What Is an iBuyer? (A Comprehensive Guide)

What is an iBuyer? | Pros & Cons | Should I sell to an iBuyer? | How pricing works | The selling process | Top iBuyers | FAQs

iBuyers are large, venture-backed companies that buy and sell homes using technology to streamline the process.

The “i” in iBuyer stands for “instant” because most iBuyers can make an offer on homes in 24-48 hours and close in as little as two weeks.

iBuyers charge service fees to home sellers that range from 5-15% of the purchase price.

Although iBuyers are generally unable to pay what you’d get for your house on the open market, they are an option that’s worth exploring if you need to sell quickly.

What is an iBuyer?

iBuyers leverage data and proprietary algorithms to provide home sellers with instant offers on their houses. Their goal is to purchase houses that can be resold for a small profit on the open market.

iBuyers charge customers a service fee for the speed and convenience that they offer. This fee helps to offset the iBuyer’s carrying costs (utilities, property taxes, etc.) and ensure profitability.

Along the way, iBuyers make money by offering other built-in services for buyers and sellers, like title insurance and mortgages.

Currently, the largest iBuyers on the market are Opendoor, Zillow Offers, Offerpad, and Redfin Now.

iBuyers may be new but they’re already making waves

iBuying transaction volumes have been increasing year-over-year for several years, with 2020 being an exception.

In 2019, iBuyers conducted roughly 60,000 transactions. In 2020, iBuyer transactions dropped by 50% as a result of the pandemic.^[1]

iBuying is still a relatively new phenomenon as it’s only available in a couple dozen cities across the US. However, Opendoor, the largest iBuyer to date, is on the path to being in 100 markets, which would give them a 4% market share.^[2]

These trends could change the way that houses are bought and sold, even if iBuyers only end up capturing a small percentage of the overall real estate market. iBuyers provide a hassle-free, predictable experience that realtors could have a difficult time matching.

Pros and cons of selling to an iBuyer

Should I sell to an iBuyer?

Selling to an iBuyer makes sense if you need a fast, predictable sale and don’t mind getting less money than you might on the open market.

However, if you have at least a few weeks to spare and want to get the maximum value for your home, working with a realtor is a better option.

Most iBuyers offer free, no obligation estimates, so it’s worth requesting an offer to see how much an iBuyer would be willing to pay for your home.

How do iBuyers price homes?

iBuyers rely on several inputs when they are pricing a home, including:

• Local comparisons
• Proprietary algorithm with advanced data sets
• Input from local pricing experts
• Inputs from you on features, upgrades, and condition

While iBuyers are able to use all of this information to provide you with an instant offer, they do need to send an inspector to your house who can assess repair costs before you’re presented with a final offer.

Repair costs could range from 1-2% and may make your final offer lower than the initial estimate.

How are iBuyers different from cash buyers?

Unlike iBuyers, cash buyers seek out distressed properties that they can force appreciation on through significant repairs and upgrades.

Cash buyers typically use a comparative market analysis and their own local knowledge to establish a price for houses.

iBuyers, on the other hand, pay close to fair market value for homes but charge service fees to help them make a profit.

How does selling to an iBuyer work?

Most iBuyers follow several steps that begin with the offer request form you submit online:

• Complete the iBuyers online submission form
• Preliminary offer is sent within two days
• If you accept, sign a purchase agreement online
• iBuyer conducts an on-site inspection of your home
• The adjusted offer is finalized and accepted, and the closing date is scheduled
• Paperwork is completed on the closing date. Sale is recorded and payment is wired to the seller

How long does selling to an iBuyer take?

iBuyers typically give sellers an estimate on their home's value within 24-48 hours of receiving a request. After that, the sale can be closed in as little as 10 days if you’re in a hurry — but the closing date is flexible.

That’s very fast compared to the 2020 national average selling time of 25 days, plus an additional 30-45 days to close.^[3]

However, the speed the iBuyers provide comes at a price: services fees and a lower sale price than you’d get on the open market.

It’s hard for realtors to match this speed, although some can in a hot market.

If you are working with a realtor and you absolutely need to sell quickly, they can adjust their approach to expedite the process. To do so, they may have to lower the original asking price.

Top iBuyers in 2021

Opendoor

Offerpad

Zillow Offers

RedfinNow

Orchard

FAQs

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