Your House QUICK-SELL Options: iBuyer vs Investor

If you’re trying to decide between selling your home to an investor or listing it on the open market, here are some things to consider:

iBuyers typically avoid properties that could take longer to sell or cost too much to improve. For example: short sales and foreclosures; homes built before 1970, those located in flood zones, and properties that require major renovations. They need to purchase properties below market value to make a profit. Real estate agents list properties at or above fair market value, and they have the financial incentive to get sellers the highest price possible. If your goal is to get as much money for your house as you can, it may be best to work with a real estate agent.

Home Flippers often love homes that are older, uglier, and require more rehab. Their goal is to take an ugly property and transform it into a beautiful part of the neighborhood. Some are only in it for the profits of course, while others truly love the transformation part of the process, raising the property values and watching someone fall in love with their transformed home.

An iBuyer’s offer usually gets lower after the home inspection. Sellers agree in the contract they must pay for repairs their iBuyer will make to their property, but many are surprised by the cost of improvements they would not have made on their own. As those costs get higher, the iBuyer’s offer price gets lower, sometimes requiring frustrated sellers to pay thousands of dollars in seemingly petty repairs, out-of-pocket costs or both. Sellers who want more control over what they spend on repairs may want to think twice before selling to an iBuyer.

The Home Flipper typically offers an as-is price, having no bait and switch tactic. Landlords are looking for homes that they can make a monthly profit on from their tenants. They want a home that will always be desired to live in. For instance, near colleges or hospital districts, tourist areas or just popular neighborhoods.

iBuyers offer an expedited sale and give sellers more control over the moving process, but not all companies take the same approach. Some iBuyers advance cash to sellers who need quick access to the equity they’ve earned in their home to move. Others integrate mortgage financing into the purchase process and offer more flexible loan terms than banks, helping borrowers enjoy a simpler end-to-end process that gets them into homes sooner.  Of course that means significantly less money overall once its all said and done. 

As for the Realtor, the average commission is about 6 percent of a home’s sale price, while iBuyer service fees vary by company and market and most the time ends up being much more costly than the Realtors fee. According to an analysis of transaction data for the largest iBuyer, the average service fee falls somewhere between 8-9%, but it can get up to 12% in riskier markets.

It’s worth noting that many Investors rely on local agents to support their purchasing and/or listing service. They compensate agents for seller referrals and pay full commissions to buyer agents. Working directly with an agent instead of going through an iBuyer can save sellers a significant amount of money, but it costs them more time. We’ll explore how much in the cost breakdown and time table below.  

iBuyer vs. Real Estate Agent

The example below is for illustrative purposes only. It allows sellers to compare how much they could make and spend working with an iBuyer versus a Realtor to sell a home valued at 300K. 

Remember, iBuyers purchase homes well below fair market value and Realtors list homes at or above fair market value, so that is where the comparison begins. The cost of repairs and holding property (mortgage, taxes, insurance, homeowners association fees and utilities) varies widely from one property to the next, and are the responsibility of whoever owns the property, so those variables were not assigned a specific value in the example below. All other values are calculated using industry averages that express a percentage of the home’s sale price.

terminology-FMV=Fair Market Value

In this scenario, the seller walks away with 35.4K less – that’s 13.1 percent of the sale price – by selling their home to an iBuyer. According to a new study by Collaterial Analytics, iBuyers can cost sellers up to 15 percent of their home’s sale price.

Time

*National average based on April 2019 data from Realtor.com.
**National average based on February 2019 data from mortgage software company Ellie Mae.
***Average number of home showings for Portland, OR, based on 2017-2018 RMLS data.
**** No industry average available; based on various iBuyer claims.

While it is possible to sell quickly using a Realtor, the traditional closing process usually takes well over a month. Selling to an Investor involves a faster transaction with minimal effort from sellers. It can also benefit sellers with busy schedules and time constraints, such as those who need to relocate for work or get cash fast. If you want to hold out for the most money possible.

The Home Flipper falls somewhere in the middle of all this. They often have benefits of both Realtors and iBuyers with the monies being somewhere in the happy-medium range and a win-win situation and price for everyone.

So, that brings us back to the million-dollar question: Is selling your home to an iBuyer worth the cost? It depends on who you ask. Everyone wants to sell their property for as much as possible, but in real estate and real life, time is money. The answer comes down to each seller’s situation and what they value more: cash or convenience.