A couple in Atlanta is ready to sell their charming and recently renovated three bed, two bath ranch-style home. As busy working parents, stress levels are high. They decide to look into “What is an iBuyer?” on a whim.
They enter their property details into a website form and receive a virtual all-cash offer. They share photos of the home, complete a digital walkthrough, and have the property exterior inspected.
After some email back-and-forth, they get their final iBuyer offer:
|Offer details: 98% of what a real estate agent estimated they could earn, minus a 5% service fee, a $2,000 repair credit, and 1% in closing costs.|
They find this offer to be satisfactory and are able to close in days without mortgage lender involvement. They skip showing the home and drop their keys in a lockbox upon move-out. Soon, the couple is moving into a newly built dwelling in the suburbs.
While this example is hypothetical, it is representative of how a small but growing number of people are choosing to sell their homes through iBuyer real estate solutions.
Let’s take a closer look at the iBuyer real estate trend and common questions about how iBuyers work. We also include information about HomeLight’s Simple Sale platform, an online home-selling program that provides competitive all-cash offers for homes across the country.
What is an iBuyer?
An iBuyer is a deep-pocketed real estate technology company that uses digital tools to purchase homes directly from homeowners and close quickly. iBuyers tend to offer much closer to market value than other types of investors and flippers, but they also charge a service fee and are limited in the types of homes they will buy.
What does iBuyer stand for?
iBuyer stands for “instant” buyer, not internet buyer. The little “i” for “instant” is descriptive of the fast cash offers these operations are able to make on homes. The term iBuyer appears to have originated from an internal report released by banking firm Evercore in 2017 that discussed the “iBuyer” business model as being one that was “likely to garner increased attention over the next few years.”
Do iBuyers make good offers?
iBuyer offers got sweeter for sellers in a fiery housing market. A Feb. 2022 report from real estate brokerage platform zavvie found that iBuyer offers peaked in Q2 2021 at 104.1% of market value, before tapering to 99.4% in Q4. If a cooler market were to materialize, iBuyer offers could become less competitive.
After acquiring a home, an iBuyer will relist the property on the market after making only light repairs.
Though there has been some skepticism about the business model’s ability to sustain long-term growth, iBuyers managed to double their purchasing activity in 2021. By the end of the year, they accounted for 1.3% of all home purchases in the U.S.
When did iBuyers emerge?
iBuyers first emerged in the mid-2010s. In 2014, a company called Opendoor debuted with the goal of making it easier for sellers to move. Their business model was driven by large venture capital reserves to purchase homes with cash and the use of technology for valuing property quickly. After Opendoor, Offerpad launched a similar business in 2015.
At this point, homebuyers had long been using the web to browse listings and access property details. They were benefiting from new technology, while the process of selling a house remained largely the same. For this reason, iBuyer solutions have been seen as an opportunity to balance the scales by addressing seller frustrations and pain points.
In one survey from 1000Watt, 70% of sellers found the process stressful or very stressful. Approximately 44% said the most stressful element was having strangers in their home at showings and open houses, a step which iBuyers eliminate.
Largest iBuyer companies in 2022
The top iBuyers of 2022 based on transactions and coverage area include Opendoor, Offerpad, and RedfinNow. KellerOffers, a program within the Keller Williams real estate franchise, also has a large presence but is exclusive to Keller Williams agents and their clients. See the below chart for a high-level overview of the largest iBuyers today.
|Largest||2014||45 metro areas throughout the U.S. plus Washington, D.C.||36,908 homes purchased in 2021, a 498% increase from 2020.||5%|
|2nd largest||2015||27 metro areas||9,023 homes purchased in 2021, a 156% increase from 2020.||5%|
|3rd largest||2017||Select locations across 11 states||Sold 600 homes in Q4 2021, up from 388 in Q3.||Between 5% and 13%|
|Offered within the Keller Williams franchise||2019||Available in over 20 select markets||Not available||Must work with Keller Williams agent, see map coverage|
Zillow Offers (now shuttered)
|Once among the top iBuyer companies, but no longer active||2018-2021||Zero||Purchased 9,680 homes in last quarter of operations||N/A|
Where can I get an iBuyer offer?
Though expanding rapidly, iBuyers aren’t available in all locations. They have a heavy presence in mid-priced metro areas in the Southern band of the U.S. Pockets where houses are similarly built and mostly in good shape are prime iBuyer hubs.
In the below map, you can see the loocations where some of the largest iBuyers currently purchase homes. Use the drop down tool to see maps for Opendoor, Offerpad, and RedfinNow. Don’t see your city on the list or looking for another option? Consider starting with HomeLight’s Simple Sale platform, available nationwide.
Note: iBuyers can frequently update their services and add new locations.
iBuyers have so far mostly focused their efforts in states and cities that have experienced the largest population growth in recent years. Those states are Texas, Arizona, Florida, Georgia and North Carolina.
About 75% of all iBuyer purchases have occurred in those five states since 2017, according to CoreLogic. And 76% of the purchases within those states were concentrated in 10 metro areas, including:
|Market||% of iBuyer purchases from 2017-2021|
Data source: CoreLogic
Are there any alternatives to iBuyers?
HomeLight’s Simple Sale platform is another option for selling your home quickly and with fewer hassles. With Simple Sale, you can receive a competitive all-cash offer to buy your home, on your timeline.
Simple Sale has a network of cash buyers on its platform, and partner investors have a wide range of investment strategies, including fix-and-flip and buy-and-hold. This enables Simple Sale to provide cash offers for a wide array of properties, even those that need some or a lot of work.
You can skip staging and repairs, and sell without agent commissions or upfront selling costs. Answer a few basic questions about your home’s condition, how much work it needs, and your selling timeline to get started with Simple Sale today.
Service fee: Some transaction fees apply. No hidden fees or agent commission costs, and requesting a no-obligation offer is free.
Locations: Available across most of the nation — input your address to see if we could provide a cash offer for your property
Closing window: After we’ve collected key details about your home, we’ll provide a cash offer in as few as 48 hours, with the ability to close in as little as 10 days. You have the flexibility to pick a move day that works for your schedule, typically within 30 days of closing.
Below you can hear about how Baohan Wu, a seller who used Simple Sale to sell his high-rise apartment, closed within three and a half weeks and what he thought of the process overall.
How much are iBuyer costs and fees?
iBuyer costs and fees vary depending on the company and specific program, but the largest iBuyers are almost identical in this regard to remain competitive with one another.
Offerpad and Opendoor, for instance, both charge a service fee of 5% of the home’s sale price. This a bit under the average 5.8% commission real estate agents receive in traditional home sales, but you may accept a lower offer with an iBuyer versus open market sale.
In addition to the service fee are closing costs. Offerpad and Opendoor estimate these to be between 1% and 2% of the sale price, depending on the state and municipality. Lumped into this sum are things such as escrow fees, title fees, and transfer taxes, all of which are standard for any real estate transaction.
The last fees included are those for any home repairs deemed necessary by the iBuyer. After you’ve agreed to an iBuyer’s offer to buy your home, the company inspects the home for anything they need to repair or replace in order to sell it. If you accept their deal, then they deduct the estimated cost of those repairs from the final offer price.
Here’s a basic example of how these fees would look in the sale of a $250,000 home:
|Market value of home||$250,000|
|iBuyer offer||$248,500 (99.4% of market value)|
|Estimated closing costs||1%|
|Repairs||$1,500 (varies based on assessment)|
|Est. net proceeds||$232,090|
Working with an iBuyer
Selling to iBuyer
- To sell your home quickly to an iBuyer, you first need to make sure you qualify to do so.
- To check this, go to each iBuyer’s website and explore what cities they operate in. To request an offer, you’ll have to provide basic information such as the home’s address, age, square footage, condition, features and upgrades.
- If you meet the iBuyer’s purchasing criteria, then an offer will be sent to you in as little as 24-48 hours. It will include a breakdown of fees and costs associated with the sale. An iBuyer representative will likely call or email you to discuss the offer and answer any questions.
- You then have some time to think about what you want to do. The offer is typically valid for at least a few days, and can be quickly updated even after the expiration.
- If you accept, then an assessment will be scheduled so the iBuyer can evaluate the condition of the home.
- If repairs are needed, the company will provide an estimate on what it will cost and deduct that amount from the net proceeds you receive in the sale.
- You then choose a closing date and when you want to move out. After you close, you’ll get paid in a matter of days.
Purchasing from iBuyer
Buying a house from an iBuyer is not much different than buying a home the traditional way.
- Before even starting to shop, take the time to figure out what you can afford and get preapproved for a home loan.
- You can then browse iBuyer’s inventories directly on their websites. The properties are commonly available for private viewing at any time. All you have to do is download the company’s app or go on their website to reserve a time slot and then use the app or a provided code to access the home.
- The homes are usually ready to move into since the companies will do light repairs before listing them, but it’s a good idea to have an independent inspector look at any home you’re seriously considering.
- If the inspector finds anything noteworthy, then this can be a bargaining chip during final sale negotiations.
- All of this can be done on your own, but you can always choose to hire your own real estate agent or ask to work with an agent who is partnered with the iBuyer you’re wanting to purchase from.
Pros and cons of selling to an iBuyer
The most notable benefits of selling to an iBuyer are speed and convenience. You don’t need to work with a real estate agent if you don’t want to. You don’t need to list your house on the market. You don’t even need to stage the home or make it available for potential buyers to walk through. You can simply sell it as is and close the deal in as little as two weeks.
The process is also more certain and predictable. If an iBuyer wants to purchase your home, they’ll offer you cash in as little as a few days and you know the deal won’t fall through due to a financing or appraisal contingency. And since you get to set the closing date, you know exactly when everything will happen.
The most significant downside to selling your home to an iBuyer is you eliminate the possibility of a bidding war.
You can try to negotiate with an iBuyer, but their business model relies on purchasing homes for as close to what their algorithms tell them the homes are worth.
They won’t necessarily lowball you with their offer, but they likely won’t pay more than what they believe they can get in a quick resale.
Another potential negative to selling to an iBuyer is they have set standards when it comes to a home’s condition and the repairs they believe it needs in order to execute a smooth listing. If you don’t want to pay for those repairs, that could be a sticking point.
iBuyer variations: Cash offer and home trade-in
In the past couple of years, iBuyers and other proptech companies have begun expanding their reach into what is known as “power buyer” programs. These include such services as cash-backed offers and home trade-ins.
With a cash offer program, a power buyer company typically purchases a home on behalf of a pre-qualified buyer using cash. At that point, the buyer can usually move in right away while they obtain a mortgage to repurchase the home from the power buyer.
Cash offer programs generally enable buyers to remove the financing contingency from their offer and close faster, strengthening their position in a competitive market. In fact, cash offers are 3x more likely to win and can get you 5% savings, on average, versus offers with a loan.
Companies providing cash-backed offer programs include HomeLight, Flyhomes, Opendoor, Ribbon, and Better.
Many people need to sell their existing home in order to have enough funds to cover the purchase of their new home. Some house buying companies offer or specialize in what are known as trade-in programs to make this a smoother process.
Generally trade-in companies will offer to buy your current home, freeing up your funds to buy a new home and removing the need for a home sale contingency.
iBuying vs. house flipping
The modern-day practice of house flipping has been a popular means of making money among savvy investors for decades. Well-known real estate investing operations like We Buy Houses and We Buy Ugly Houses have existed since the late ’80s to mid-’90s.
House flipping is predicated on the ability to buy low (typically, at around 70% of the home’s estimated after-repair value) and sell high. This strategy often works best with foreclosed properties or when homes need significant repairs that investors can affordably fix and still profit from the resales.
iBuying is a different model. An iBuyer’s primary profit is a service fee charged to the people they buy from. For that fee, iBuyers provide sellers speed, convenience, and certainty.
They also make some amount of money by ideally selling houses for more than they purchased them for, but the margins are much tighter because they are reselling homes faster and while making fewer to no repairs.
iBuyer vs. real estate agent
How does working with an iBuyer compare to listing your home with a real estate agent? Let’s take a look at each option side by side.
|Aspect of the Sale||iBuyer||Real estate agent|
|Sale timeline||As little as 10 days, or up to 90 days if a seller needs more flexibility to stay, depending on the iBuyer||One to three weeks to attract an offer, and another 30-45 days to close|
|Home preparations||None required||Recommended to address certain needed repairs, deep clean, declutter, and stage the home for viewings|
|Showings||None required, though some iBuyers will perform a virtual or in-person walkthrough||Anywhere from 10-25 in-person showings typically required to sell the home|
|Offer price||99.4% of market value, according to zavvie||Strong chance of commanding 100% of market value or higher|
|Inspections / repairs||Generally no pre-listing repairs required, though some iBuyers will identify needed repairs through an assessment and charge a repair credit||Some agents will recommend a pre-sale inspection to identify any issues related to the home’s structure and major systems, seller may need to remedy or adjust price accordingly|
|Appraisal||An iBuyer doesn’t use a traditional appraisal but an automated valuation model proprietary software that processes various data to arrive at an offer price, usually within 24 to 48 hours||If a buyer is financing the home with a mortgage, the lender will require an independent, third-party appraisal before closing. If the appraisal comes in under contract value, it could create delays or terminate the settlement|
|Title search||House will need to clear title; iBuyer will have a preferred title and escrow company, as well as closing attorney if needed in certain markets, expediting the title search||House will need to clear title; agents will often notify their title officers the moment they get a listing to find any potential title problems|
|Financing contingency||None, since an iBuyer provides an all-cash offer||This varies, depending on location, but in general, a financed buyer has a specified number of days to obtain a mortgage for a property under contract (or request an extension)|
|Agent commission||None, but these companies charge a service fee ranging from 5.1% to 7.6% in recent years||HomeLight data shows the average real estate commission nationwide is 5.8%, with the seller paying for commissions for the listing agent and the buyer’s agent|
|Closing costs||About 1% to 3% of the sale price (on top of service fee) to include title insurance, escrow fees, and taxes||About 1% to 3% of the sale price (on top of commission) to include title insurance, escrow fees, and taxes|