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Should You Sell Your House to Zillow?

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Happy Friday!

It’s no secret- we are living in the era of big tech and big data. We use technology to order and pick up our groceries, see who is at the front door, cars are just about to drive themselves, and most of us are uber connected via social media. Of course, big tech companies want to be involved in real estate, as well!

Enter the iBuyer. “What is an iBuyer?” you might ask.

An iBuyer is a real estate company or investor who is using automated valuation models to make offers on homes, usually sight unseen. They offer quick closings and the promise of ease. The biggest names in the iBuyer biz right now are Zillow and Redfin, but others are popping up all the time.

So what should home sellers know about iBuyers? And what are the pros and cons of selling to an iBuyer?

The thing to know about iBuyers is these investors and companies are purchasing real estate with the intention of flipping it. This is not the typical real estate buyer who is buying a home to live in it as their primary residence for years and years. iBuyers are hoping to purchase real estate, do some minimal upgrades, and quickly sell it for a profit. As such, sellers should know iBuyers will likely be approaching the sale with the intent of purchasing their home for less than the market value.

iBuyers are moving quickly and can offer fast closings. We see this as the biggest possible advantage to consumers.

If home sellers need to offload their home quickly, then considering an iBuyer offer may make sense. Consumers won’t need to prep their home for sale, stage it, clean it, do showings, have photos taken, or do any of the legwork that comes along with preparing a home for sale.

However, this ease and quickness comes with a price. This article from Forbes cites that “According to research from real estate data firm Collateral Analytics, iBuyer options cost more in fees and result in a lower-priced sale than properties sold by traditional agents. In all, the report shows that iBuyers cost home sellers about 13% to 15% of a home’s sale price, while agents cost just 5% to 7%. That’s a difference of up to $20,000 on a $200,000 home.”

While it’s difficult to find the costs and fees outlined by iBuyers online, it sounds as though iBuyers are charging more in fees and asking sellers for larger cash concessions due to inspection issues than sellers in our area would typically incur by selling in the more traditional manner.

What are the pros and cons of selling your home to an iBuyer?

Pros:

-Homeowners won’t have the hassle of doing showings or prepping their home for sale.

-The timeline for sales will be set. Once a seller has accepted an offer, the deal is done.

-Home seller won’t need to make repairs to their home, but rather can give iBuyers cash concessions for inspection issues.

Cons:

– The iBuyer model likely won’t work as well in a highly varied markets like Boulder and Denver where the price of your home can vary by tens, if not hundreds of thousands of dollars, depending what side of the street your home might be on. The iBuyer model will probably work better in areas like Phoenix or Las Vegas where homes are all very similar and sell for similar prices.

-Offers from iBuyers probably won’t net sellers the most money as the fees to sell are higher than the traditional real estate model.

-Sellers will have less assistance and guidance through the home sale process which can at times be complex and emotional. Seller won’t have the fiduciary relationship with an agent to help them through the process.

-As industry professionals, we are also somewhat concerned about this model and what happens to real estate markets where prices may drop and iBuyers will be holding the keys to hundreds of properties. If iBuyers have to offload many properties at a time due to their model not being profitable, could that impact some real estate markets in a dramatic way? It seems like only time will tell.

If you are curious about this trend, here is some more reading on iBuyers:

From Forbes: iBuyers: Is the Convenience Worth the Cost?

From Housing Wire: With iBuyers Sellers Pay a Price for Convenience

As always, don’t hesitate to reach out with questions. Until next time!

Allison and Ken