The True Cost of iBuying

So, you’ve heard about iBuying, but you don’t know what it is.  We’ll cover the basics here.

iBuyer companies work similarly to house flippers, in that they buy the house below market value and then resell them for a profit. They can make you an offer within minutes without ever having set foot in your home.  If you accept the price, you can close in a matter of days. You might be thinking, “Wow, this is great!”

But, is it really worth it?

Let’s say you purchased your home recently for $300,000 and put 20% down to avoid mortgage insurance. Right away you have $60,000 in equity.  But, uh oh.  Look out. You suddenly find yourself being transferred to another state for work and you want to sell your home fast.

You’ve heard about this iBuying thing, so you decide to look into it.

Since you haven’t been in your home very long, the home value is still the same, $300,000.  You get an offer from an iBuying company of $285,000 which is a 5% discount to fair value. Right up front, you are losing $15,000 on the value of your home.  Many iBuyers also charge a 5% commission which is another $15,000.  Now, we’re up to $30,000 and you have just lost HALF of your equity.  That’s a much higher cost than selling in the open market just for the sake of speed.

There are multiple iBuying companies out there with the average transaction cost anywhere from 7-13% of the sale price of the home. Some companies also deduct for any repairs that need to be made.

The iBuying company has their best interest in mind, not yours, and will not pay a premium price for your home. They need to pay below Fair Market Value (FMV) for your home in order to make a profit. Another factor to consider is that there is no representation on your behalf as you would have with a REALTOR TM.

By contrast, a REALTOR® is going to list your property at or above FMV. REALTORS® have your best interest at heart and they are professional negotiators who understand complex transactions. They are not an impersonal iBuying company.

In the next post, we’ll talk about Flat-Fee real estate and how it works.

If you plan to sell or buy a home, come and talk with us. We'd love to hear from you!

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