Skip to content

What is an iBuyer and Why Should Homeowners Care?

Louis Wilson Aug 12, 2020
what is an ibuyer

An iBuyer, (short for instant buyer) is a house selling and buying program that uses artificial intelligence to automatically compute your home’s value and give you an instant all-cash offer.

After buying your house, the iBuyer renovates it and resells it at a higher price. The largest players in the iBuyer market are Zillow Offers, Knock, Offerpad, Redfin, and Opendoor. Different cities have other smaller iBuyers who offer the same services.

How Much Does iBuying Cost a Seller?

Even though iBuyer claims not to have agents’ commission, the truth is you have to pay convenience fees, which may even be higher than an agent’s commission. According to real estate research conducted by Collateral Analytics, the total cost to sell a house to iBuyer is between 7% and 10%. This is a bit higher considering that traditional real estate agents charge between 5% to 7%.

What's the Basic Process of iBuying?

iBuying involves three steps;

  1. Get an instant offer for your house just by entering your home address
  2. Take photos or a video showcasing all the rooms and features of your house
  3. Close and get paid — the seller is allowed to choose a closing day

Of course, before the actual sale takes place, an inspector will be sent for a house check. Unlike traditional methods, iBuyer is very quick and involves no contingencies. However, it has some setbacks.

Is There Anything Bad About iBuying?

Even though iBuyer gives you a quick, hassle-free way to sell your house, there’s a catch. You get less for your house than you would get from a traditional selling method. This is because the company has to buy your house, market it, and resell it. You may also face challenges like:

  • Higher charges, especially if the house needs to be listed
  • Your house not being eligible
  • iBuyer not operating in your area

For your house to be eligible for iBuyer, it has to be:

  1. Located in a popular area with a high demand for houses
  2. Built after a certain year (the year varies depending on specific iBuyers)
  3. Valued between $200,000 to $500,000
  4. In good condition or requiring minor repairs

The Future Outlook of iBuying

Judging from past records, iBuyer has been experiencing growth since 2015 and reached its peak in 2019. During the pandemic, the business lost market share, with the number of houses sold in the second quarter of 2020 declining by 48%. But in the first quarter of 2021, the business started picking up and regained 20% of what it had lost in the previous quarter.

From these statistics, iBuyer is expected to experience more growth in the future. However, its market share is still below 1%, which means people have yet to embrace it. iBuyer’s main disadvantage is its high cost, and this is likely to inhibit its future growth.

However, the idea of selling your house through a phone may appeal to many, especially in a world where digital processing is taking over. This unique selling point is what will keep iBuyer in the real estate market.

Traditional agents promise more value for your house, while iBuyers promise convenience. A seller will have to balance the two and choose depending on their circumstances.

iBuying — It’s Here to Stay

The real estate market is experiencing drastic changes, but that’s good news to buyers and sellers. You have many options now. If you want to sell your house and buy another one, you can enjoy the convenience offered by an iBuyer with the cash-offer program but without the unnecessary losses on your home value.

Article updated September 8th 2021.