HAR.com here in the Houston area. The only way to expose your home and maximize your equity is to get your home listed in the MLS and the only way to do this is by working with a Realtor who knows the local market.

These guys are HAR and they're making it rain

These guys are HAR and they’re making it rain

Did you know that between $1-2 billion (with a B) worth of real estate transactions occur EACH MONTH in the Houston Area marketplace (read: the PUBLIC marketplace also known as HAR.com). And in peak months, nearly $3 billion! The average time on market before it’s sold has been between 3-4 months. That’s proven data, month over month, year after year! That’s a whole lot of certainty and that ought to be reassuring as we’re heading into peak home sales season.

A good Realtor knows how to position your home to sell at the top of the market right now so you don’t forfeit value for a mistaken belief that you’re “eliminating uncertainty”. When you are represented by your own Realtor, they contract with you to represent your best interests - not corporate stakeholders - whether you are a home seller or a home buyer. Everyone wins in that scenario by making sure home sellers are getting a fair price for their home; home buyers are paying a fair price; and home values in the neighborhood aren’t driven down by low ball offers. This transparency is essential to keep the power in the hands of homeowners and future homeowners.

TL;DR

iBuyers claim to “eliminate the hassles and uncertainty” of selling your home in an open, competitive market. But an open market is the only way to make sure you’re getting a fair price for your home when it’s time to sell. While iBuyers are making promises to not make sellers wait for their money, sellers need to be aware that any offers they receive will be drastically lower than market value. The perks of choosing a closing date as much as 6 months away or having local moving expenses paid don’t begin to make up for the forfeiture of equity.

Thinking about buying or selling a home in and around Houston, TX? Whether you’re kicking tires, collecting information, or ready to go … Contact me at any stage and/or click here to get your free Houston Home Buyer’s Resources or Seller’s Roadmap to Maximum Sales Price in the Shortest Time Possible.

Your Neighborhood Realtor,  

Traci Fowler, CNE

Cell: 832-540-6767FB:

@TraciSellsHomesTXIG:

@TraciSellsTX


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Post Category: Housing Market, Home Selling, Home Values & Recent Sales

Local Heights/Greater Heights77008HoustonHarris

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Disclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the HRIS.
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