As science keeps advancing and new technologies keep impacting all industries, it is not surprising that real estate is affected too. After entertainment and Netflix, transportation and Uber, accommodation and Airbnb, the time has seemingly come for real estate and iBuyers.
The brand-new addition to the world of real property, iBuyers, uses market projections and algorithms to establish a price for a property. This property is determined by its location, price range, and its age. The seller may then choose to either accept the offer or decline it. In case they accept, their home should be sold for cash almost instantly.
So what are the advantages of such a purchase over a traditional one? The main reason anyone would use iBuyers to buy a property is to resell it at a larger price later.
As the American market’s current worth is about $27 trillion, it is no wonder that we see new technologies aimed at it. If you are a resident of Las Vegas, Atlanta, or Phoenix, you have probably come across iBuyers before. The housing stock in these areas is mostly uniform and, thus, easy to assess. If purchased at the iBuyers price, it should also be profitable, as the algorithm is supposed to calculate the price most favorable for the buyer.
However, how beneficial are they really?
On the one hand, homeowners will not have to go through the exhausting months-long process of a traditional home sale. On the other, the numbers might not be optimal. Since iBuyers aims to pinpoint a low price (the property should be sold again for a more substantial amount), homeowners would probably make a more lucrative sale on the open market. And this is not the only way this technology might put them at a disadvantage.
This July, Andrea Riquier of MarketWatch revealed that, on average, iBuyers users receive 11% less for their homes than those who did not use the algorithm. When you take various fees and costs into account, the amount lost often reaches tens of thousands of dollars.
What about the instant buyers? There is always a risk of purchasing a property for a higher price than you can resell it for. The iBuyers charge different fees, sometimes hidden, that the seller has to absorb to counterbalance the potential risk. The transparent costs are usually between 7% and 10%.
One might think that the latest technology would remove all unnecessary fees associated with the traditional real estate market. However, the reality is different. With iBuyers, the usual 6% commission seems like a bargain.
Another study analyzed iBuyers transactions in the Phoenix market, aiming to determine the actual loss for the seller. The fees increase and accumulate as the buyers need to offset certain risks. These include both not being able to resell the property for a higher price, and the downsides of iBuyers “for sale” signs on said property. As burglars and squatters become acquainted with the new practice, they tend to notice the empty homes and take advantage of the situation.
It comes to the seller to offset the risks, through various hidden and transparent costs. As the study in Phoenix has shown, the percentages of lost profit for the seller can be between 13% and 15% of the final property price. If a home sells for $200,000, the loss in fees may amount to $30,000.
The previously mentioned Airbnb, Netflix, and Uber services all benefit the consumer when convenience and costs are concerned. However, the new real estate technologies seem to be lagging behind. Still, it is commendable that innovation has finally reached the real estate industry. But for most American home sellers who are not in a great hurry, iBuyers algorithm might not be the best option. The money lost in the transaction is simply not worth the gained convenience.
Hopefully, future innovations and competition on the market will lead to a more favorable situation for property sellers. But before such time comes, iBuyers is best avoided.