Maybe you’ve heard an ad on the radio for a company that will “buy your home fast for cash.” They tout no open houses, no real estate agent commissions, and will buy your home quickly and for cash. Perhaps you’ve seen a billboard or sign along the road that says, “we buy ugly houses.” While the prospect of selling your home fast may sound alluring, you should be aware of how these companies operate.
What are they?
The term applied to these types of companies is “iBuyers,” with many of them leveraging technology to buy homes quickly. These organizations have deep financial pockets, ready access to buyers/investors, and can make acquisitions rapidly.
How do they operate?
While iBuying companies make the selling process convenient, especially if you need to sell your home fast in case you’re relocating for work; going through a divorce; trying to avoid foreclosure, etc.; there’s always a catch for their services.
These organizations offer to buy your home at a price below its value, using algorithms to price homes and make offers. They use what’s called an automated valuation model (AVM) to formulate a price they’ll pay, often arriving at a price without ever setting foot on your property. They make a low offer, so then they can make money when they sell the deed to a buyer/investor they already have a relationship with.
They also make money by charging exorbitant fees for home inspections and other services to close the deal. As with anything that comes with convenience, there’s going to be additional charges, creating a premium on the services rendered.
Many of the iBuying companies make more than the standard 3% commission on a deal, sometimes eclipsing 8% or more. And that figure is just on the buying side. Once they sell the home to an investor, they’ve added a markup to make more money. A MarketWatch study showed home sellers make about 11% less from their home sales using these types of services versus doing a deal with a traditional real estate agent.
The Last Word
If you’re thinking about selling your home, you have options. However, to make the most from selling your property, you’ll probably want to use a real estate agent to realize the most value.