Image of a hand shaking

iBuyers: New Kid on the Home-Buying-Block

There’s a new kid on the home-buying block - iBuyers. An iBuyer is a real estate company that utilizes technology to buy and sell homes. And while the name iBuyer could be confused with an Apple product, it is meant to be defined as “instant buyer” to illustrate the speed at which these companies navigate the home buying process.

Using an iBuyer is said to alleviate the stress and complexity of the home buying process by offering a more seamless and uncomplicated solution using algorithms and predictive analytics. Or in simpler terms, an iBuyer can use technology to determine a home’s value (and future value) without ever seeing it in person, essentially fast-forwarding through an otherwise lengthy process.

The earliest instance of an iBuyer being used in the market was 2014, but today iBuyers have been making themselves known, and represent nearly 1.6% of the real estate market nationwide and closer to 5% in Atlanta specifically. In fact, homeowners in Atlanta sold the most homes to iBuyers in 2021.

Using an iBuyer as a Prospective Seller

Pros:

  • Convenience & Efficiency
  • iBuyers eliminate the need for showings, handling repairs, etc., allowing sellers to avoid the tediousness of a traditional selling process. Prospective sellers simply input their home address on an iBuyer site and can receive an offer in 24 hours.
  •  Every step of the selling process with an iBuyer is fast and the timeline is flexible. Without a lender the paperwork is minimal, and closings can happen much faster.
  • No Inspections
  • There is no law requiring inspections; iBuyers will account for any repairs needed and deduct those costs from their offer.
  • All Cash Offer
  • Fast, easy, and painless alternative to the selling process.

Cons:

  • Strict Criteria
  • iBuyers can be strict about the homes they buy. Newer, affordable homes that need minimal cosmetic updates usually fit the iBuyer-bill. If a homeowner wishes to sell a unique property that needs more attention and time to sell, a traditional home selling process may work best.
  • No Negotiations
  • An iBuyer has a set price so there are no negotiations involved in any of these technological transactions.
  • Additional Costs
  • Service Fees: These fees vary depending on the market and the chosen iBuyer platform, but they typically range between 5% to 8% of the sale price and can be as high as 15% in some transactions.
  • Opportunity Cost: This is the difference between what the iBuyer offers and what a homeowner could get from selling their home on the open market.
  • Repairs Cost: While homeowners will not be charged for needed repairs, iBuyers will deduct the cost for needed repairs from their offer.

Using an iBuyer as a Prospective Buyer

Pros:

  • Convenience & Efficiency
  • Seamless process uninterrupted by all involved parties (or lack thereof). Showings can be scheduled instantly, and deals can be facilitated within hours.
  • No Additional Costs or Fees
  • iBuyers pay commission to buyer’s agents

Cons:

  • No Negotiations
  • iBuyers are technologically advanced competitors; their technologically programmed intelligence makes them elite investors and master negotiators when it comes to making a profit.
  • No Interaction
  • Dealing directly with a computer would be tough for first-time home buyers as they are unable to view a home more than once. Working with an iBuyer can be a process lacking emotion because the traditional “human/emotional” experience of home buying is eliminated.

iBuyers to Know

What are iBuyers Doing with the Homes They Buy?

An iBuyer buys a home, makes minor repairs as needed, (a fresh coat of paint, new floors, and other cosmetic improvements)  and puts the house back on the market to sell at a higher price. According to DelPrete, the median appreciation for iBuyer transactions, also known as the difference between what they paid and how much they sold a home for, was 8.1% in 2021, a 4.7% rise from 2020.

iBuyers have certain qualifications about the homes they buy; iBuyers don’t buy homes that need more structural updates or renovations. They are “in the market” for affordable homes that need minor cosmetic updates to ensure their streamlined and instantaneous process. As iBuyers continue to grow, they are starting to pay more for houses than ever before; iBuyers have typically bought homes in the $250,000 range, but that number rose to $350,000 in 2021.

How do iBuyers Affect Our Industry?

iBuyers are an entirely new kid on the block in the home buying process. Homeowners are selling their properties to algorithms often before they are even put on the market, making iBuyers a tough (and invisible) competitor.

iBuyers are making it more difficult for homeowners to compete and purchase in the open market. Traditional homebuyers, especially in a more affordable range, are not able to schedule showings before homes are being bought and sold off market. This impacts first-time home buyers tremendously as there is an extremely emotional and complex process required in making the biggest investment of their lives’, and the homes they’re interested in buying are seemingly unattainable when these odds, or algorithms, are stacked against them.

Naturally, the existence of iBuyers affects a real estate agent’s traditional role in each transaction, too. Real estate agents are now being used in an entirely different way: iBuyers utilize real estate agents to refer people to their iBuyer programs.

The Future of iBuyers

As the world of iBuying continues to evolve, there are new companies that are popping up that are trying to level the playing field for home buyers to compete with iBuyers, like EasyKnock and Ribbon. EasyKnock offers different programs to homeowners that, depending on the situation, allows homeowners to remain in their home while utilizing the equity they have built in that home. Similarly, Ribbon offers different services to homebuyers to give them a leg-up against iBuyers. If a homebuyer can’t close on their mortgage in time, instead of losing out on buying their dream home, Ribbon will buy and reserve the home on their behalf.

While these companies can be advantageous in the home-buying-battle, it is important to note that they add more cost to the process for the buyers than a direct purchase from a seller.

However, convenience is invaluable right now. The idea of streamlining the home buying or selling process is a dream to most people, and iBuyers seem to be that “simple” solution for many. And so, in typical Cook & James fashion, we wanted to share more information about how you can navigate your real estate transaction as conveniently as possible. While iBuyers represent a non-traditional and technologically charged alternative to the typical processes, we know that old keys will not open new doors, so we will continue to embrace change and progress across the board.

For more information and to stay informed as the world of real estate continues to evolve, visit cookandjames.com and follow along with us on social media.