iBuying: How it Works and Potential Pitfalls
From ordering takeout to booking a doctor’s appointment, it seems there’s an app for everything these days. Technology touches every part of our lives, and recently it’s made its way into the real estate market in the form of iBuyers like OpenDoor and OfferPad — companies that are offering an alternative to the traditional home-selling process.
How iBuying works
iBuyers offer a unique approach that can be attractive to sellers, especially those on a tight timeline to move. Most platforms are based on a similar model: a homeowner answers questions about the location and condition of their property and then, based on this information, the company delivers a cash offer. If the seller accepts the offer, they can close their transaction and receive cash-in-hand in as little as 14 days. If it sounds too good to be true, that’s because not everyone is aware of potential pitfalls.
The true price to sellers
The iBuyer’s business model depends on offering you less for your home than the amount for which they plan to resell it. In fact, a recent MarketWatch study showed that iBuyers offer sellers, on average, 11 percent less than buyers on the open market. If you apply this profit loss to the median U.S. home price — $231,000 — that translates to more than $25,000 left on the table. In addition to that, iBuyer customers pay an average of 7-10 percent of the sales price in service fees, which exceeds the standard 6 percent commission rate assessed by most real estate agents.
Computers can’t do it all
So how do iBuyers come up with that purchase offer in the first place? That ever-popular tech buzzword: an algorithm. The app runs comparables based on a number of factors, including but not limited to location, square footage, age, and construction materials to determine your home’s value. Computers simply can’t account for things that real-life agents can, like curb appeal, upgraded fixtures, or neighborhood trends.
The bottom line
In our busy lives, convenience often rules. However, in some instances, a little patience can reap great rewards. While iBuying may be suitable for some cases, you’re likely better off selling your home the old-fashioned way.
If you’re ready to make a move, start by finding an experienced lender you can trust. Visit OpenMortgage.com or call to speak with a loan origination specialist today.