“Instant offer” or iBuyer programs – that are grabbing so much attention in the media – are based on the concept of a company buying a home directly from a home seller with a cash offer often without having to clean or stage your home. As I describe in Part 1 of this article, this concept is not new, as similar programs have been offered in the past. However, programs today are now backed by groups of investors and are rolled out on the Internet, so they are being implemented on a much larger scale. The attraction of these programs is the convenience of selling your home quickly through a simpler process without the usual issues of showing and staging the home. Yet as with anything else – like trading in your car for a new one – convenience comes at a cost. This is because when you list your home with a Realtor®, your home will be exposed to the open market and your home will sell for and net more for you than selling it to an iBuyer at a wholesale price.
Who is offering iBuyer programs?
iBuyer programs are currently being offered by companies such as Zillow, OfferPad, and Opendoor. Other companies such as Berkshire Hathaway, Realogy, and Keller Williams are jumping on the iBuyer bandwagon as well.
Where are these programs being offered?
All of the companies providing “instant offer” or iBuyer programs initially tested out the concept in select markets and have expanded to most major markets.
In many cases, there is a list of requirements a home needs to meet in order to qualify for the iBuyer purchase, such as age and maximum price range of the home. In the Boulder area, due to the age of our housing stock, many homes are eliminated from iBuyer program eligibility simply because they are too old. Also, most eligible homes have a maximum purchase price which is considerably lower than our average home price in Boulder. A newer home in Longmont under $600,000, for example, is much more likely to be an iBuyer candidate than a 5,000 square foot University Hill home in Boulder.
How does a home seller get an iBuyer offer?
On any of the “instant offer” or iBuyer websites, a prospective home seller can find an application and enter in the requested data about the home, such as number of bedrooms and bathrooms, square footage, renovations, plus upload photos of the home. Once the company receives the information, the application is reviewed, and an offer is made to the applicant. Merely completing the application does not commit the home seller to agreeing to the amount to being offered. The offer will likely include the opportunity for the iBuyer company to carry out an inspection to determine if any adjustments to the offer needs to be made. The home seller can then accept or reject the offer and agree on a closing time.
If you are a prospective home seller, the thing to keep in mind when you are reviewing an offer is that none of the iBuyer contracts I have seen use the standard Colorado Real Estate Commission approved contract to buy and sell. What this means is that the contract has been prepared by an attorney representing the iBuyer company. It would be prudent to have your own attorney, familiar with iBuying contracts, to review the document before you sign it.
If you want to review a couple of iBuyer offers and compare them to offers you would get when using a Realtor or real estate agent, you can go to the Zavvie Offer Optimizer at zavvie.com. (As a side note, I have to laugh as I’m typing this article. I have never added so many new words, like Zavvie, to my dictionary.) Zavvie allows you to compare three offers: one from Zillow, one from Opendoor, and one when a real estate agent is assisting the sale.
What are the costs of obtaining an iBuyer offer?
This is where you want to review your documents carefully. Look first at the initial offer price, subtract any fees the iBuyer company is charging, less any allowance for repairs. In most cases, you won’t know the expense figure for repairs until an inspection is performed. Their cost for repairs may be more than what you would pay for a contractor.
One of the questions I have had many people ask is, “Does the offer from Zillow change my Zestimate?” From what I can tell, Zillow says no. If you get an offer from Zillow, check your Zestimate later and confirm this.
Once an iBuyer company owns a home, what happens?
The home is typically placed on the market with a real estate agent who partners with the iBuyer company. It is placed on the open market for sale to the buying public.
Overall, if market conditions allow the iBuyer company to make a profit, the iBuyer concept will continue in that market. If market conditions hinder profits, then the iBuyer company will either need to lower their offers or stop offering the program.
Ripple effects of iBuyer programs
There are already a couple of practical issues emerging when it comes to iBuyer programs. The first is that when the iBuyer company bought a home sold at a lower price, it is being used as a comparable for other homeowners trying to get their homes appraised on open market sales. The appraisal industry will have to decide if the comparable sale will be considered a distressed sale and not used in an appraisal, or if an adjustment can be made. The second issue is the effect of iBuyer closed sales on assessments for property tax. The assessor, like the appraisers, will need to decide how to treat those sales.
The real estate industry is changing rapidly. Be sure to consult your Realtor to discuss the advantages and disadvantages of the “instant offer” or iBuyer process.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.