It has been known for a while now that there are alternatives to traditional home selling with licensed REALTORS®, and this alternative is known as the “iBuyer”. Here we will discuss what an iBuyer is, the advantages and disadvantages, and the hidden fees associated that just may make you want to come back to tradition.
What is an iBuyer?
An iBuyer is a real estate technology company that provides a streamlined process for home owners to sell their house without traditional hassles of selling. A seller can go online and input information on their home and receive a cash offer within 24-48 hours. They claim there is no need for showings, open houses, uncomfortable negotiations, expensive repairs or stressing about updates (that some home owners cannot afford). All a seller needs to do is input their information into the company’s website, and wait for a response (confirmation they are interested in buying your property and at what price). The price they offer is typically non-negotiable and many past customers have claimed that the offer price is generally 5% below market value. This 5% is the “cost” for convenience, however the loss of profit for the seller doesn’t stop there.
Cost Associated with an iBuyer
It sounds great on the surface, but there are some hefty costs associated with all this convenience. On top of the 5% below market value price for your home, most IBuyers also include a service charge around 7%. Some of the iBuyer’s show a breakdown on their website claiming that the fees associated with traditional home selling are much higher than their service charge (don’t forget your home is also sold at 5% below market value). However, the fees that are demonstrated under traditional home buying are not required fees and ARE negotiable or non-existent in a seller’s market. Agent commissions are still being paid to REALTORS® if you go the traditional selling route, but a lot of the time they are less than the service charge of the IBuyer and don’t forget that traditional agents are getting you MARKET value for your home. Other fees that iBuyer’s claim are part of the traditional route are seller concessions (i.e. closing cost assistance for the buyer) and home ownership costs (floating two mortgages at the same time). Both of these expenses are in no way a requirement for a seller. Closing cost assistance is becoming more and more rare as many properties fall under multiple offer situations, and a buyer requesting closing costs typically isn’t the highest or best offer. Also, a professional Realtor with Dalton Wade can work for you, ensuring there are contingencies in place for your home sale/purchase to ensure you are not floating two mortgages, making the process seamless and less costly to you!
The Numbers – Is The Cost of Convenience Worth It?
Let’s assume you submitted your home for sale to an iBuyer. The iBuyer comes back and gives you an offer of $250,000 (5% below market value). With that offer, you are required to pay their 7.5% service fee (-$18,750). This means you net $231,250 before closing costs. Now let’s assume you use a Dalton Wade agent and get market value for your home: $262,500, and pay the 3% agent fee per side (-$15,750). The traditional route net’s the seller $246,750 before closing costs. Using the traditional route, a seller potentially net’s $15,500 MORE using a Traditional Agent!
These costs are just a general breakdown of the upfront fees associated with selling a home. Both an iBuyer and a Traditional buyer will request home repairs. However, using an as-is contract and going the traditional route, a seller is NOT REQUIRED to make the repairs requested by the buyer. Using an iBuyer, the seller IS REQUIRED a lot of the time to pay for the repairs (out of their proceeds or upfront) otherwise the contract is terminated. Lastly, using both the traditional route or the iBuyer route requires closing costs by the seller which will also eat into the net proceeds.
To recap, if you go the traditional route, the seller can usually get more money for their property, pay less in fees, and walk away with greater net proceeds than using the iBuyer. However, selling traditionally does require home showings, open houses, and is much less convenient than using an iBuyer. The choice is completely up to you, but how much money is convenience truly worth?
Ready to buy or sell with one or our agents to get top dollar for your home? Visit us today! That’s the Dalton Wade Difference.