Lorraine Ryall
Recently, I had the pleasure of doing my first public speaking engagement at the Retired Employees City of Mesa (RECOM) meeting.
One of the topics we discussed was the pros and cons of selling your home to the Internet buyers known as iBuyers instead of doing a traditional sale. It was a very interesting meeting and a topic I thought would be helpful to everyone, whether you are considering using an iBuyer or just curious about how it works. This topic raised a lot of questions, so I thought it would be a good topic for this month’s article.
WHAT IS AN iBUYER?
An iBuyer is an online company, such as Opendoor, Offerpad and Zillow. They will send you an offer to purchase your home via email within minutes (or days), sight unseen, based on their valuation model and the information you provided them.
BENEFITS OF SELLING YOUR HOME TO AN iBUYER
- You can sell quickly.
- There are no showings.
- You don’t need to get your home show ready.
- You don’t have to do any repairs (but you will pay for them).
- Sell on your schedule—choose when you close.
NEGATIVES TO SELLING YOUR HOME TO AN iBUYER
- The purchase price will be well below market value.
- Service fees are higher than the traditional Realtor commissions.
- The cost often is much higher for repairs than a traditional sale.
- Communication may be harder with an iBuyer, especially on evenings and weekends.
WHAT THEY CLAIM AND WHAT IT REALLY MEANS
iBuyers claim there are hidden costs you have to pay on a traditional sale that they avoid, such as:
Realtor Fees: This is true. You don’t pay Realtor fees. However, they will charge you a service fee (I have seen as much as 9 percent).
Closing Costs (1 percent): You as a seller will have to pay closing costs no matter to whom you sell. In some instances, iBuyers will ask you to pay for buyers closing costs as well, which is not traditional.
Risk of Low Appraisal: The reason you don’t have to worry about a low appraisal on an iBuyer sale is not because they don’t do appraisals, but because their purchase price is always way under the market value.
Staging and Home Preparation (1 percent): While it is true you will want to declutter and get your home ready to show, it’s very rare sellers spend money on home staging. Usually, the seller can use items they already have, and decluttering and rearrange furniture is all that is needed, at no additional cost. If your home needs painting, iBuyers will charge you the cost to repaint in the repairs demand, which will reduce the net price. In a traditional sale, you may not have to paint your home, but if you do, you can usually recoup the cost in the sales price.
Seller Concessions (1.5 percent to 2 percent): Some buyers ask for the seller to contribute to the buyer’s closing cost. This will be part of the negotiation of the contract, and closing costs are included in the purchase price. So, the net to the seller does not change. Closing costs really don’t make any difference to the seller’s net proceeds.
Repair Costs: On a traditional sale, this is another negotiation, and a buyer might ask for only a few items to be repaired. With an iBuyer, they will do an inspection and give you a list of all the items they want you to repair, or they will charge you a set fee for these repairs. This usually is a lot higher than repairs in a traditional sale.
Home Ownership and Overlap Costs (1 percent): This is a fee they claim is for the cost of housing during transition. However, a lot of sales are done simultaneously nowadays, so there is no transition period. If there is, it’s usually just a few days, but even if a short-term rental were needed, it still would be far less expensive than all the fees and lower price.
You would think technology would bring down costs, not increase them. Remember, though, these buyers are investors, not traditional buyers. They have to add on all the fees and pay way under market value so they can flip the home and make money.
We asked Opendoor, Offerpad and Zillow to give an offer to purchase one of our properties. The same information was given to all three iBuyers.
I ran the comps and estimated the home value as $440,000, but was conservative with a sales price of $420,000. Here is a chart showing the offer price and fees from each company.
| Zillow | Opendoor | Offerpad | Traditional | |
| Sale Price | $381,500 | $374,200 | $359,017 | $420,000 |
| Fees | $34,700 | $33,678 | $26,926 | – |
| Commission | – | – | – | $25,200 |
| Net to Seller | $346,800 | $340,522 | $332,091 | $394,800 |
| Difference from a Traditional Sale | ($48,000) -12% |
($54,278) -14% |
($62,709) -16% |
As you can see, by choosing an iBuyer, the seller would lose between $48,000 and $62,000 over a traditional sale.
Selling to iBuyers may be a great option for some sellers. It allows for convenience and a quick sale. For sellers looking to maximize the proceeds from the sale of their home, iBuyers probably aren’t the best choice for you.
If you are thinking of selling your home, please contact me and I would be happy to do a detailed analysis of the cost of selling your home and a true market value.
Lorraine Ryall has been a Multi-Million Dollar producer for the past nine years. You can reach Lorraine at (602) 571-6799. You also can send her an email at Lorraine@Homes2SellAZ.com, or visit her website at Homes2SellAZ.com.