iBuyer Real Estate In 2020: The Complete Guide

Our need for instant gratification has come to the biggest investment most people will ever make – the buying and selling of your home.

If you are looking to sell your home in the near future, you may have come across the new and novel iBuyer model.

But exactly what is an iBuyer?

Here’s a complete guide that explains once and for all.

The iBuyer model is an instant method of buying and selling homes that is revolutionizing the real estate market.

It makes the whole process super easy, quick, and convenient.

You no longer have to put your house for sale through one source like a realtor and pray for a buyer to appear quickly.

Instead you can choose from the many iBuying companies on our platform.

Using an iBuyer is a seamless way to get you to your ultimate goal – selling your house and buying a new home.

That’s the answer to the common question “what is an iBuyer?” in a nutshell, but let’s dive into more detail…

What does iBuyer stand for?

iBuyer stands for Instant Buyer. In technical terms, the iBuyer model uses artificial intelligence (AI) to deliver home value. Using data about your property and mathematical algorithms, the iBuyer generates an automated valuation model (AVM) that gives you an instant all-cash offer. The iBuyer then makes any repairs, markets the house, and re-sells it.

The largest national iBuyers are Opendoor, Offerpad, Zillow Offers, Knock, and Redfin. These iBuyer companies are rapidly expanding into more cities every month as they prove especially popular with investors. According to ATTOM Data Solutions, nearly 10% of Opendoor and Offerpad sales came from bulk investors in 2018.

In addition to national iBuyers, there are also smaller and more local iBuyer companies in each city that buy your house with an instant all-cash offer to resell. It’s wise to contact several iBuyers for an offer on your house, before narrowing down to select the one with the best price and best terms!

Just like it’s worked for Expedia in the travel business and Lending Tree in the home mortgage business, the iBuyer model is transforming the real estate market by allowing you to sell your house and buy a home instantly on your device. The iBuyer gives home sellers a bigger market to offer up their house and get an easy house sale.

And did we say it was an all-cash offer with no contingencies on financing?

It is!

Content Overview

Part 1 How does iBuyer work?

Part 2 Why you should use an iBuyer?

Part 3 iBuyer Companies

Part 4 iBuyer Fees

Part 5 iBuyer Comparison

Part 6 What People Think About iBuyer

PART 1

How does iBuyer work?

The beauty of the iBuyer model is that it simplifies the house selling process. It takes away the work and anxiety of selling your home to buy another. With a few clicks you’ve filled out a simple form on our iBuyer platform that tells potential iBuyers about your house.

The iBuyer will then contact you via email or phone to ask a few simple questions like: How old is your roof? Do you have stone countertops? What is the age of your air conditioning system? Have you done any renovations to the home? Is there a pool?

Next you’ll get an instant all-cash offer from the iBuyer - usually within 24 hours! Since everything is done on your device directly through our iBuyer platform, the next step is for the iBuyer inspector to look at your house in person. Then you’ll get a final offer from the iBuyer for your home. Any closing paperwork is signed online and your house sale will be completed!

The process and fees may vary a little with each iBuyer. But, in general, you’ll get slightly less for your house because they have to buy it, market it, and resell it. If you want a quick, easy, and convenient house sale then the iBuyer program is the one for you.

It is predicted that 60% of home sale transactions will be with iBuyers by 2025.

So, of the 5.4 million homes sold in 2018.

That would mean that, if sales remain the same, 3.18 million homes in 2025 will be bought by iBuyers.

Each iBuyer program has its own pros and cons.

The Knock trade-in program lets home sellers trade their house to purchase another.

Ribbon’s model allows the homeowner to easily sell their home to Ribbon and pay rent to occupy it while their home is sold on the market.

It’s becoming a very competitive marketplace. Top iBuying companies are competing to create a better experience to capture the home seller’s attention and business.

The rush is on to give value added services to the iBuyer customer. And it’s all based on easing the pain points of selling and buying a home.

Some like Realogy are now launching programs that set out to give sellers even more assurance and time to choose.

You can read about the different programs in the iBuyer companies section below.

But one thing is clear from the competition: the rush is on to give value added services to the iBuyer customer. And it’s based on easing the pain points of selling and buying a home.

The bottom line is that iBuyers give you the ease, simplicity, speed and immediate peace of mind with an all-cash offer for your house.

And this is all good news for the home seller and home buyer!

What’s the catch with iBuying? The catch is that it will cost you a little something.

But unlike traditional real estate flippers, iBuyers works on an innovative business model that operates on low margins and high volume so their offers will be pretty close to your home’s actual value.

Data shows that iBuyers tend to make fair offers of around 1%-3% below market value. iBuyers also strive to buy your house and resell it quickly because they don’t like to hold large inventories.

It’s a fairly new process but, based on Opendoor’s 7,200 home sales last year and Offerpad’s 3,500 home sales during the same time period.

iBuyers are here to stay.

iBuyer companies are quickly shifting their services to answer home sellers needs. With highly sophisticated data used to determine home value, the race is on to continually refine the data used to create the most accurate buying price for a home.

The next step is the evolution of these iBuyers (and it’s already started with some of them). Their goal is to provide a suite of services for the hopeful homebuyers and home sellers including but not limited to credit repair, home fixing, or moving service.

PART 2

Why you should use an iBuyer?

Still unsure of the benefits of an iBuyer vs. real estate agent?

Here are 5 possible scenarios where selecting an iBuyer over a traditional real estate agent can come in really handy:

1 You’ve accepted a job offer in another city and need to relocate quickly. Great! But now what?

You don’t have time for the lengthy process of selling your house via traditional real estate agents. Or even to renovate or improve your property.

What about the prospect of carrying your old mortgage and a new rental while you adjust to a new city and a new job? That’ll only add stress during an already stressful time.

If your home is accepted by an iBuyer program, you’ll sell and close on your house within weeks and double mortgages are out of the question.

2 A major life change such as a divorce, marriage, finding out you’re going to have twins, or suddenly having to care for an aging parent.

You suddenly need a bigger space, one that’s easier for a parent to move around in, or you need to divide your assets for a divorce.

Any of us who’ve had to show our house (having the public see it) dread it. Strangers poke through your closets and look under your bathroom sink. Things go missing.

With iBuyer programs there are no endless house showings – what a relief! iBuyers can buy your home with an instant all-cash offer so you can move forward quickly.

3 You found another house you really, really love but can’t qualify for two mortgages.

Contingencies (getting financing or selling your house before you can put a contract on a new house) can be deal breakers in getting you the new home you’ve fallen in love with.

Haven’t we all driven by the house we’ve always admired and suddenly it’s for sale. Timing is everything when buying a new home without a contingency.

Why not consider trying our iBuying platform to get an offer for your home within 24 hours?

4 Your financial picture has changed.

When you get laid off or you simply want to live with lower mortgage payments, it may be time to sell your house. Life happens.

Need cash quickly? iBuyers solve that frustrating problem. You also don’t have to be in limbo while waiting for a potential buyer.

Unlike traditional real-estate flippers that will push down prices, iBuyers are built for scale and operate on small margins.

5 You inherited a property you need to sell or you want to unload a rental property.

Using an iBuyer to sell your property quickly, and with the closing date you decide on, will make that process much easier for you.

Don’t bother doing repairs on an old house. Or clean up your rental property after it has been vacated. You don’t even have to make yourself available for viewings.

Make life easy and get an all-cash offer in a few days or weeks.

But nothing good comes for free.

One downside is that some iBuyer companies charge listing fees which may be higher than real estate commissions because you’re paying for the convenience.

You’ll need to conduct due diligence to see if the service outweighs the cost.

There also might be limitations if iBuyers don’t operate in your area or your house needs too much repairing to be eligible for an iBuyer program.

Using the iBuyer.com platform lets you see all the information you need in one place and helps you decide your own answer to the iBuyer vs. real estate agent dilemma.

So, let’s sum up the pros and cons of iBuyers.

Pros:

1 Fast, easy, convenient

2 Instant all-cash offer

3 No showings

4 No real estate agent commissions

Cons:

1 Lower sales price

2 Some fees may occur

3 Not available in all areas

4 Not all homes eligible

PART 3

The iBuyer Companies

There are national and local iBuyer companies.

Opendoor was the first national iBuyer in 2014 followed by Offerpad that started buying homes in 2015.

Knock was next.

Then Zillow followed in the iBuyer footstep so that they would continue to be relevant in the real estate market by offering to buy homes.

Zillow is the 1000-pound Gorilla with the most resources in the iBuyer market. Zillow Instant Offers bought two homes in 2017 and 549 in 2018.

Their home buying business grew from $11 million to over $40 million from Q3 to Q4 2018 – that’s a 400% growth.

Opendoor is the second largest iBuyer.

Opendoor gives an instant offer based on their estimator and charges a 7% transaction fee. Like other iBuyers they’ll then sell the house quickly.

Offerpad is iBuying in 86 cities in the U.S.

With Offerpad you can choose your closing date up to 90 days which is great for giving you the time you need to move.

Offerpad iBuying model will move you for a service fee within a 50-mile radius of your old house.

You can get access into a home at any time via a security code they send to your phone.

If you’re buying a home from their inventory, Offerpad gives you a 30-day satisfaction guarantee. If you don’t like the home, they’ll buy it back. And they offer a 2-year home warranty.

Knock is growing quickly in the iBuyer market.

Their leaders were at Trulia so they have the deep industry experience to bring data science and technology to the home selling process.

The Knock Home Trade-In is a slightly different approach to iBuying. They’ll buy your home and make repairs, when you purchase one of their homes.

When your old house sells on the open market with Knock, they’ll transfer your new house title and mortgage to your name.

Your house is put on the market for 6 weeks and if it doesn’t get sold then you’ll be offered a guaranteed price.

If you accept their cash offer and Knock can sell your home for more than what they gave you then they’ll give you the difference.

Many iBuying companies are competing to give more time to home sellers.

Largest owner of the US real estate brokerage and franchise brand Realogy responded to the iBuying trend in a similar way.

Realogy is teaming up with Home Partners of America, a real estate investment and management company, to launch RealSure Sell and RealSure Mortgage.

RealSure Sell gives home sellers a cash offer upon listing. It’s valid for 45 days while an affiliated agent markets the home while trying to fetch an even better price.

Next, RealSure Mortgage allows a seller enrolled in RealSure Sell to make an offer on their next home by leveraging the cash offer.

Coldwell Banker also offers the RealSure programthrough Home Partners of America.

Orchard, rebranding itself from Perch, plans to simplify the home selling and buying experience because most people buy and sell at the same time.

These “dual trackers” don't have to take huge financial risks as their offers are guaranteed for 90 days.

Some companies take it a step further and put a spin on the iBuyer programs.

Compass is expanding into the lending business to help homeowners buy a new home.

The Compass Bridge Loan Services, is a program in which Compass real estate agents can facilitate a bridge loan for their client by using the homeowners’ equity as collateral.

Redfin offers a twist on the traditional real estate brokerage by incorporating tech tools. Imagine going on 3D walkable tours to view a house without leaving yours.

Ribbon buys homes on behalf of homebuyers who can't close their mortgages in time. The homebuyer can rent the house back for up to 6 months until they get their financing in order.

The company has big plans for expansion now that it has secured more than $300 million in new funding.

As for Local iBuyers, they have been in their markets for years. They’re the ones you see signs for along the streets. Signs like "We Buy Ugly Houses".

While they may seem like a local small business, some of them are large iBuyer companies using grassroots marketing to get their share of the house flipping market.

It will be really interesting to see how the local iBuyers work with the larger national ones.

So what’s the iBuyer goal?

The iBuyer goal is to buy and then sell houses fast usually within a few months of buying a home.

And they’re buying and selling a growing number of them.

ATTOM research shows that 16,574 homes were sold from 2014 to 2018 by Opendoor, Offerpad and Knock combined.

PART 4

iBuyer Fees

What exactly are you paying in iBuyer fees when you choose to sell your house through this model?

The average realtor commission is 6%.

There is no commission with iBuyers but there are process fees. The average iBuyer fee is 8 % to 9%.

You’ll have to pay the cost to fix and clean your home (deducted from the sales price) if you chose not to do so yourself.

After allowing for repair allowances, the iBuyer gets an average reselling appreciation of 5.5%.

Sellers are willing to pay a bit more to have an easy sale. As one Realtor Dana Bull says in a Forbes article, the option could be worth it for “homeowners who need to offload quickly”.

The iBuyer sale is days or weeks compared with the time-consuming traditional method of months to sell your house through a realtor.

Which iBuyer pays most?

Each iBuyer has slightly different service fees and resale fees. That’s true for both large national iBuyers like Knock, Opendoor, Offerpad, Zillow Offers, and small local iBuyers.

Research by Collateral Analytics found that sellers do indeed pay a premium for convenience. But if your house meets the iBuyer criteria’s list then it’s a fast, easy, and guaranteed sale.

Knock automatically sets the initial sales price of your home at 95% of market value, before adding in their standard 6% listing commission which is in line with the average real estate commission.

Knock allows you to buy a new home and move in before your old home is put on the market. They will assume your mortgage, prep your house and market it for sale. When your old home is sold Knock will deduct the mortgage payments, prep and repairs costs.

You’ll also be responsible for the closing costs and fees associated with the sale of your old home. And you’ll be responsible for the closing costs and fees when you transfer your new home to your name.

Opendoor’s fees include a 6% resale fee and up to 6% for market risk or repairs as well as maintenance. Closing costs, HOA fees, insurance and 50% of the escrow costs must be paid by the seller.

There is no negotiation with Opendoor but if the seller provides photos and documentation then Opendoor is willing to reevaluate their offer.

Offerpad’s fees are an average of 7% and can vary from 6% to 10%.

With Zillow Offers you’ll pay a 7% or higher service fee and a charge for minor renovations.

PART 5

iBuyer Comparison

Currently iBuying represents only 0.2 % of home sales but is rapidly growing. For example in Phoenix, iBuyer market share has exploded: one in every 20 homes sold is bought by an iBuyer.

iBuyer.com is a platform that serves as a one-stop-shop for home sellers. It connects home sellers to all the information they need to know about how to sell their home.

The iBuyer.com home estimator shows you a range of iBuyer programs. You’ll be able to compare offers, get an idea of how much your property would sell for, and bag the best deal.

Based on comparable sales instead of fair market value, the home seller will get a more accurate idea of what the iBuyers will pay for their home.

Transparency of transactions, which is where the data for the iBuyer.com estimate comes from, is also the new rule for the home iBuying business.

The iBuyers are clearly making a big change in how easily we buy, price and sell our homes.

The seller will get an idea of what their house will sell for with an iBuyer before they even start the process of engaging with the iBuyer.

Having this information is critical because it offers a direct iBuyer comparison and it’ll show you:

1 Which of the iBuyer will give you a better offer.

2 Who has the most favorable terms (time to close, do they offer a trade in service like Knock, moving help, and other benefits).

3 A side by side comparison of the ratings and reviews of each of the iBuyers.

The iBuying universe can be confusing and give us an information overload.

By doing your homework at iBuyer.com you’ll be prepared and have knowledge of the iBuying market.

You’ll know that you’re getting many more options and a guarantee of a quick sale. Gone are the days of putting a home on the market and just hoping for the best.

Which iBuyer is best?

Since the iBuyer market is relatively new and quickly evolving, it can be a challenge to find the right iBuyer. First, you’ll need to ask yourself a few questions to determine what your needs are. Those questions include:

1 How quickly do I need to sell my house?

2 Do I need to find a new house?

3 Does my house need extensive repairs or just cosmetic touch-ups to make it salable?

4 Does my house fit into the iBuyers criteria for buying houses?

5 What’s the real estate market like where my house is located?

6 Is there a national IBuyer in my market or will I need to contact local iBuyers and how do I find them?

The first 3 questions determine what your personal needs are so that you can match them to the right iBuyer for you. Those will be the questions prospective iBuyers will ask you when you contact them.Each iBuyer will have different requirements for the houses they buy.

As an example, Opendoor only buys homes in its service areas that are built after 1960. The seller must have a clear title. They do not accept homes that are prefabricated or in age-restricted communities. And their property size requirements are at least half an acre.

PART 6

What People Think About iBuyer?

It depends upon who you ask. As with virtually anything, reviews can vary and iBuyer reviews are no different.

Realtors can see iBuyers as competition or a way to get leads if they choose to associate with an iBuyer.

For instance, much of Zillow’s revenue has been from advertising for real estate agents. Since launching Zillow Offers, they have gotten loud protests from the real estate agents they’ve partnered with.

As a home seller you don’t have to interview realtors or show your home to the public. You don’t have to make cosmetic or minor home repairs. iBuyers sort that all out for you and subtract the cost from the house sale.

You just get a quick all-cash offer.

iBuyers might be called the modern-day house flippers, but they do not make a big profit from rehabbing an outdated home and reselling it. It’s a volume business for iBuyers because small margins off many homes adds up.

You can also easily look at iBuyer scores and reviews to get a better idea of various iBuyer companies.

According to one comprehensive iBuyer review page, the iBuyer score (10 being perfect and 1 being poor) looks at the following parameters:

1 Proceeds: How much the home sellers make?

2 Speed: How fast can home sellers get an offer?

3 Efficiency: How long does each transaction take?

The financial world has a wait and see attitude about iBuyers. Their concern for their stock investors is: What happens when we have another downturn in the market?

The real estate disaster of 2007-2008 is still fresh in everyone’s mind. While some of us are still recovering, others who were able to hang onto their homes have seen a big upswing in their home value in the past few years.

But how long will that last?

That’s the question everyone is a little nervous about.

Disrupting the real estate market

At the end of the day, the iBuying real estate market is disrupting the industry in the same way that Expedia disrupted the travel industry, Airbnb disrupted the hotel industry and Uber disrupted the transportation industry.

According to a report by the National Association of Realtors, 44% of buyers searched for real estate online. The way people are searching for, engaging with, and selling property is clearly changing.

We’ve become accustomed to these things being easy and convenient - a simple tap on a screen to get us what we want. Who would have thought of people buying or selling their homes on their phones or laptops?

The iBuyers have and the iBuying real estate market is proof of that.