Thinking of selling your house? There's a new buyer in town, and it's an algorithm.
What are “iBuyers,” exactly, and what do they mean for you? Is it a good idea to take the human element out of selling your home in favor of letting a computer crunch the numbers? Here's everything you need to know.
What Are iBuyers?
iBuyers are real estate companies that rely on public data about real estate markets to make their purchases. Home value estimations are hugely popular on the internet, though it's common knowledge that they can be off by a significant margin.
Valuation errors often occur when there are gaps or mistakes in the records, or when the housing market in your area begins to move at a faster clip. Despite the weaknesses of these online estimates, iBuyers have built their business model around them.
iBuyers use computer models to come up with a price for your home. They make an offer in cash, you choose the closing date, and the sale goes through without anyone from the company ever setting foot in your house. iBuyers take the data and decide what they'll pay, sight unseen. The promise of a fast sale is often enticing to sellers who need to move quickly.
The Drawbacks of Using an iBuyer
Selling to an iBuyer is fast, make no mistake. However, the speed and convenience of the model comes at a cost: namely, a lower sales price and a hefty commission.
The average iBuyer charges somewhere between 6 and 12 percent in commission fees on the sale price of the home. This is higher than—and in some cases, double—the average real estate agent's commission, which hovers around 5 percent. On a $500,000 home, an iBuyer could be charging you $60,000 for the privilege of that fast sale.
The second big drawback comes from the lower sale price. In exchange for a cash sale—as opposed to waiting for your buyer's mortgage to go through—you're very likely to be low-balled on the final price.
One major iBuyer program typically discounts the final sales price by about 10 percent of your home's actual market value. For this reason, many iBuyer offers are rejected by sellers who are in a position to wait for a better return on their investment.
The Advantages of Selling with Real Estate Agents
Like many technology-based companies, iBuyers often promise that their app will do a better job than a human can, thanks to the magic of Big Data. But the bottom line is that an algorithm simply can't understand all the moving parts of a dynamic real estate market.
A local real estate agent knows exactly what buyers are looking for, from the color of the bathroom tile to the distance to the school bus stop. They know how to show your home in its best light, and they can work with you to juggle all the moving parts of the transaction so you come out on top.
For most sellers, working with a real estate agent who understands their goals will lead to getting the best price overall—and that's something you can take to the bank.