What Is An iBuyer, And Should I Use One To Purchase Or Sell A Home?

November 9, 2021
Last updated:
November 24, 2021
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IBuyer companies buy houses from homeowners for cash. You can use one when you sell or purchase a home… but should you? An iBuyer does not offer any financing options or help with the closing process, so there are a lot of cons to using this type of service. In this article, we’ll take a closer look at iBuyers and why they are almost never a good choice for your real estate transaction.

The idea of purchasing a home can be both exciting and overwhelming to someone new to the process. Many people fall prey to the idea that an iBuyer can make your life easier by providing an avenue for you to purchase or sell a property without any hassles.

Of course, if this is your first time hearing the term, then you are more than likely wondering “What is an iBuyer?” Major iBuying companies include Zillow (the largest iBuyer), Offerpad, and Opendoor, so you may have had some exposure to them. Otherwise, you might have heard of iBuyer programs before but aren’t clear what they are and how their process differs from a traditional home sale or purchase.

What Is an iBuyer?

An iBuyer is typically a web-based company that uses technology to make instant cash offers to home sellers, acting as a real estate investor. iBuyers use an automated valuation model (AVM) to power their real-estate investment strategy, making it possible to identify prospects and buy homes quickly. A prime example is Zillow, which offers a convenient way to purchase homes in a free market transaction at a predetermined price.

To better explain the concept, it helps to understand two key terms – appraised value and fair market value — both of which help in determining the worth of a business or real estate property in a free market. The appraised value is an expert’s best estimation of what the property is worth. The fair market value is what the property should sell for under normal circumstances

The automated valuation model analyzes many different data points for a given piece of real estate or property to predict a property’s current or future value. The final result is an estimate of the home’s predicted value on a defined closing date.

The iBuyer method is typically employed to essentially flip a house. However, unlike house flippers on the DIY channel, the iBuyer business model usually doesn’t involve any major repairs or renovations. They take advantage of homeowners desperate to sell, and offer as little as possible so they can turn the home around fast on the open market.

How Can You Sell a Home With an iBuyer?

If you want to sell your home, you can  just go to your chosen iBuyer’s website, put in your address, fill out a questionnaire and wait. About a day later, you will typically get an offer on your home. Be aware that the offer from an iBuyer is usually far less than any appraised value.

If you’re hoping to sell your home and buy a new one near simultaneously, you may be tempted to use an iBuyer as a bridge loan. It does offer a quick and easy way to sell your home, but it also means you will receive a low cash offer, which may not be nearly enough to get you into another home.

Generally, home sellers may be inclined to go this route so that they don’t have to pay for renovation costs, make major repairs, enlist a real estate agent, stage and show the home. Nor do home sellers need to worry about said real estate transaction collapsing because the buyer cannot secure financing.

How Can You Buy a Home With an iBuyer?

If you want to buy a home, all you have to do is find the right property on an iBuyer website, submit your offer, and wait until it is accepted, and this can be an attractive deal on the surface.  You may think it’s a fast easy way top buy a house without dealing with listings and open houses, agents and offers. Unfortunately, there are a lot of cons associated with buying a home from an iBuyer.

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What Are The Drawbacks Of Using An iBuyer?

As a seller, using an iBuyer seems like a great way to move your house quickly and get cash. However, you should know that you may not be able to get an iBuyer to buy your home, or you may receive a far too low offer. Selling through the regular marketplace is a much preferable option.

Remember there are iBuyer fees that you will need to add to your closing costs and other fees associated with buying and selling your home. In many cases these iBuyer fees are higher than standard Realtor commissions paid when selling a home. You should seriously consider working with a real estate professional when you need to sell your home and want to make sure the purchase price or sale price matches your home value, or you can really lose a lot of money selling to an iBuyer.

As a purchaser, a minor disadvantage of trying to buy a home from an iBuyer is that properties sell very quickly under the iBuyer model, which can make it difficult to find a house on your own time frame. This is especially true if you are looking for something very specific because, because even a massive site like Zillow may only have a few of these listings at any given time.

The major downside is that a lot of iBuyers don’t follow best practices when inspecting properties, meaning you could end up buying a house “as-is” and ending up with a lemon. You carry a lot of risk as a buyer when you purchase a home from an iBuyer.

Basically, iBuyers aren’t in the business to make it easy to buy and sell homes. They are in the business of profiting off of people who are desperate. The iBuyer model is to buy homes at well below market value and sell them as quickly as possible for a much higher price.

You should also be aware that the fine print can really get you with an iBuyer home purchase. They charge exorbitant fees that far exceed standard real estate agent costs. Bottom line: it’s better to avoid iBuyers unless you have absolutely no other choice when selling your home, and buying from an iBuyer is almost never a good option.

Side Note – At the time of this blog posting Zillow announced it is no longer buying homes due to a backlog of owned properties that need to be sold.

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Ready To Make A Home Purchase or Sell Your Home?

Are you curious about mortgages or the intricacies of the iBuying process? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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