The Real Cost of iBuyers

Happy September! We hope everyone stayed safe from Hurricane Dorian.  We are thankful to have been only minimally impacted in Central Florida.  Our thoughts are with those that have suffered and those that are still in its direct path.

As we enter the fall season this month, we also officially enter the “slow” season for Central Florida real estate. If you are still in the market to buy or sell a home, give us a call without delay!  We will provide timely insights that you may find helpful.

We have continued to receive questions from homeowners about companies (collectively called iBuyers) that offer to buy their home with cash.  We wrote about this topic last year.  We will repost it below, plus we will share the findings of a new study that was published in August this year that validates our prior assessment.  Dr. Michael Sklarz and Dr. Norman Miller with Collateral Analytics published “iBuyers: A new choice for home sellers but at what cost?”.

Overall, the study found that iBuyers cost homeowners 13-15% of their home’s value.  The authors concluded that sellers that sold to these companies “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%”

Q:  I have received ads from online companies offering to buy my home at competitive price and no hassles.  Is it for real?  Is it worth it?  How does it work?

A: These companies are “flippers”.  They are not looking to buy homes to hold in their rental property portfolio like investment companies in the 2010-2013 era.   They are buying homes directly from homeowners at a discount, then putting the homes right back on the market to sell at a profit.

The typical offer sounds enticing, but they also charge full commission and other selling costs, plus significant additional fees to use their service.  Their angle is an easy transaction, as-is, cash, and flexible closing date.  But they are not in the business to lose money.  They will inspect the home carefully, and you can be assured they will demand compensation if problems are found.

Make no mistake, iBuyers are not in the business to provide a public service.  They are in the business to make a profit.  Since they are simply “flipping” your home (put your home right back on the market with minimum additional investment), in order for them to make money, you CANNOT make money.

They have to acquire your home below market value.  They also make up the profit margin by charging all customary selling costs, full commission, plus additional fees.   Do not believe they are paying fair market value.  That is not possible.  They have to sell it again soon, and for a profit.  Once you understand they are “flipping”, it is easy to understand how this works.

There is nothing wrong with this business model.  We all know if we sell our cars to an auto dealer, they will resell it at a higher price for a profit.  This is perfectly normal.  We are trading top dollar for convenience.

However, unlike a car, our homes are likely our largest assets.  It can take many years to build up equity.  Is a quick, convenient sale really worth giving up a 5-figure value in your home?  That is tens of thousands of dollars that should be in your bank account.

We are real estate professionals whose sole mission is to guide homeowners through the process of home-selling to achieve the highest price possible, with the maximum profit going to the homeowners.  We always work closely with the sellers to prepare the home for sale for the most gain, then we take over the marketing and selling and make the process as smooth as possible for the sellers.  Our track record speaks for itself.

If you are thinking about selling a home, let us walk you through the process and show you how you can get the most money for your home!

Until next month, take care!

                  – Yien and The Yao Team

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