Watch Out for This Tactic Used by Predatory Home Buyers
An offer that seems too good to be true should raise a red flag, especially from someone who hasn’t thoroughly looked at your property.
If you want to sell your house fast, working with an iBuyer (like RedfinNow or Opendoor) may seem like a compelling option. . However, getting a firm offer on your house isn’t as simple as plugging a few numbers into a website, and not all offers you get will represent the final amount you’ll end up seeing in your bank account.
The iBuyer business is booming — iBuyers bought a record number of homes in the second quarter of 2021. Before you jump on the bandwagon and sell to an iBuyer, it’s important to temper your expectations. When dealing with iBuyers, be prepared to deduct considerable fees, closing costs, and repair costs from the initial offer that is presented.
How iBuyers can cost you
When you use an iBuyer, you fill out a form with information about your house, and with the help of public data and some rule-of-thumb math, the iBuyer will tell you what they’re willing to pay for it. While this is convenient and easy, remember that the initial offer price likely does not factor in a number of additional expenses and fees.
For example, iBuyers generally charge service fees, which are the primary way they make money. These fees can range between 5% and 8% of the sale price. Additionally, most initial offers from an iBuyer do not reflect closing costs which include title and escrow fees.
How iBuyer repair deductions can cost you
Perhaps most importantly, iBuyers make their initial offer without even seeing your home, and a house’s value depends on factors that can only be determined by an in-person inspection. The truth is that almost no buyer can make a reliable offer until they have walked through your house and thoroughly examined the interior, exterior, and major systems of your home.
iBuyers who make you an offer without ever setting foot in your house will often lower the price before finalizing the transaction, leaving you with far less money than you were initially promised.
Once you accept a sight unseen offer from an iBuyer, the company will send a representative out to visit your home. At this point if the condition is not exactly as you described or if they discover items in need of repair, they will either ask you to make repairs to the property or they will reduce their offer price.
Some of the scenarios that can cause a significant adjustment to the offer include foundation issues, the presence of septic systems, and unpermitted additions or conversions. If these or other conditions are found, it’s possible that some iBuyers will lower their initial price to account for additional upgrades and renovations.
In the past, there were few alternatives to iBuyers. Homeowners were often forced to choose between putting time and energy into repairs and getting a low price for their homes. But Sundae’s marketplace generates competition for homes in need of TLC, so you can expect higher cash offers from investors, without getting slapped with fees later on. And it’s fast — homeowners who work with Sundae receive an average of 10 offers within three days.
Is the iBuyer convenience worth it?
While iBuyers are usually transparent about these additional costs, the high initial offer price can be distracting. According to data from a Marketwatch investigation, consumers who sold through an iBuyer made 11% less than their counterparts who sold their home on the market, including houses that needed no repairs at all. Eleven percent isn’t exactly a small amount, especially when you’re talking about a high-value asset like a house. That could equate to tens of thousands of dollars.
iBuyers offer ease, convenience, and speed, but because they prepare the offer before seeing your house, there’s little chance that the initial offer they make will remain the same by the end of the process. If you decide to use an iBuyer, be sure you understand the difference between your offer price and your net proceeds, calculated after you subtract service fees, closing costs, and costs of any repairs. They add up.
Further reading: How to Sell a House That Needs Work
Why iBuyers sometimes back out on their offer
Many iBuyers have specific criteria that will prevent them from moving forward with the purchase of a home. But often they don’t know if your house fully meets their standards until they have had someone out to see your house, which happens after you have already accepted their offer.
In a worst case scenario, the iBuyer may cancel the entire contract post-inspection. iBuyers can legally back out of a deal based on issues found during a home inspection. This costs you the time and expenses you’ve already invested to get the house ready to sell.
Beware of ‘cash-buyer’ wholesalers
Selling to a wholesaler can have it’s advantages, particularly if you’re looking to sell quickly and your house is significantly dated or damaged. Typically they will pay cash for your house as-is with a price that theoretically includes any repair costs. However some predatory wholesalers can also put you in a trap. Similar to iBuyers, many wholesalers will provide a “vanity offer” in cold-hard cash, but they make the offer sight-unseen.
It’s difficult to not be lured in by these attractive offers. By tempting you with a number that makes all other offers you receive look low in comparison, the wholesaler effectively pushes out any competition with their high price. Once the inspection happens, the buyer often lowers their offer price based on any issues they claim to find. Wholesalers have built a bad reputation by frequently “walking back” or “walking down” offers with a long list of repair costs that sellers have no way to verify.
When you deal with these types of buyers, their goal is to get you to commit to their attractive price before you realize that they plan to walk down their offer after you’re invested in the process. If you’re in a rush to sell your home, they know you might not have the time to start over with another cash buyer or with a real estate agent to list your house on the market.
At Sundae, we do things differently. We’ll send a Market Expert to inspect your home for free before it goes live on our marketplace. They’ll give you an estimated offer range you can expect from our investors who will compete to buy your home, so you get the highest price possible. You benefit from the competition, pay zero fees, and have no obligation to accept the offers.
What you can do
If you want to sell your home quickly, you’ll need to do your homework to find a buyer you can trust. At Sundae, our goal is to help you get the best outcome when selling your house, even if you don’t sell it through our marketplace.
For homeowners who are looking to sell their house as-is, Sundae is a marketplace that will bring multiple cash offers from vetted investors at a single place for free so that homeowners can get the highest price possible for their house.
Unlike the traditional way of selling houses as-is, Sundae is the only marketplace that connects homeowners who are looking to sell their house as-is to the largest network of qualified investors. Through the marketplace, we enable investors to compete to buy your house to get you the highest price possible.
We are the most reliable, hassle-free, and trustworthy platform to sell your house off-market, as-is.
This material is for informational purposes only and has been prepared without regard to your individual circumstances. This data may not be representative of all iBuyer transactions and related fees. Not all iBuyers operate in the same way, some houses may need more or less repairs, and thus iBuyer fees may vary. Additionally, this data may not be representative of all transactions on Sundae’s marketplace, as some buyers may submit offers which include different terms as discussed above.