Instant offers work well for sellers who want quick closings with minimal preparation, but a study by Collateral Analytics found that homeowners make less money than selling their home on the open market – even after backing out a real estate agent’s commission.

 

NEW YORK – iBuyers – companies that offer homeowners cash upfront for their home with a promise that owners can just walk away – are a relatively new phenomena with new players entering the business every month.

OpenDoor is the largest iBuyer, but the instant-offer market already has other firms involved, such as OfferPad, Zillow Offers, Redfin, Knock, Realogy CataLIST, Perch, Keller Offers and may more.

The real estate industry has been debating the pros and cons of iBuyers, both for the industry and for home sellers, and a study authored by Dr. Michael Sklarz and Dr. Norman Miller with Collateral Analytics took a closer look at the issue in their study, “iBuyers: A new choice for home sellers but at what cost?

“iBuyers offer quicker closings for sellers who would like to avoid the uncertainty of knowing when and if their home will sell,” the authors say in the study “For motivated sellers who want a predictable sale date and need to move … there is no question that iBuyers have provided a welcome alternative to traditional brokerage.”

The purpose of their study is to “address the question ‘Who are the iBuyers, how do they make money, what risks do they face, and what are the benefits for sellers?’”

Overall, the study found that iBuyers cost homeowners 13-15% of their home’s value. While taking a home to market comes at a cost too – generally a real estate commission – it was better to go with an agent if the seller’s goal is to maximize profit rather than move quickly.

The authors concluded that iBuyer sellers “are paying not just the difference in fees of 2% to 5% more than with traditional agencies, and a generous repair allowance, but another 3% to 5% or more to compensate the iBuyer for liquidity risks and carrying costs. In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor.”

Noting that some buyers want a quick-and-easy sale, the authors believe there’s a place for iBuyers in the market, but “what percentage of the market will want this service remains to be seen.”

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