If you’ve turned on the tv in the last year or listened to the radio, it’s hard to have missed the relentless ads from real estate companies offering purchase your home as an alternative to listing the home for sale with a Realtor. At least once a month, I get a mailer from one of these companies offering a price range to sell – you probably do as well. In the real estate industry, these companies are dubbed “iBuyers”, with the I standing for Investor as these companies operate like ordinary real estate investors with really deep pockets and millions in marketing dollars.
Their sales pitches are usually the same: bypass the hassle of listing the home for sale, receive a cash offer, close quickly, everyone ends up happy. Well – not quite. The data analyst Collateral Analytics found that selling a home to an iBuyer can cost a Seller as much as 15% of their home’s value. For the Seller of a $300,000 property, 15% would equate to a discount of $45,000. Why are their fees so high?
The study found that the iBuyers were still charging a real estate commission to the Seller anywhere from 6-9.5% (sometimes called Experience fees) which consists of carrying costs while the home is off the market, commissions when the home ultimately sells and the closing costs for transaction as well as 5-9% in repair costs. Most iBuyer properties are repainted and cleaned before returning to the market, and the Seller is bearing that cost as well.
Collateral Analytics studied 6,000 real estate transactions in Charlotte, Phoenix, Atlanta, and Las Vegas from 2016-2019.
Within any real estate transaction, there is the opportunity for hidden costs to creep in due to home inspection repair costs. While not all that common, a pre-sale home inspection reveals that issues that the Buyer’s home inspector may uncover, allow the Seller to address the items before the home hits the market. That way, the Seller can save money by either addressing the items themselves or shopping around for a budget-friendly contractor.
There are transactions where having an investor buyer can be really useful such as a contentious divorce or someone facing foreclosure. However, in a market like Charlotte where homes under $500k are at a premium, giving away 15% of your equity is unnecessary.
Sellers should compare the offer from an iBuyer to those from other Realtors to gauge expense and time required.