iBuyers are Just House Flippers

ibuyers
How much is your home worth? (infographic from nar.realtor)

Disruption in the marketplace seems to be the standard these days. So, it should not come as a surprise that the iBuyer phenomenon has taken hold of the real estate industry and is expanding.  What started out as an experiment in limited markets has grown into the internet version of “I Buy Houses.” (You’ve probably seen the “I Buy Houses” bandit signs around town.)  Nonetheless, iBuyers have become the trendy and acceptable version of house flippers.

According to Zillow, an iBuyer is “…a real estate investor that uses an automated valuation model (known as an AVM) and other technology to make cash offers on homes quickly.”  And although Zillow’s explanation of the iBuyer model describes that the home gets sold to the investor sight unseen, many will actually visit your home before finalizing the deal.

Automated valuations are helpful but not always accurate. Additionally, investors typically apply their AVM derived value into a formula to produce their offer price. Because they are akin to the Pawn Shop of the real estate industry, where they have to build in a profit for them, house flippers usually offer 70-75% of retail value (after repairs).

House flipping by any other name is still house flipping.  But the iBuyer trend has put a shiny veneer to the business.  The model allows for anonymity, at least initially, by giving you an offer to buy your home just by completing a form.  However, just like traditional real estate investors, iBuyer representatives will visit the home to confirm the accuracy of the reported home’s condition and other vital facts. 

If you’re looking to get top dollar on your home, you’re probably going to be disappointed with the iBuyer offer (or any real estate investor offer for that matter).  However, you might be willing to accept a lower offer on your home for a quick closing and selling “as-is.”  The desire of convenience of selling to real estate investors is confirmed by ATTOM Data Solutions 2018 Year-End Home Flipping report that indicated “207,957 U.S. single family homes and condos were flipped in 2018” (attomdata.com).  Although house flipping is down four percent from 2017, the numbers indicate a continued willingness by home owners to deal with house flippers. 

Don’t think you’re escaping the 6 percent commission when selling to iBuyers.

Patricia Mertz Esswein wrote recently that the iBuyer convenience comes at a cost (Kiplinger’s Personal Finance. April 2019, Vol. 73 Issue 4, p12).  She explained that iBuyer service fees range from 6 to 13 percent, which exceed Realtor commissions that typically range in today’s market from 3.5 to 5 percent!

Currently, most iBuyers are exclusive to specific markets that make the model financially sound.  However, new iBuyer companies are throwing their hats into the ring and expanding the model in new markets nationwide.  An article from the California Association of Realtors’ magazine (The Era of iBUYERS?; California Real Estate. September 2018, Vol. 98 Issue 6, p22-25) discusses the pros and cons of iBuyers and explains that the phenomenon is still in its “infancy.”  Meaning that iBuyer companies are still cautiously expanding in hot markets.  Furthermore, you should be wary of real estate brokers who engage in making iBuyer (or similar) offers as part of their listing service because it could be in conflict of their fiduciary duties to you.  

If you’re wanting to get top dollar on your home, you probably will go the traditional route and list on the MLS.  But, if you’re looking for a quick sale, explore all of your options.  Solicit and compare iBuyer offers to local real estate investor offers.  Also, consult with several real estate agents to not only get a picture of your home’s value, but they may have buyers for your home too. 

Original published at https://dankrell.com/blog/2019/05/13/ibuyers-are-just-house-flippers

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.