We’ve all seen the signs and ads - “We Buy Houses Fast!” - or some variation, around town, in your mailbox and in social media. Typically these offers are from property investors or house "flippers" that will purchase a home for cash, often “as is.” But who are instant cash offers good for?
Homeowners who don’t like the stress of preparing and listing their home might find cash offers a handy way to sell. This option might also appeal to someone who’s had a divorce or bankruptcy, or has a niche property or estate sale situation on their hands.
Enter “iBuyers," the latest evolution of the cash-offer real estate model. iBuyers (short for “instant buyer”), use computer algorithms to value homes and provide sellers with an instant cash offer to purchase their home.
A key difference though is iBuyers rely heavily on turning over a high volume of homes. They typically focus on properties in better condition than homes selling “as is.” iBuyers are also tech-savvy and use technology to further simplify the transaction.
| Is the iBuyer option one that real estate consumers should consider?
We want you to know the both facts and financial risks of doing business with iBuyers. Plus, we want to stress that KC Homes 365 has convenient investor options for clients who might be interested in pursuing instant cash offers to sell a home.
First, here's an overview of the iBuyer process:
iBuyer Process for Sellers
- A seller (or seller’s agent) completes an online form that asks about the size, features, and condition of a home. Some iBuyers will also request digital photos of the property.
- The iBuyer uses this information to confirm whether the home fits within their investment model criteria: 1
- Generally, houses they can easily price and “flip" for resale
- Moderately priced, single-family homes in a neighborhood with many similar houses
- Properties that don’t require major renovations before listing
(These qualities make it easier for the iBuyers to assess value, using lots of comparable sales data. It also helps to reduce risk and minimize costs.)
- If the home fits their criteria, iBuyers use a computer algorithm to value the home and will email the seller an instant cash offer. The offer should disclose the company’s service fee, typically between 7% and 12% of the purchase price. 2
- Once the seller accepts the offer, an in-person visit and inspection will be scheduled .
- Following inspection, the iBuyer may ask for a reduction in price to cover any necessary repairs they might find.
- If the seller accepts the new offer, the iBuyer will pay the seller for their home.
- The iBuyer makes their desired updates and repairs, then resells the home on the open market.
Curious as to what your home may bring in today's market?
Selling to an iBuyer - Pros and Cons
The leading benefit of selling to an iBuyer is convenience. Busy families can avoid the usual preparation that comes with listing a home. They can also skip the hassle of keeping their house "show ready" for possible buyers.
Additionally, many sellers like the predictability of an instant cash offer. They may also like the flexibility to choose their closing date, which can be as soon as a few business days following offer acceptance.
However, this convenience comes at a cost. iBuyers employ sophisticated representatives and attorneys focused on maximizing their profit. This often means that even their initial purchase offer is below true market value; the main downside being less money in a seller’s pocket at the end of the transaction.
A less-obvious drawback is that a low-ball offer can also skew public perception of a home’s value on the open market. That could present a challenge should the seller change their mind and decide to list their home the conventional way.
It’s also not uncommon for iBuyers to present a very strong initial instant cash offer, contingent upon the home inspection. This may seem okay at face value, but consumers have reported feeling fooled when the offer is then whittled down with a list of costly upgrades and repairs.3
All that said - along with service fees of up to 12% - a MarketWatch investigation found that sellers who work with iBuyers typically net 11% less than if they would have sold their home using a real estate agent.
Options from KC Homes 365
The contemporary real estate landscape offers several alternatives for selling homes. If you’re considering an instant cash offer for your home, our team has options that will ensure you’re not taken advantage of.
In partnership with one of our real estate agents, local investors can review your property and offer true fair market value, as well as a speedy close.
Purchasing from an iBuyer - Pros and Cons
Most iBuyers sell the properties they acquire on the open market.
Purchasing a flipped home from an iBuyer is similar to buying from any investor. iBuyer properties have typically been freshly painted and moderately updated. The homes are usually vacant, so there’s no need to work around a seller’s schedule to see it.
However, there are some pitfalls to avoid when purchasing a home from an iBuyer.
Speedy sales are important, so it isn’t uncommon for upgrades and renovations to be rushed. That can mean there's potential for less than stellar quality.
Additionally, iBuyer investment margins don’t leave much room for negotiating a price reduction or additional repairs. Buyers who’ve already invested hundreds of dollars in an inspection have little recourse if any issues are uncovered.4
| Fortunately, homebuyers can and should view these properties with a real estate agent.
Your agent will point out any concerns with the home, provide background information about the neighborhood, and help assess its true market value. That way you don’t invest time and money in a high-risk or overpriced property.
Protect Yourself with iBuyer Transactions
It’s important to do your homework; you don’t want to go into an iBuying situation blindly. Unlike real estate agents, investors aren't required to be licensed.5 This can invite cash-for-houses scammers to prey upon misinformed consumers and potentially rob them of the equity in their home.
KC Homes 365: Better than an Algorithm
Whether you're considering an instant cash offer or maximizing your home equity through the traditional sales process, our real estate team can provide expert advice specific to your unique circumstances. We'd love to set up a time to visit and discuss your options.
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