What Is an iBuyer?

Companies known as iBuyers use digital tools to simplify the home selling and buying process.

Barbara MarquandJun 30, 2021
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An iBuyer, or "instant buyer," is a real estate company that uses algorithms and technology to buy and resell homes quickly. When selling a home to an iBuyer, you may get a cash offer in as little as 24 hours without the hassle of staging and repeatedly showing the home.

You can also buy a home from an iBuyer. The companies' websites or apps let home buyers view available properties, schedule tours and request information to get started. Closing may occur more quickly with an iBuyer because you don't have to accommodate a traditional seller's timeline.

Largest iBuyer companies

The biggest iBuyers are Opendoor, Zillow Offers and Offerpad, based on their real estate transaction volume, according to Mike DelPrete, a real estate technology strategist and scholar-in-residence at the University of Colorado Boulder.

Of the leaders, Opendoor was earliest on the scene in 2014. Offerpad followed in 2015, and Zillow Offers launched in April 2018.

Other iBuyers include Keller Offers from Keller Williams and RedfinNow from Redfin, a real estate brokerage.

IBuyers rebounding in 2021

After making big gains in 2019, iBuyers hit the brakes in 2020 as the COVID-19 pandemic unfolded and local and state governments issued stay-at-home orders. The major iBuyer companies are making a gradual recovery, with both sales and purchase activity picking up in 2021, according to DelPrete.

IBuyers operate only in certain markets, so check if services are available in your area before getting too invested in the idea of dealing with one. Phoenix and Atlanta are the largest iBuyer markets, DelPrete says, followed by Dallas; Charlotte, North Carolina; Las Vegas; and Raleigh, North Carolina.

Although they are rebounding, iBuyer transactions remain a sliver of the total residential real estate market. At their peak in 2019, Offerpad, Opendoor, RedfinNow and Zillow Offers purchased 1% of homes sold in that year across more than 200 U.S. metro areas, according to a Redfin analysis.

Working with an iBuyer

The specifics vary by company, but generally, iBuyers tout their ability to get you through the home selling or buying process quickly and conveniently. Here's how it works with the three biggest iBuyers.

Selling a home to an iBuyer

To see if an iBuyer will purchase your home, you typically submit basic information about the property, such as the address, age, square footage and features, using the company’s website or app. The process takes only a few minutes.

The iBuyer estimates your home's value and, if it wants to proceed, sends you an offer. If you like the bid, the company will do an in-person evaluation and then provide a final offer. Gone are the hassles of staging and sprucing up the home and holding open houses.

The iBuyer typically takes care of necessary repairs, which are accounted for in the final price.

Buying a home from an iBuyer

Before shopping, first figure out how much house you can afford. Then shop mortgage rates among at least a few lenders and get preapproved for a home loan. A mortgage preapproval is a letter from a lender showing how much loan you can qualify for. Some iBuyers have their own lending divisions, but it's important to shop around to get the best deal.

You can browse homes for sale on iBuyer websites, schedule times to visit properties and notify the companies if you're interested in a particular listing.

Homes owned by iBuyers are typically ready for occupancy because the companies fix them up before listing them. But it's still a good idea to get an independent home inspection.

Generally you’ll have the option to make an offer through your own real estate agent or by contacting the company directly, and you can negotiate with the iBuyer on price.

Opendoor, meanwhile, added a new service in March that helps buyers make cash-backed offers on any home — not just those the company owns — in select markets. After you get pre-qualified for a mortgage, you can work with Opendoor to submit an offer. Opendoor backs the offer with cash to help you compete with other cash offers. If your financing is delayed, Opendoor says it will buy the home and then sell it to you for the same price. The company won’t charge a daily fee for the first 120 days.

The new service is outside the traditional iBuyer model and more along the lines of such real estate tech startups as Homeward, Orchard and Knock, which offer mortgages and enable buyers to make cash offers or purchase homes before selling.

Costs of working with an iBuyer

Typically you won't pay extra to buy a home from an iBuyer. But you will pay extra for the convenience of selling to an iBuyer.

There are two costs to consider: iBuyer fees, and the difference between the iBuyer offer and what you could get by selling through a traditional real estate agent.

Here are the costs to sell a home to the major iBuyers, according to their websites. These don't include typical closing costs that the seller pays for any real estate transaction, such as escrow fees and title insurance. IBuyers estimate those closing costs at 1% to 2% of the sale price.

  • Offerpad: Typically 7% of the sale price, but can range from 6% to 10%, not including the cost of repairs requested by Offerpad.

  • Opendoor: 5% of the sale price, not including any repair costs requested by Opendoor.

  • Zillow Offers: Typically 8.5% of the sale price. The company breaks that down into 6% for selling costs and an average 2.5% for a Zillow service charge, which can range from 1.5% to 9%, depending on the property. The selling costs cover the costs to buy, list and sell your home. The service charge covers the cost of owning the home before resale. You don't have to pay additional repair costs; those are accounted for in the offer.

Those fees are equal to or slightly higher than the typical 5% to 6% commission you'd pay a traditional real estate brokerage. However, with an "instant" sale, you save on costs of owning the home while waiting for it to sell.

The median difference between an iBuyer’s offer and the market value of a home in 2018 and 2019 was 1.3%, according to a study by DelPrete that reviewed more than 20,000 iBuyer transactions in those years. That would mean getting about $3,500 less from an iBuyer on a home with a market value of $270,000. The study tracked all major iBuyers, but focused on Opendoor and Zillow Offers, which accounted for 86% of iBuyer volume.

Is an iBuyer worth the trade-offs?

The answer depends on your needs. In general, iBuyers are geared to people who want to sell their homes quickly, bypass uncertainty and avoid the hassles of showing the home and negotiating with buyers. If that sounds like you, then it may be worth exploring offers from iBuyers. The traditional route may be a better option if you have a sharp listing agent and want to get the maximum price.

Frequently asked questions

You could get a cash offer in as little as one day. Working with an iBuyer is one way to sell your home fast.

The cost of selling your house to an iBuyer varies by company but generally ranges from 5% to more than 8% of the purchase price.

IBuyers are geared to people who want to sell their homes quickly and avoid the uncertain wait for traditional buyers. It's important to weigh the pros and cons of selling your home to an iBuyer before making a deal.

Opendoor and Zillow Offers are the biggest iBuyers by purchase volume in the U.S., followed by Offerpad. IBuyers still make up a tiny percentage of the real estate market.

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