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What Is an iBuyer? How iBuying Works
Homeowners who want to sell quickly and skip the hassle of showings, repairs and wading through a lengthy closing can speed up the process by using an iBuyer. These speedy sale platforms — the "i" stands for instant — are online tech companies that purchase homes from sellers directly, without any third-party involvement.
Key Takeaways
- ✓iBuyers are online companies that buy homes directly from the owner, typically in a quick all-cash transaction.
- ✓Selling to an iBuyer speeds up the home-sale process considerably, making it a good choice if you're in a rush or need the cash fast.
- ✓However, they usually offer a much lower price for your home than you might make in a traditional home sale.
What Is iBuying?
The iBuying approach to selling a house has roots that predate the internet. Years before real estate websites came along, local companies would put up signs around town offering to pay cash for homes — they'd then flip the properties for a higher price, making a tidy profit. Today these companies can be easily found online, following the same general approach: making quick cash offers for homes and reselling them.
"The iBuyer is typically a company whose business model is to buy properties from homeowners, do minor, usually cosmetic repairs, and then sell at a profit. For the home seller, the benefits are speed — the transaction typically happens very quickly once the offer has been accepted — and certainty, as the deal closes immediately."
— Rick Sharga, Founder and CEO of CJ Patrick Company
Popular iBuyer Companies
While iBuying grew amid the highly competitive post-pandemic housing market, it has receded since and represents a very small share of the overall real estate market. According to data from CoreLogic, iBuyers accounted for less than 0.5 percent of all home purchases in 2023, buying approximately 1,000 homes per month. In 2021 and 2022, that number ranged as high as 9,000 homes per month. Historically, just four companies have accounted for the lion's share of iBuying business: Opendoor, Offerpad, Redfin and Zillow. However, Redfin and Zillow have since bowed out of this sector. Other popular companies offering iBuyer-like services include Clever, HomeLight, Orchard and Knock.
How iBuyer Companies Work
The iBuying process itself is very straightforward. In most cases, a seller provides some basic information about their home, or sometimes even just a street address, and within a short period of time, the iBuyer makes an offer — sight unseen. These companies use algorithms to base their valuations on a property, sometimes making a cash offer within 24 to 48 hours.
"Keep in mind iBuyers are not going to pay premium prices for homes, so the offer will most likely be low."
— Ralph DiBugnara, President of Home QualifiedIf any unexpected or costly issues are discovered during the in-person evaluation after the seller accepts an offer, that will likely impact the initial offer.
"It could cause them to lower the offer, or cancel it."
— Ralph DiBugnara, President of Home QualifiediBuyers vs. Other Homebuying Companies
If you want to sell your home fast but are unsure whether iBuyers are the best approach, there's another option: companies that proclaim, "we buy houses." Similar to iBuyers, these operations will make a quick, all-cash offer for your home and can close the deal very quickly. Unlike most iBuyers, though, cash-homebuying companies will typically purchase homes as-is, meaning you won't need to do any sprucing up or make any repairs at all.
iBuying Pros & Cons
iBuying Pros
✅ More Certainty
In addition to closing more quickly than a typical transaction, there are fewer uncertainties associated with iBuying — no showings, no open houses and fewer potential contingencies to deal with.
✅ No Financing Contingency
Selling to an iBuying company means an all-cash deal that is not contingent on a buyer successfully securing financing. This eliminates the waiting time of the underwriting process.
✅ Greater Efficiency
In these transactions, sellers deal directly with just the one company throughout. The speed with which the deal goes through means the seller gets their money that much faster.
iBuying Cons
⚠️ Lower Profit
A seller will net less money when working with an iBuyer than they likely would if selling the traditional way. iBuyers can charge fees that amount to 6 to 8 percent of the home's purchase price, on top of a lower offer price.
⚠️ More Selectiveness
iBuyers don't operate everywhere, and even if a company does buy homes in your area, your home may not qualify — they tend to have very specific criteria for what types of properties they are looking for.
⚠️ Less Personal Attention
In iBuying, much of the process is done online with very little human contact. Sellers typically get less personal service than they would with a traditional sale.
Is Selling My House to an iBuyer Worth It?
Selling your home this way may be worth it if you have to relocate quickly, need the money fast, or don't want to deal with the hassle of showings and a lengthy closing process. However, if your main goal is to earn top dollar for your property, iBuyers are not the best choice. If getting the best possible price is more important to you than speed or convenience, the best option is selling the traditional way with the help of a real estate agent who knows your local market well.
Key Takeaway
iBuyers offer speed and certainty — but at a cost. If you need to sell fast, they can be a smart option. If maximizing your sale price is the priority, the traditional route with a knowledgeable agent will almost always yield better results.
Originally published on Bankrate by Mia Taylor and Michele Petry, November 19, 2024.
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