Real estate professionals are painfully aware of the fact that technology is disrupting the industry. The most successful realtors and agents are finding ways to incorporate technology into their practices to increase their efficiency and draw in more clients, but the rising popularity of iBuying platforms has led to a whole new wave of trepidation. Many of you may already be aware of iBuyers and what they have to offer clients. But for those who want to understand what all the hoopla is about, here’s what you should know.
What Are iBuyers?
iBuyers are real estate companies that buy and sell properties through technology. They emerged on the scene after sensing a need within the industry. Noticing how complicated and drawn-out real estate transactions tend to be, companies like Opendoor, Offerpad, Knock, RedfinNow and Zillow decided to simplify the process.
These companies pride themselves on offering convenient, seamless transactions that improve consumers’ experiences buying and selling homes. Theoretically, iBuyers cut out the need for a realtor or agent by buying homes directly from homeowners and selling them directly to home buyers.
Unlike house flippers, iBuyers don’t seek out distressed properties or those that require a lot of work. Instead, iBuyers target homes that are already in good condition and only need minimal work. iBuyers want to unload properties quickly so their business models are centered around high volume but low margins.
iBuyers aren’t active in all U.S. markets, but they’ve been steadily expanding. They seem to choose areas where the market is highly active and filled with more homogenous properties in the $250,000 range.
How Does The iBuying Process Work For Homeowners?
Although there are some differences between companies (for instance, Knock’s platform focuses on home trading and enables homeowners to sell their existing home and buy a new one simultaneously), they tend to follow the same procedures.
For homeowners, the process begins by going online and requesting an offer. This first step merely requires the homeowner to fill out some basic information about their home including the property’s features and recent upgrades. If the property meets the company’s criteria, the iBuyer takes the information the homeowner uploaded about the home and uses Automated Valuation Models (AVMs) to estimate the property’s value.
The iBuyer uses the estimate to make an all-cash offer usually within 24 – 48 hours of receiving the request. With the offer, the iBuyer includes a breakdown to ensure the homeowner understands the fees involved and knows what the net proceeds of the sale will be. Once the iBuyer makes the offer, the homeowner has 5 – 7 days to accept it. Because iBuyers allege that they only make fair market offers on properties, they don’t negotiate their offers. That said, iBuyers tend to be willing to reassess offers when homeowners feel that they missed something in their evaluation.
After a homeowner accepts an offer, the iBuyer will set up and pay for a home inspection. If the inspector finds that the home needs certain repairs, the iBuyer will assess the cost of the repairs and give the homeowner the option of making the repairs or deducting the cost from the sale price.
As soon as the repairs have been made or the new price has been accepted, the homeowner chooses a closing date. While there’s a slight difference between companies, iBuyers tend to allow homeowners to close 7 – 60 days after signing.
How Does The iBuying Process Work For Home Buyers?
For home buyers, the process begins by visiting the iBuyer’s website or downloading the company’s app to browse the homes for sale. The listings include property details, descriptions and photographs. Opendoor even includes market analysis graphs that depict how the properties’ prices and days on the market compare to other properties in the area.
After finding a home, the homebuyer can self-tour the property without making an appointment. Properties are available for tours every day for over 12 hours a day.
The home buyer must be prequalified for a loan in order to make an offer, but once prequalified they can submit an offer online or from the app. As soon as an offer has been received, the iBuyer assigns an agent to guide the home buyer through the process (unless the home buyer chooses to find another agent).
The iBuyer then reviews the offer and any other offers on the property. If the iBuyer rejects the offer, the home buyer receives feedback about how to improve future offers. If the iBuyer accepts it, the home buyer’s assigned or personal agent drafts a purchasing agreement.
The iBuyer allows the home buyer to choose a closing date that’s 10 – 60 days after signing. The home buyer is responsible for scheduling and paying for an inspection and appraisal of the property. If there are any safety issues with the home, the home buyer can request repairs. If the iBuyer accepts repair requests, the iBuyer offers to either make the repairs or deduct the cost from the purchase price.
So What Does This Mean For Real Estate Agents?
Although iBuying platforms enable homeowners and home buyers to complete transactions without using a traditional real estate agent, they also provide individuals with the option of working with one. While homeowners usually work directly with iBuyers, it’s quite common for home buyers to use their own agent to represent them.
For agents, the process is very similar to any other real estate transaction. Listing agents can contact iBuyers directly to request an offer on their clients’ homes while buyers’ agents can visit iBuyer homes with their clients and submit offers on their behalf.
Moreover, some iBuyers, like Opendoor, Offerpad and Zillow, have agent partnership programs and provide participating agents with leads. Opendoor will even give agents a 1% fee if they refer unrepresented sellers.
So while there’s no doubt that iBuyers are changing elements of the industry, that doesn’t mean there isn’t a place for traditional agents within it. Some real estate agents have started to view working with iBuyers as an extension of their professional role.
Melissa Zavala, the broker of Broadpoint Properties in California’s North San Diego County, explains, “We are a consumer-based industry, and if we want to be successful, then we need to figure out a way to work with consumers—particularly iBuyers. This may mean that we need to advertise or list our properties on iBuyer sites, and that’s ok. Our job is to represent our clients in the best way possible and also to offer their homes to the widest range of potential buyers possible. This means embracing iBuying.”
Although it’s crucial to remember that real estate agents must always have their clients’ best interests at heart, that doesn’t necessarily mean you have to team up with iBuyers in order to do your job well.
What Can You Do To Contend With iBuyers?
If you’re going to compete with iBuyers, you need to begin by adapting. For Josalyn Cano, a licensed REALTOR® in Texas, that means putting your concerns aside and concentrating on improving your business.
“We need to focus on increasing the professionalism of ourselves and our industry. That means better and more in-depth education (both in the beginning and with continued education), higher standards for agents, brokers and education providers,” Cano explains.
Regardless of the disruptor (be it iBuyers or consumer-accessible online listings like Zillow, Trulia and Streeteasy), nothing can take the place of a truly knowledgeable real estate agent. However, it’s important that an agent’s knowledge extends beyond the industry and market. Just as you’ve used your knowledge of competing listings to win a sale or of competing agents to win a client, you must use your knowledge of iBuyers to win more business.
Know Who You’re Up Against
If you’ve read through the previous sections of this article, you have a basic understanding of what iBuyers do and how they do it. However, if you want to ensure that you’re not losing out to iBuyers, you’re going to have to go deeper.
“I think the biggest day-to-day change agents will have to make is having an answer for why someone should sell with them rather than to an iBuyer. Every agent should have that answer rehearsed,” says James McGrath, licensed real estate broker and co-founder of Yoreevo.
McGrath believes being well-informed about iBuyers is the secret to staying successful in the industry. He explains, “You can’t combat something you don’t understand.”
In order to persuade potential clients that they should work with you instead of working directly with an iBuyer, you need to understand both the advantages and drawbacks of selling to and buying from them. The following sections will give you a better idea of what you’re up against and help you answer the inevitable question: Why should I work with you?
What’s Attractive About The iBuying Platform?
The advantages of iBuyers are convenience, speed and security. When selling to an iBuyer, homeowners don’t have to worry about cleaning, staging, marketing or showing their home because the iBuyer handles all of that after sellers have moved out. iBuyers make offers online without third parties and within 2 days of a request. This way homeowners don’t experience those nail-biting moments when it seems like their home has just been sitting on the market growing stale. Furthermore, homeowners don’t need to stress about buyer contingencies or offers that may fall through. Closings are fast and homeowners are in control of choosing when they want to close. Offerpad will even pay for professional movers when sellers relocate locally.
When purchasing from an iBuyer, home buyers can view a property immediately after seeing the listing without having to set up an appointment. Buyers are thus able to view homes on a whim at different times of the day and in varied weather conditions. And they have the added benefit of not having to deal with the hassle of coordinating with sellers’ or agents’ schedules. With Opendoor, home buyers also don’t have to agonize over buyer’s remorse. If they have any regrets about their purchase, the company has a 90-day buyback guarantee (though it’s subject to a 3% fee).
What’s Misleading About The iBuying Platform?
For homeowners, the idea of selling to an iBuyer may sound like a dream come true: Offers are all-cash and instantaneous, closings are guaranteed but flexible and agents are seemingly unnecessary. As a result, there are no commissions to pay out in the end. However, it turns out that many of these elements are far more fantastical than homeowners realize.
To begin with, the offer is based on evaluations that iBuyers do through AVMs. iBuyers insist that these calculations provide them with fair market values of homes. Yet, however low their margins are, iBuyers are still investors (and professionals at that). They’re out to make a profit, which is why their offers are lower and their negotiations are nonexistent.
According to Zavala, “There have been several studies that have shown that people who sell without the assistance of a REALTOR® sell for an average of $47K less. Some of these platforms do offer to sell your home for a nominal fee, but they also make an offer which is lower than what the property might garner when listed on MLS.”
iBuyers may allow homeowners to choose their closing dates, but homeowners still have to pay closing costs and either make or pay for any repairs to the home. And while the thought of not having to pay agent commissions may make homeowners giddy, iBuyers still charge homeowners service fees. These service fees are 6% – 8% on average but can run as high as 14%, so the homeowner ends up paying the same amount as an agent’s commission or more. When iBuyers, like Opendoor, say that homeowners pay far more for traditional sales, they’re assuming all homeowners also pay for seller concessions and the cost of owning two homes at once. So iBuyers aren’t just offering homeowners convenience and speed, they’re making them pay for it.
As for home buyers, the drawbacks are more apparent, which is why more buyers choose to work with personal agents when buying from iBuyers. The knowledge, experience and resources agents have are invaluable when it comes to selecting a property, determining an offer price and negotiating a counteroffer. iBuyers are expert investors, so home buyers are always going to be at a disadvantage when buying directly.
As Cano explains it, “Typically they are not educated in the details of buying/selling homes, nor familiar with laws and market trends. The public generally relies on third party websites for information, and that information may be inaccurate and/or incomplete. With anything, it’s very different looking from the outside versus actually being in it.”
Why Shouldn’t You Fear iBuyers?
There will always be some homeowners and home buyers who need to act with urgency and are willing to pay more as a result. However, the vast majority still want to make sure they’re getting the highest price when selling their homes and the lowest price when buying them. They really want to ensure they’re making informed decisions and not getting taken advantage of.
Many realtors and agents who’ve worked with these tech platforms report that any fears they had about iBuyers subsided after working with them. Eve Henry, an accredited luxury home specialist and owner of Eve Henry Homes, explains, “I’ve done several transactions with these companies, and when I see the lack of service, industry knowledge, local market knowledge and care, I am not concerned at all. We are helping people sell their most valuable asset.”
iBuying platforms may seem like the bee’s knees right now, but novelty wears off. As time passes, homeowners and home buyers will realize it’s always risky to leave their most valuable assets in the hands of a company that intends to profit off it. But until then, you can explain the risks to your potential clients and the rewards they’ll reap by working with you.
Remember, the benefits of working with you go beyond your expertise. iBuyers are self-interested, but good agents are advocates for their clients. As Maria Dininger, a real estate agent with F.C. Tucker Company, Inc. puts it, “It is often overlooked how much power the consumers actually have when they do use an agent. As an agent, our job is to work for the buyer or seller, and with each client, our reputation is on the line. Unhappy clients do not help generate new business. We have absolutely nothing to gain from not getting our clients the best deal possible, and we have everything to lose.”
iBuyers may be propelling the real estate industry in a new direction, but this isn’t the first time that an agent’s worth has been called into question. Your value stems from your expertise and the personal relationships that you’re able to forge with your clients. So if you continue to increase your knowledge and make sure you’re always available for clients, you’ll have nothing to sweat when it comes to iBuyers.
Have you dealt with iBuyers recently? If so, we want to hear about your experiences. Share your thoughts with us in the comments.
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