Real estate investors might have certain apprehensions in dealing with iBuyer companies and for a good reason.
But investors should first get to know what iBuyer companies truly are to cast away their fears and doubts in dealing with them. They have been around for quite some time and have done countless investors plenty of good over the years. It’s just a matter of knowing what and who you’re dealing with.
In this blog, we will discuss what iBuying is and which iBuyer companies are trusted by a lot of investors today.
What Is an iBuyer?
Before we get to the meat of the discussion, we need to first understand what iBuying is all about.
iBuying is the process of buying and selling a property that does away with the challenges and hassles of the conventional home-selling process. An iBuyer, or instant buyer, is a real estate company that uses technology and algorithms to purchase and sell real estate in as little time as possible.
Most of these companies purchase and sell homes (sometimes at discounted prices) without asking for any repairs, updates, closing costs, warranties, or real estate commissions. Some iBuyer companies, though, are the ones who perform the actual home improvements.
iBuyers have moved from trailing behind in the real estate investing race to actually becoming a contender in the business. And while dealing with iBuyers may seem very attractive to investors, there are a few things that they should know about first before deciding whether to go down this route.
Related: 5 Ways iBuyers Are Changing the Real Estate Landscape for Rental Investors
How Does iBuying Work?
iBuyer companies are generally tech-driven companies that utilize automated valuation models (AVMs) to determine a property’s worth and make offers usually within 24 hours.
AVMs are computer appraisal systems that take a closer look at the various real estate comps in the area to determine a subject property’s worth. Other real estate companies and mortgage lenders use AVMs most of the time for home valuation. If you’ve ever tried looking for a house for sale on a platform like Mashvisor or Zillow, or had your property refinanced without the help of an appraiser, then you’ve already had an encounter with an AVM.
By taking advantage of technology, iBuyer real estate companies allow investors like you to purchase or sell your home as fast as you can, cutting through all the typical challenges that go with conventional real estate transactions. By speeding up the process and minimizing costs, investors and even some house buyers prefer to deal with iBuyers than go through other real estate professionals.
The Pros and Cons of Selling Investment Property to iBuyer Companies
Now before you go looking for iBuyer companies to tie up with as an investor, you also need to realize that like any other real estate investment strategy, there are certain pros and cons to working with iBuyers. Just because you want to sell house fast doesn’t mean that iBuyers are a good fit for you. So before making any decisions, check out the different advantages and setbacks of working with iBuyers.
First, let’s take a look at the different benefits awaiting real estate investors should they choose to work with iBuyer companies:
Perhaps the best thing real estate investors can get from working with iBuyers is the speed of the entire transaction. Typically, a real estate transaction could take weeks (to months depending on the complexities of the transaction) to close. iBuying cuts down the process to just a fraction of the time—in some cases, within only 24 hours—by doing away with all the unnecessary channels involved in a conventional real estate deal.
No Realtors Needed
One of the things that speed up the process of a real estate transaction when working with iBuyers is it eliminates the need for realtors. The traditional way involves looking for the right real estate professional which also takes a long time. Investors take time to carefully screen every possible candidate which makes the entire process longer. Doing away with realtors helps investors save not just plenty of time but also lots of money.
Because you do away with the complexities of having more people involved in the buy-and-sell process, you do away with many of the things that commonly cause delays and setbacks in a transaction. The iBuyer takes on almost all of the responsibilities involved in selling real estate properties, including investment properties. This simplifies the process which speeds up the transactions.
Generally, when working with iBuyers, it is quite common to get a cash offer on a house put up for sale. Part of making the process simpler and faster is offering all cash for houses on sale. Investors benefit from this as they can utilize the cash they get from iBuyers to purchase other income properties for sale. This offer is typically presented to sellers within a 24-hour period.
One of the things that appeal to most real estate investors when dealing with iBuyers is the convenience of not having to do any inspections before making the sale. Unlike working with realtors where sellers have to make sure the house is ready to sell, iBuyers typically take on the responsibility of having the property inspected so you don’t have to worry about it anymore.
Related: How Long Does a Home Inspection Take? A Guide for Investors
Similarly, iBuyers do not require home repairs to be carried out before closing the transaction. From taking care of leaks to fixing malfunctioning appliances to giving the walls a fresh coat of paint, iBuyers take this nuisance off your hands.
As iBuyers take care of home inspections and repairs, they also take the responsibility of staging the property free of charge. Generally, sellers spend their time and money to get the house ready for viewing. iBuyers save you valuable time and money by doing this for you as part of the services they offer. They are the ones that will spruce up your home and make sure it is perfectly presentable to increase your chances of finding potential buyers.
Open Houses and Showings
One of the inconveniences of having to sell a property is to work into your schedule when potential buyers would like to view the property. Investors also have other concerns that take up their time and they can’t always be on call for a sudden viewing. Working with iBuyers addresses this concern as they are the ones that will deal with prospective buyers so you can go on with your activities.
Ideally, the seller is responsible for clearing out the home once it has been sold. While they do have the option to do that by themselves, most iBuyers willingly give their assistance to sellers in decluttering and clearing the property. This means taking out any appliances, decorations, or other items that could negatively affect the sale.
Certainty of Sale
Perhaps the most important benefit of dealing with iBuyer companies is that real estate investors and sellers are guaranteed that the property will be sold one way or another. Since iBuyers are the ones that will technically take the property off your hands, the responsibility of having to sell the property is then transferred to them. Unlike working with realtors and other professionals, iBuyers will buy the property and pay in cash if it meets their requirements, no questions asked.
As enticing as the perks of working with iBuyers are, real estate investors also need to be aware of the setbacks of dealing with them. Here are the most common disadvantages of working with iBuyer companies:
Lower Than Usual Offers
Some of the benefits of working with iBuyers can adversely affect your income as an investor. Because of the significant risk that they take in paying quickly and closing fast, plus all the inclusions in their services, the offer made to owners is, in most cases, a lot less than the actual home value. Working with a realtor might be more financially rewarding but can be quite stressful due to all the relative inconveniences it brings. Inversely, because of the conveniences of dealing with an iBuyer, the tradeoff comes in the form of a lower return on investment.
Since iBuying isn’t as widespread as other real estate investment methods, some locations may not be covered by iBuyer services. Most iBuyers only operate in specific cities, counties, and states. That being said, if you’re considering working with iBuyers, you first need to find out if there are companies operating in or near your location.
One of the benefits of working with a realtor is that real estate investors can still negotiate the final price of the property until all parties come to an agreement. This is not the case with iBuyers. Generally, iBuyers will give you a price that they think is fair for the property being sold. Asking for higher prices, in this case, is not an option.
Related: 10 Best Real Estate Negotiation Tips for Buyers
Independence Is Riskier
Working with realtors means that sellers and investors get a sufficient amount of guidance and help in selling the property. iBuyers will not hold your hand and walk you through the entire process. You do not have any representation as a seller, and none is also given to the buyer. Working on your own with an iBuyer is a risk you will have to take as a real estate investor.
Sales Transactions Only
As a real estate investor, one of the most strategic ways of generating a positive cash flow and creating a passive income source is through rental property investments. Realtors can help investors market their properties and find good tenants. iBuyers, on the other hand, only deal with buy-and-sell transactions.
On that note, if you’re an investor and you’re looking for profitable rental properties, you may want to consider using a real estate website like Mashvisor instead. The site has helped countless investors find the best deals on rental properties all over the US.
To learn more about how Mashvisor can help you find profitable investment properties:
Now just because we mentioned that dealing with iBuyers guarantees sales, it doesn’t automatically mean that you’re ensured of passing their screening test. iBuyers tend to be very picky with properties they consider good investments. This means that they could say no to your property if it doesn’t meet their requirements. But the good news is that if iBuyers give you the nod, then your property is as good as sold.
4 iBuyer Companies That Want to Buy Your Investment Property
Now as far as iBuyer companies are concerned, here are seven of the top companies that a lot of investors trust and work with:
Opendoor is considered the pioneer iBuying platform in the US. It was founded in 2014 and has since established itself as an industry leader.
The company has been known to purchase properties worth between $100,000 and $600,000. But on several occasions, it has offered up to $1.4 million depending on the real estate market. Its closing window goes anywhere from 14 days to 90 days if the seller needs more time.
Offerpad, one of the country’s largest iBuyers by transaction volume, was launched in 2015. Users find the company easy to work with especially since they only need to fill out a five-minute questionnaire. The company uses this questionnaire to gather information about the properties that are up for sale, according to their website. They provide no-obligation cash offers within 24 hours just like Opendoor and give sellers the option of a virtual walkthrough.
They typically close from a few days to 90 days depending on how much time the seller needs.
Popular real estate brokerage Redfin launched its iBuying arm in 2017. It uses a similar instant-offer model as most iBuying companies. If a seller is good with the company’s offer, RedfinNow makes arrangements for property inspection. Typically, RedfinNow closes between 10 and 90 days after accepting its offer.
Plenty of investors trust Orchard because of how it has helped them get the best offers. The company allows sellers to unlock up to 90% of the property value and redirect it toward their next property. The iBuying company only takes its service fee once the property has been sold. Typically, it takes the company around 30 to 45 days to close a deal.
One tip we can give you when deciding which iBuyer company to go with: do your homework. Carefully study the company, its services, fees, and locations. It is also recommended to check out iBuyer reviews online to see what folks say about the company. For instance, Zillow is a trusted and reliable real estate website that has been around for quite some time. Zillow iBuyer was launched in 2018 and was doing okay. However, if you don’t do your research about the company, you won’t know that it ceased operations in late 2021.
This is why it’s important for investors to perform due diligence in looking for the right iBuyer to work with. In the same breath, investors should also give the same amount of attention when searching for the right property. Having the right information and updated data is the key to a successful investment.
Fortunately, a website like Mashvisor exists to help real estate investors make the wisest and soundest investment decisions. By providing them accurate market information and relevant real estate comps along with valuable real estate investment tools, Mashvisor increases investor confidence which, generally, leads to finding the most suitable deals for them.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Wrapping It Up
So what’s the verdict? Is working with iBuyer companies truly worth it? At the end of the day, it will all boil down to your investment goals. In some cases, working with iBuyers may benefit you as an investor. But for rental investors, it may be more beneficial for them to work with realtors instead.
Now for investors who are just looking for profitable investment properties, you’re in better hands with a website like Mashvisor. We specialize in helping rental property investors find the best possible deals that match their goals and criteria.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.