Imagine you have just started a new job in Salt Lake City, Utah. While you look for a modern home in the area, your spouse is trying to sell your old home in another state. You are both tempted to get the sale done as quickly as possible by using an iBuyer. Is that your best option?
iBuying is a recent real estate phenomenon that combines internet technology with the older ‘cash for homes’ model. It is a terrific way to make money in residential property for investors who know how to make it work. iBuying can also be good for sellers who understand what it is all about.
This post will explain the basic principles of the iBuyer model. If you are thinking of selling a home, selling to an iBuyer is one option. But don’t jump right in before educating yourself. Get a handle on the ins and outs of iBuying before you take the plunge.
Buying Houses for Cash
Prior to the tech era, the predecessors of the modern iBuyer used to advertise that they were willing to buy any house for cash by placing newspaper ads and hanging signs on utility poles. These investors would evaluate a prospective home, make a cash offer, and then tell sellers to take it or leave it.
Today’s iBuyer is a lot savvier and more reliant on technology. In essence, an iBuyer is a single investor or company that purchases houses quickly and without the need for intermediaries like real estate agents and attorneys. They offer cash in as little as a week. Then they turn around and renovate the homes and put them back in the market.
How Homes Are Valued
CityHome Collective, an interior design firm and real estate agency in Utah, says that iBuyers differ from their older counterparts in that they rely more on technology. You can see this clearly in the way they value homes. Your typical iBuyer starts with what is known as an automated valuation model (AVM) to make an initial offer.
An AVM relies on a ton of data including comparable home sales, neighborhood demographics, the age of the house, and so forth. Using an AVM makes it possible for the iBuyer to make a quick initial offer within hours of being contacted.
In some cases, iBuyers are content with going no further. Other times, they follow up the AVM with an in-person evaluation conducted by a company team member or a third-party contractor. This second valuation can lead to a modified offer.
Fast but Expensive
Getting back to the fictional scenario that started this post, imagine you and your spouse are tempted to go with an iBuyer because you understand the sale will be fast. You can get your house sold in a week and reunite your family shortly thereafter. But wait. Speed and convenience come at a price.
iBuyer fees can be pretty steep. Where you might pay 6% going with a traditional real estate agent and a standard sale, you could approach 10% to 15% in the total fees you pay to your iBuyer. The higher fees go to cover the iBuyers expenses relating to renovation and relisting.
While you are looking at a new, modern home in Salt Lake City, you’re simultaneously hoping that your old home can sell quickly enough to avoid you having to pay two mortgages. One way to virtually guarantee a sale is to work with an iBuyer. But carefully consider all of the implications – especially the cost. Selling with an iBuyer is fast. But it is also an equity killer.