If you own a home, you own an asset. In fact, it’s probably the largest asset you possess, which typically means that if you want to change homes you’ll need to sell your current house. After all, most of your cash is probably locked up in home equity, and your only options for accessing that are to borrow against it or sell.
But selling a house can be a lengthy process. If you desperately need to get your money out of a home—whether it’s to fund a new home purchase or to deal with some other financial challenge—you might be tempted to sell to an “instant buyer” or iBuyer. An iBuyer is a company that uses algorithms and other technologies to quickly estimate your home’s value and craft an offer on the property, usually within a day. You might recall that real estate site Zillow got itself into a lot of trouble when its iBuyer division went off the rails a few years ago. That debacle tamped down enthusiasm for iBuyers, but they still exist, and you can still sell your home to one. But you probably shouldn’t.
Advantages of iBuyers
So why would someone sell their house to a faceless corporation instead of some nice family that writes you warm letters about their future happiness in your home? The main advantage of selling to an iBuyer is speed: Instead of waiting weeks or months for an offer to come in (the average time it takes to sell a house is close to two months), you receive an offer within hours after filling out a form on their website. And iBuyers also typically close on the deal more quickly than traditional transactions.
So if the speed with which you’re paid is your absolute top priority, an iBuyer might make sense. iBuyers also work to make the whole process easy, so if you simply don’t have the bandwidth to handle the stress of selling your house, it can be tempting to click a few buttons and just let someone else determine everything. But you still probably shouldn’t.
The first reason you shouldn’t use an iBuyer is because they will definitely boil that frog when it comes to the sale price. Once you fill out all the forms on their site, they will send you that instant offer based on their algorithm. Except that’s not a final offer. If you like it, they’ll conduct a physical inspection of your home, and if they decide it needs any repairs or their algo missed something, they will reduce the offer accordingly based on the estimated costs of those repairs.
And those estimates can be way off, reducing your profit on the sale—some iBuyers have even been fined by the Federal Trade Commission (FTC) for overcharging on repairs in order to reduce the sale price of properties.
Lowball prices, highball fees
And something else about the offer you’ll get from an iBuyer: It will almost certainly be less than what you could sell the house for with a little more patience. iBuyers underpay about 10-15% on average for the homes they purchase. You could think of that as a convenience fee for the speed and ease of the transaction, but that’s a significant chunk of cash that could be in your pocket instead of the iBuyer’s.
Using an iBuyer without a real estate agent also means you’re not paying a traditional Realtor fee, which is typically about 6% of the transaction. Instead, you pay an iBuyer a set of fees for their services, which in many cases can be equal to or even higher than a Realtor’s fees. And foregoing an agent when selling your house means you don’t have a local market expert to advise you, and you’ll have to rely totally on the iBuyer’s information. And if you do decide to use an agent while working with an iBuyer, now you’re paying at least twice the fees to sell your home.
Unless you absolutely must sell your home as quickly as possible, an iBuyer is always going to be an inferior choice. You’ll probably get a low price for your home, you won’t get any advice from a professional, and you’ll likely wind up paying the same fees—or more—as you would have if you’d gone the traditional route. If you can stand the waiting, avoid the iBuyers.