The process of buying or selling a home can be lengthy, complicated, expensive, prone to unexpected obstacles, and—above all—stressful. Ask someone who’s done it before and there’s a good chance they’ll say they never want to have to go through it again.
While other industries have been transformed by the proverbial “tech disruption,” change has been slower to come to complex real estate transactions. But a new wave of tech startups called “iBuyers” say they’re trying.
Short for “instant buyers,” iBuyers will purchase your house for a “fair market price” determined by their proprietary algorithm. If you accept, you have certainty the transaction will close, instant access to equity you’ve built up so you can purchase your next home, and a flexible move-out date to make for a seamless move. The iBuyer then sells the home on the open market.
“I was actually very surprised,” says Joey Vernon, who sold her Dallas-area home to Zillow last year. Home sellers quoted in this story were put in contact with Curbed by the iBuyer they sold to. “I was dreading selling the house, with our dogs and all the walk-throughs. It’s a hassle. I sold a house before and it was just a nightmare trying to get it sold.” With Zillow, she says, “There wasn’t any hidden anything. I actually really liked it. The process was simple.”
But because the iBuying concept is new, there are many misconceptions about what iBuyers do, and consumers are often suspicious that the whole thing is a scam. Here, we’ll walk you through the process of selling a house to an iBuyer so you can decide if it’s right for you.
Who are the iBuyers and where do they operate?
The concept of iBuying was pioneered by Softbank-backed startup Opendoor in 2014. A rival startup called Offerpad launched soon after. The concept caught on enough that other real estate companies launched their own iBuyer programs, most notably Zillow, but Redfin and Keller Williams have also launched iBuyer programs on a smaller scale.
Because they need a lot of data to generate accurate pricing, iBuyers look to buy houses that fit within what they call a “buy box.” These are generally moderately priced suburban homes, ranging from $150,000 to $500,000, depending on the iBuyer and the city.
Not every iBuyer is in every city, and cities with irregular or expensive housing like New York City have not attracted iBuyers because homes there are harder to price via an algorithm. But large markets with a lot of moderately priced suburban single-family homes are bread and butter for iBuyers. Here’s a map where each iBuyer currently operates.
How do I start the process with an iBuyer?
If you want to see what an iBuyer will offer for your home, simply go to one of their websites. Enter your address and some basic information about your house, such as how many bedrooms and bathrooms there are, whether appliances have been updated, any recent renovations done on it, and so on.
Within a couple of days—and sometimes in just 24 hours—the iBuyer will contact you either by phone or email with an offer for your house. They’ll want to know when you’re hoping to move and answer any questions you have about the offer.
If the offer is to your liking, you’ll schedule a time at your convenience for someone from the iBuyer to come to your house and assess it. This is just to make sure the house is as you described it, and it takes between 90 minutes to two hours.
This process may turn up a maintenance issue that you’ll be given the choice to either repair yourself or have the iBuyer do. Depending on the repair, it’s worth checking with your home insurer to see if they’ll cover the cost. If you choose to have the iBuyer do the repair, it can lead to a reduction in the offer.
At this point you’ll be given a final offer. You’ll have a time window to accept the offer that can range from five days to a few weeks, depending on the iBuyer.
You’ve decided to accept the offer. Now what?
Once you accept the iBuyer’s offer, you’ll choose a closing date within 60 to 90 days, depending on the iBuyer. Note that this date is flexible, so if it turns out you need to move it, the iBuyer will accommodate and amend it, within their terms.
Jeff Weaver sold his home in the Dallas suburb of Garland, Texas, to Zillow after deciding to move to south Texas, but hit a snag in the title process. Because of a previous marriage that was never officially annulled, Weaver had to delay his closing date while he worked out the details with his former spouse, who had moved to Mexico, adding time and complication to the process.
Zillow was flexible, however, so he finalized the divorce, got the title cleared, and didn’t have to start all over because of the delay.
“[Zillow] kept pushing the date back for us,” Weaver said. “If they held us to the deadline we wouldn’t have been able to close. This was the best choice I ever made.”
If there’s a serious snag in your move and you can’t make it out of your current house within the allotted 60 to 90 days, most iBuyers allow you to rent the house back from them for any overage time, according to the companies and their customers.
But one of the major advantages of selling to an iBuyer is what you don’t have to do. You don’t have to show the house to potential buyers or even clean the house on the way out. The iBuyer takes care of all of that because they’ll be doing some light renovations on the house after you move out anyway. It’s also important to note that you can back out of the sale at any point until closing without paying a fee.
You also get added certainty that the deal is going to close. You’re not having to deal with someone else’s closing date, or the possibility that they’ll back out at the last second.
What’s the catch? Aren’t I leaving money on the table by selling to an iBuyer?
The catch is this: You’re going to pay for this convenience. When you sell to an iBuyer, you aren’t putting your home on the market and letting competitors bid up the price, so it’s possible you’ll get less money for the house than if you went through a traditional realtor.
You’re also likely going to pay more in transaction costs than if you went through a traditional realtor. A realtor will charge about 6 percent, while iBuyers charge 7.5 percent or more. While 7.5 percent is the standard fee according to their websites, the exact fee will be communicated to you during the process.
But iBuyers aren’t traditional home flippers who dramatically lowball the seller, then do a ton of renovations to sell the house for a premium. In fact, iBuyers make the vast majority of their money from transaction fees, according to Stephen Kim of the investment advisory firm Evercore. They sell the houses they buy on the open market, so it’s possible they’ll sell the house at a premium to what they bought it, but usually not by much.
Real estate tech consultant Mike DelPrete analyzed 20,000 Opendoor and Zillow transactions from 2018 and 2019 and concluded that iBuyers sell houses for an estimated 1.2 to 1.4 percent more than what they buy them for, after accounting for inflation and the added value of any renovations. For a $270,000 house, this means you’d leave $3,240 to $3,780 on the table by not selling on the open market, plus the added transaction fee, which would add another $4,150 over a traditional realtor’s fee if you’re given a 7.5 percent rate.
People who have sold to iBuyers acknowledge they paid a little more, but they did it anyway because they decided it was worth it to avoid the hassle of aligning two closing dates (if you’re buying a new home after selling your old one), showing the house to potential buyers, and so on. Whether it’s worth paying extra for this convenience is for you to decide.
What else do iBuyers offer?
Most iBuyers offer other services related to buying and selling a home, most notably mortgage and title services. However, these are still new offerings that aren’t available in every city where iBuyers operate, so you’ll have to ask if those options are available in your area.
Most iBuyers also have partnerships with homebuilders that provide added convenience if you’re buying a brand new home or building a custom home. Ask the company building your home if this is an option for you. If you sell to an iBuyer through a homebuilder partnership, your closing date can be as far out as nine months from when you accept an offer.
Rather than making major renovations to his current house, Carl Moccia decided to build a brand-new home in the Houston area to better accommodate his daughter’s special needs. He says the builder referred him to Opendoor, but he was highly skeptical of iBuyers, thinking it was a home-flipping scam.
But the offer he received was right at what his realtor believed he would get for the house on the open market and after some more research, decided to sell through the homebuilder program.
“One of the biggest advantages I found was the fact that they’re super flexible with the close date,” Moccia says. “When you’re building [a new house], obviously that’s very much a moving target. They were like ‘Yeah, just let us know, go on to your portal and let us know when you want to close.’ That changed one or two times without a hiccup.”
What should I expect if I’m buying a house from an iBuyer?
Buying a house from Opendoor or Zillow won’t be much different from buying through traditional channels. They’ll be accepting bids and if yours turns out to be the best offer, they’ll take it.
Still, there is some advantage to buying from an iBuyer. You have certainty that the deal is going to close, and you’ll have a flexible move-in date. The company isn’t going to have an emotional attachment to the house. So when they say they’re looking to sell, they’re hoping to do it as soon as possible.
iBuyers do renovate houses before putting them on the market, but it’s more no-frills maintenance than a total overhaul. They’ll make basic fixes and clean the house, but they’re not going to put in fancy flooring or add a swimming pool.
Selling to an iBuyer isn’t for everyone. But it might be the right choice in a situation where you need to move as soon as possible to accommodate a new job, a new child, or anything else that might necessitate a speedy sale. And if you simply don’t want to deal with all the hassles selling a house and are willing to pay to avoid them, it’s the service you’re looking for.