True costs of using an ibuyer
May 18, 2021
Here are some things, in our opinion, that you should be aware of before diving into this selling service (and before giving them your information).
1. iBuyers Still Profit When You Decline Their Offer
The homeowner rejects more than 90% of iBuyer offers, yet iBuyers can still profit from declined offers. How do they do it? They sell the homeowners information to an agent that is willing to pay 25% to 35% of whatever commission they earn from the sale and give it back to the iBuyer.
This agreement is made between the agent and the iBuyer before the agent contacts the home seller. While it might be tucked away somewhere in the terms agreement, this referral fee is rarely explained to the seller.
Referral fees leave the home seller at a disadvantage when trying to negotiate a lower listing commission. If the agent has already committed to giving 25% to 35% of whatever they earn back to the iBuyer when you close, there isn't much left for you to negotiate.
If you decline an offer and want to use an agent, be sure to use one that you researched and found on your own, Not an agent that is willing to pay a lot of money for your information.
2. Most Have Stipulations On Which Homes They Will Buy
Most iBuyers only purchase homes within specific markets. They also only buy homes that were built after a particular time frame. You can find the date cut off on most iBuyers FAQ page. In addition to age, most will not purchase homes that sit on more than two acres. They also typically avoid homes in foreclosure or homes that sit within an area that can be challenging to sell (like flood zones).
3. Watch Out For Hidden Fees
Using this service gives you the convenience of selling when you want and not having to list your home, but that convenience comes at a cost. Of those whole sold to an iBuyer, the average paid around 9% of the sales price in fees.
When researching iBuyers, you will notice some claim to have a 5% or 6% fee, but then later, some add on a service charge or convenience fee that could range from 1% to 2.5%. You will also need to consider who is going to pay closing costs. Be sure to read your final offer carefully to ensure you know of all fees and the total cost (loss of equity) when selling to the iBuyer.
4. They Will Negotiate After An Inspection
This one shouldn’t be a surprise, as this happens even when you sell your home the traditional way (with an agent). Post home inspection, the iBuyer will most likely present you with a list of things they need to do to the home before selling it. These could be small deductions like painting or rather extensive and costly repairs. With iBuyers, you typically do not have the option as the home seller to make these repairs independently. Instead, the total cost of the repairs requested from the iBuyer is deducted from their original offer. The repairs are then completed after you move out.
You should be able to walk away from the offer if you chose not to negotiate further. Before doing so, always read your contract to ensure you do not have any penalties or costs incurred by walking away. Remember that cancelling your contact will probably land you into their referral program (see #1).
If convenience is your number one priority, selling to an iBuyer might be the best option for you. As with anything, be sure to review the contract carefully and understand all the fees you incur when choosing this service. Don't forget that they will profit from you, even if you decline their offer.
