As we discussed in my last introduction to I-Buyers like Open Door and Zillow, an iBuyer is a company that functions like a Corporate Relocation Company. They buy your house with you having to list it for sale. However,all costs and fees are paid directly by the seller to the company.
Working with an iBuyer can theoretically provide a seller with a predictable timeline. But, it’s important to point out all the hidden“costs” associated with that “predictability”.
One attractive claim that iBuyers make is their ability to do away with the traditional real estate commissions when listing with a Denver Realtor®.
OpenDoor started their company in Phoenix in 2014. That’s when the iBuyer trend started. Since then, they have become the leader in the iBuyer sector. They claim to complete the transaction for an average service charge around 6.4%. However, that pesky fine print reads: “Charge varies for each property and can range from 6-14%.”
Furthermore, Collateral Analytics found that iBuyers charge sellers a “convenience fee” of 6% to 9.5%. Some also charge the seller for fees typically paid by buyers at closing. That can add another 1% or more. The total direct costs, ignoring repair credits, will run 7% to 10% for an iBuyer. On the other hand, there is the typical 5% to 7% combined seller and buyer costs with a traditional broker”. And, that’s a more inclusive fee.
What Are I-Buyer Costs in Denver?
“Repair credits,” required to be done by the Seller are also often overlooked. iBuyers will request a list of mandatory repairs and attach a hefty dollar amount to get the work done. This money is paid by the seller and typically in the form of a price reduction or rebate to the Buyer. So, a list of repairs and updates becomes another hidden cost.
The iBuyer attempts to leverage the seller’s equity in order to perform repairs. By doing so they increase the home’s value and then sell the property back to the public at a profit. Sellers can expect to trade their home’s equity for a quick closing. Although Market Watch believes that “iBuyer offers are often also known as instant offers,”they are anything but that . They are contingent on a home inspection. Some observers believe that squeezes more profit from sellers.
You Pay for the Risk
In addition to repair costs, iBuyers typically add an extra carrying cost for just holding the property after closing. Collateral Analytics indicates that the “results suggest that sellers are paying not just the difference in fees of 2% to 5% more than with traditional agencies, and a generous repair allowance, but another 3% to 5% or more to compensate the iBuyer for liquidity risks and carrying costs. The typical (Total) cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor.
Some iBuyers claim that they can cost less than listing with a Denver Realtor®. In reality, they charge the seller for risks and utilize the seller’s equity for repairs. Housing Wire found that “sellers end up paying 13% to 15% more when they work with an iBuyer” as a result of these charges and reductions.
What will an iBuyer Actually Pay?
So far, we have discussed some of the pros and cons of accepting an iBuyer offer. But, what kind of offers are iBuyers actually making? Are their appraisals accurate or below market? Please join us next time as we explore how iBuyer offers have often fallen short of market potential!
Are you thinking about getting an i-Buyer offer soon. Contact me and we can discuss some other potential pitfalls before you get your offer. I’d love to hear from you. Just use the form below and I will get in touch with you.