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) or a local property investor can be an attractive 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.
When dealing with both iBuyers and property investors, 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.
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 property investor ‘vanity offers’
Selling to a property investor 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 property investors can also put you in a trap. Similar to iBuyers, many property investors 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 investor 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. Property investors 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 investors, 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.
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 to us. We never make an offer until we’ve done all of the necessary homework and know we can stand behind it. Here’s how we do it:
Before we make an offer to purchase your home, one of our local Market Experts will visit your property, consult with you personally, and conduct a thorough walkthrough of your home. During the visit, they’ll take photos and gather detailed information about the home’s condition. Based on this information, one of our Construction Specialists will put together a comprehensive budget estimate for any necessary repairs or renovations.
Using the information we’ve collected during the in-person visit we’ll present a no-strings-attached cash offer to purchase your home as-is that already takes into account any necessary repairs. Because we believe in transparency, our goal is to avoid any surprises and keep you in the loop throughout the process. Less than one in 10 homes sold through Sundae have any changes to the offer price after the inspection because of our rigorous information gathering throughout the process and our initial home visit.