What is an iBuyer?

A few years ago, iBuyers were seen as a disruptor in the real estate market, using algorithms and technology to buy and resell homes faster than traditional agents could. But the market for these “virtual real estate agents” has cooled considerably. Just 1% of sellers sold to an iBuyer between May 2022 and May 2023, according to the National Association of Realtors.

But just because iBuyers aren’t quite as prominent as they were when they first entered the scene doesn’t mean you can’t use one. There are still a number of reasons why one may make sense for your specific situation.

What do iBuyers do?

An iBuyer, or “instant buyer,” is a company that uses technology, like artificial intelligence and machine learning, to buy and sell houses fast. Opendoor is perhaps the most well-known iBuyer today as subsidiaries of giants like Zillow and Redfin have recently shuttered operations. 

iBuyers are all about speed, making near-instant offers on homes and re-selling them quickly. For many, this offers a simpler, more convenient alternative to going through a traditional home sale and juggling closing on and moving into their next home.

How does an iBuyer work?

All iBuyers function a little differently from one another and offer different services. Generally speaking, though, they use algorithms to estimate the value of your home and make an offer. If you accept, you’ll take your profit and focus on buying a new home while the iBuyer handles all of the maintenance, marketing, and reselling of your old home. Many also integrate services like title, insurance, repairs, and financing to lower your costs of moving.

Unlike house flippers, iBuyers aren’t looking for the most rundown property with high potential after a facelift. They aren’t trying to hold homes for long, which means they prefer homes in good condition. The model is to offer close to market value and then lean on light repairs, marketing, and the strength of the housing market to turn a profit. Of course, they also charge fees in exchange for a fast closing and all-cash offer, sort of like a real estate agent’s fee.

Typically, the process plays out like this:

1. Submit basic information about your property using an iBuyer’s website or app.

2. The iBuyer estimates your home’s value using an automated valuation model (AVM) and sends an offer, along with any service charges and closing costs. This could take as little as a few minutes.

3. If you like the offer and terms, the iBuyer will schedule a detailed evaluation of your home to provide a final offer with terms. Depending on the quality of the inspection, it may be lower than your initial offer.

4. You accept or decline the offer. A nice thing about working with iBuyers is that you usually have the option to choose your closing date and may back out of the sale any time before then, in case you change your mind.

5. You move out, you get your cash payment in a few days, less fees, and mortgage fulfillment.

iBuyers are different than power buyers, which are real estate technology companies that have provide services to help the homebuyer and do more beyond just buying your home. 

Benefits of using an iBuyer to sell your home

iBuyers were created to solve specific pain points of the home-selling process. As such, they excel in a few key areas.

Speed

Imagine you’ve just gotten a job in a new city, but it’s on the other side of the country, and they’d like you to start in two weeks. You have to sell your home, and you have to buy a new one in your new destination. That’s a lot to do in two weeks.

iBuyers can give you a cash offer on your home within a couple of days, and you can close within a week, pocketing cash to rent or putting a down payment on a new home.

That’s a lot better than the 43 days the median home spends on the market from the day it’s listed to when the owner hands over the keys.

Buying and selling at the same time

You have to live somewhere else after you’ve moved out! Selling a current home and buying a new one is a remarkable challenge, even for the most organized of people. iBuyers functions almost like a car dealership, making it easier to “trade in” your home to manage the balancing act of buying and selling at the same time. It offers a form of bridge financing to make the next home purchase a little more palatable once you’ve pocketed a profit from your old house.

→ Learn more about buying a house before you sell

Convenience

Listing your home can be a real headache. If it doesn’t sell immediately, it could be months of keeping the house spotless, clearing out on the weekends for open houses, letting realtors in for tours, and dealing with people on your front lawn wondering why your house hasn’t sold yet. Sounds annoying, right?

An iBuyer gives you an offer in a few clicks, so you never have to clean up for an open house.

Flexibility

Despite a reputation for speed, iBuying transactions don’t have to move fast. Most people prefer them to, but if you’d like to stick around your house, you can adjust terms to give yourself one final month in your dream home, or gather some time to look for your next house. It’s up to you when you actually want to close.

Greater certainty

Finally, although it’s a seller’s market, that doesn’t mean it’s an easy world out there. Selling a home involves risk and uncertainty when you’re selling to traditional home buyers. They could back out for myriad reasons, they could be rejected for a mortgage, or their current home appraises for lower than they expected.

The risk of a deal falling through with an iBuyer is next to none, provided you’re transparent about the condition of your home.

Drawbacks of using an iBuyer to sell your home

iBuyers are all about speed, flexibility, and certainty. But like all things in real estate, there are drawbacks, as well.

Lower profit

By far the biggest reason people avoid selling to iBuyers is because they’ll almost always sell for less than they’d get on an open market. Between a lower offer and fees, you will for sure sell your home at a discount. In a hot market, it could be a very steep discount. 

One small MarketWatch study of 26 home sales to iBuyers found that sellers made 11% less than they would have if they sold to a traditional buyer. That’s because iBuyers charge a fee of somewhere around 5% to 8% to sell your home on top of a valuation that’s likely below the true market value you might get if your house were to be subject to a bidding war.

You pay fees in a traditional home sale, too, but they’re considerably less than when working with an iBuyer. One Collateral Analytics study found that home sellers pay an average of 13% to 15% more fees to an iBuyer than they would to a traditional real estate agent.

Limited availability

iBuying doesn’t exist everywhere. And if it does, there may only be one or two companies, meaning there isn’t much competition for your business and a greater likelihood that you’ll have to compromise.

The places where iBuying tends to do well are in cities where housing stock is newer, affordable, and similar in size and age — all of which leads to better comps and a more predictable housing market. Sun Belt cities like Phoenix, Atlanta, and Dallas-Fort Worth are some of the most popular for iBuying.

Opportunity costs

We touched on this in the lower profit section, but it’s hard to quantify the abstract. You don’t know how much more you would have made by putting your house on the open market rather than selling to an iBuyer. Research suggests, however, that it’s a substantial amount.

iBuyers are making a profit on your home — they wouldn’t buy it or sell it otherwise — so it’s fair to assume you could have gotten that same higher price had you worked with an agent and waited it out instead.

Is it worth selling to an iBuyer?

Only you can answer this question for your unique situation. Everybody is different and everybody values different things in a home sale transaction. If you really need to move quickly, or you’re not up for selling and buying at the same time, an iBuyer is a great option. If you want a fast influx of cash, like if you inherited a property you have no intention of living in, an iBuyer is a good option.

However, if you’re looking to make the best return on your initial home investment, it’s much better to sell on the open market.

If you’re looking to list your home, you might consider Orchard. We’ll help you prepare your home for sale and help you sell for more with recommended repairs. Plus, we’ll guarantee your home sale for added-peace of mind. Learn more about how orchard works, or get started with a free home valuation.

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FAQs

Answers to some of the most commonly asked questions about iBuyers.

Can you buy from an iBuyer?

Buying a home from an iBuyer is just like going through a traditional home sale. In fact, it may even be easier as some iBuyers have their own lending divisions and are motivated to sell quickly.

Any iBuyer will provide a home listing on their website and allow you to schedule visits to properties through the site. Plus, you usually won’t have to wait to move in since most iBuyer properties are already vacated by the time they’re listed for sale.

Are iBuyers legitimate?

Yes, iBuyers are legitimate, but they’re for-profit businesses. They aren’t looking out for your best interests ahead of their own. As such, you should approach any iBuyer transaction with at least a small dose of skepticism and make sure that it’s absolutely the right option for you.

Who are the biggest iBuyers?

The five biggest iBuyers today are Opendoor, Simple Sale, Offerpad, Buy Before You Sell, Knock Home Swap.