A new study of technology-driven companies that offer to purchase homes directly from consumers—also known as iBuyers—attempts to show the true costs of this business model to sellers.
Real estate analytics firm Collateral Analytics examined about 6,000 transactions across four markets—Phoenix, Atlanta, Charlotte, and Las Vegas—to determine how much iBuyers were paying for properties compared to market value while controlling for factors such as size, age, and other variables. The median discount—how far below estimated market value purchase prices were—was between 4.5% and 6.9% for one major iBuyer and between 2% and 3.3% for another.
The direct costs (often in the form of fees) of working with an iBuyer can run from 7% to 10% of the offered price not including credits for requested repairs, according to Collateral Analytics. When those costs are combined with the discounted purchase price, the total cost of working with an iBuyer can be between 13% to 15% depending on the firm, according to Collateral Analytics.
We, as an industry, should look at the possible reasons sellers would forego the traditional sale channel. Most of the houses I buy are from sellers who tell me they don’t want to deal with an agent and all that goes along with that. This should be a wake up call and force some introspection. I always work direct with sellers when buying and do what I can to work direct with buyers when I’m selling. The process is so much smoother on both sides when a third party is not introduced into the equation, especially one that lacks the… Read more »
An educated and experienced agent is a plus for all buyers & sellers. An agt can save a seller $1000’s . Would you hire a carpenter to be your dentist? There are many things sellers & buyers don’t have a clue about, in this process. Many have never bought or sold a home, or may have had 1 transaction that happened years ago. That’s like thinking today’s cells phones aren’t an improvement over a rotary phone we use to have. Real estate & contracts change constantly. A seller doesn’t know what forms they need to use or sign, unless they… Read more »
You’re correct Guy. Some say they don’t want to work with a real estate agent because they haven’t had the professional Realtor to talk and explain the entire process. Consumers without the proper guidance of a Realtor will only have the information fed to them by the neighborhood know-it-all.
I agree Herbert or they are relying on inaccurate information obtained on Zill*w!
Hi Guy,
You were my first buyers agent, I enjoyed our working relationship and some learning experiences for a rookie! I’ve always kept one main thing you stated in my heart and mind. So when I seen this comment I definitely can relate and you are absolutely correct. Keep giving balanced comments!
This is so unthinkable to me !! I do know someone that “thought ” he was going to save money to sell his home and…it ended up costing him more that 15% in the end…. NOT GOOD !!
Most people using these and similar services probably lose money, are further exposed to lawsuits, received less beneficial service, and still believe that they got a great deal. You’re very correct; NOT GOOD!!
Excellent research article. I will use this in my listing presentation.
Another piece of research might be how the national ibuyer affects the local market. .
Being in DFW … when the iBuyer is in Phoenix, and they get paid … it takes money out of the local market.
Realtors then do not have the commission money to spend in their area, thus hurting the local economy.
How can (or why hasn’t) TAR and NAR with our local, state, and National marketing & advertising dollars run radio, TV and internet Ads, combating their marketing to make consumers aware and reposition REALTORS’ Values and Benefits to them. DFW REALTORS, have lost huge amount of MARKETSHARE TO ibuyers. The closest thing I can compare it to is like Walmart comes in and shuts down all the competition. But what can help us that we pitch in money for marketing to TAR & NAR!
I wonder… what are; “The direct costs (often in the form of fees) of working with an iBuyer [that] can run from 7% to 10% of the offered price” are? That sounds really high.
I find it interesting that this data based report offered zero information about how the “estimated market value” was determined for this comparison. Nor was there offered any resume for “Collateral Analytics”. My limited experience with iBuyers has seen a much bigger concession from Sellers. Am I the only one?
Interesting article… I think it’s a comparison of “complicated” to “less complicated” which then may correlate to “younger” vs. “older” sellers.. or as someone put it “cellphone” vs “ rotary phone” right?. There’s gonna be some that want the process they seem simple and some that don’t. Of course, what’s considered simpler or complicated would be up to the seller/buyer. Roomer has it that there’s a large percentage of real estate agents that just don’t do the work and aren’t knowledgeable of the process, of the market, lack negotiation skills, etc. People don’t really want the “fluff” anymore. They want… Read more »
If your honest you realize that in most cases the commission isn’t justified. Sure, you can rationalize all day long but the actual process of selling isn’t complicated. Most agents are not on the high end of IQ curve. Consumers are starting to realize it’s a lot of smoke and mirrors. Almost 30 years in real estate so being on your rebuttal.
I definitely agree with Jk nope. I’m 20 yrs in the business, coming from a marketing world of working as V.P. of Mkt., National Sales Mgr, etc. in other words, years filled with tons of sales & mkt. experience combined with a mature age. During those 20 years, I have co-opted, and worked with agents that should have been working as a Door Greeter at a Walmart Store. Some were too young to be in the business, barely out of puberty, at least mentally. Others were housewives working one or two deals a year to have money for elementary school… Read more »
You address many of the serious issues confronting our profession today, preeminent among them are buyer and seller ignorance (the younger the client, the greater the ignorance) who willingly trade equity for ‘spoiled child’ I-want-it-now simplicity, combined with the sellout national ‘leadership’ which either does not know that our MLS Data is the most valuable thing we produce (which makes them incompetent if they don’t know this) or they DO know and are giving away our very life blood (which makes them scurrilous and vile), combined with people with real estate licenses who don’t know what they are doing, conspire… Read more »
Realtor ignorance is the greatest threat. Always has been.
Well said!!!
I totally agree with your comments , I am newly licensed and see all the disparity with the way the ibuyer system.
This is fascinating. I recently counted over 14 distinct transactions identified on just ONE closing disclosure – every one of which I can competently explain in plain English to my clients whenever asked – yet you conclude ‘the actual process of selling isn’t complicated’. Knowing psychology of sellers, buyers, third party intermediaries, and negotiating or dare I say ‘selling’ the Seller on the correct list price, the correct repairs, ‘selling’ the Buyer’s agent and the Buyer through him/her, selling the appraiser on all the value they missed or were about to miss, selling the inspector on what IS and IS… Read more »
👏🏾👏🏾👏🏾👏🏾 Well said Scott
Well, I personaly had the I-buyers make an offer on my house. I also was in the process of a refi so had the house appraised. The I-buyer charged a 12% fee, came in about 10% below the appraised value. ( Appraised value $351K, net offer was $291K. ) I could get $360K for it, thought the appraisal was a little low. What do the I-buyers do with all these homes they buy???? They list it with an agent and capture top dollar and the equity the seller just handed over. Of course it cost the seller 13-15%, thats how… Read more »
I think there are some instances when this is very suitable for a seller.
I respect that opinion, but there are Wholesalers who will do this exact same thing, who will then funnel these houses right to us. Perhaps you are not aware that there are entire brokerages who focus on nothing but selling fix and flips, buy fix and holds, and buy and resell as is?
We lose market share when we fail to make these options I’ve listed available to the home sellers.
The percentage, while still high, seems on the lighter side. According to my math, if fees are 7-10% not including cost of repairs and discounted price, and the total estimated cost is 13-15% which would include cost of repairs AND discounted purchase price, then the variable percentage would be between 3-8% . How many IBuyers (investors) discounted purchase offers (including cost of repairs) fall within 3-8% of market value? For example, I had a Seller seek out information and an IBuyer from Zillow offered him between $150,000-$185,000 less than the market value of $485,000.
I think those numbers are still low from what I’ve seen. They also send in someone to discount all the updates that need to be done and subtract those from the price and most of the time they don’t do the updates.