There is a new term in the Real Estate Investing world, and that is called iBuying.
iBuying is a term used to identify real estate deals that can be bought and sold via the internet or through online channels. New companies have emerged from this new frenzy, some you have heard of and others you may not.
Opendoor, Offerpad, and Homebay are all companies that are advertising and letting sellers know that there is an alternative to selling your home instead of the traditional way using real estate agents. The primary advantages seem to be low commissions, flat rate, or fee based structures, and the promise of speed and convenience. The downside is what they don’t tell you.
They all work somewhat the same via a website portal. Simply enter some basic information regarding the property, and the automated valuation model (AVM) will spit out an offer, usually within 24 to 48 hours. Instant cash offers appear to be advantageous, and there is no room for any negotiations. Once the offer has been proposed, either accept it or reject it.
Zillow is the latest entry into the iBuying process. Zillow estimates fluctuate daily and are untrustworthy. How can the online selling values they offer be accurate? Purple Brick, the 1% commission company, is closing down all US offices by the end of 2019. Bad reviews and lack of service seem to have pushed Purple Brick out of the market place.
Not to pick on Opendoor, but the fees range from 6% to a lofty 14%, and the offer is usually slightly less than fair market value. They will send out a third party inspection team to verify the condition of the property, and then renegotiate the price after they have ripped your house apart. Some reports have indicated that damages have been caused by these inspectors. The repairs are the responsibility of the homeowner, either by doing the repairs themselves to get the offer price, or by accepting a lower price for the home. Also buyers and sellers are responsible for all applicable closing costs, which usually includes an associate title company working for them. In the end, the seller has given up a large percent of the sale to fees.
These companies with their bait and switch offers are creating uncertainty and lack of trust for the investors. Even though many of us local investors are doing our best to restore neighborhoods, and create value, we now must convince sellers that we are not crooks. Our offers are based on viewing the property and making a knowledgeable fair cash offer.
Very attractive marketing, and a low cost to sell your home, may appear enticing, but upon closer examination, the seller may be better off going with a traditional real estate agent, providing time is not crucial. The pros are that you can get a quick quote for your property sight unseen. The down side comes later. Sure the offer seems fair, but is it real? It is important to remember that some property cannot be sold via traditional real estate agents, due to deferred maintenance or major repairs needing to be made. A local professional home buyer may be the correct solution.
Bottom line is this: Understanding who you are dealing with to buy your property, their expertise, and the ability to close, should be the top priority. Price is important, and usually the deciding factor. Understanding the additional costs of the sale should be completely transparent and taken into account, prior to signing any offer. In other words, No surprises.