[REN #786] Real Estate: iBuyers Charge More for Convenience

Picture of a Kitchen for Real Estate News for Investors Podcast Episode #786

iBuyers are shaking up the real estate industry with a fast new way to sell your home — but at what price? iBuyers help sellers avoid the tedious process of listing, waiting for the right offer, and finally selling a home. It’s very convenient to accept an iBuyer offer, but according to MarketWatch, sellers pay a bundle for this service.

It’s not a precise science to compare what iBuyers pay to what home sellers might have gotten if they had sold their homes on the open market, but MarketWatch claims its investigation “comes close.” They analyzed more than two dozen transactions with iBuyers, and found that on average, the seller is getting about 11% less than they would have otherwise. (1) That includes all the costs and fees associated with a sale.

Knock vs. Offerpad vs. Opendoor

MarketWatch gathered much of its information from a company called Knock which is often described as an iBuyer but is based on a completely different model. Unlike other iBuyers like Offerpad and Opendoor, Knock will advance you cash to buy your new home before you sell your old home, and then it will help you sell your old home. It charges the typical 6% commission for that sale and a fee for the overlap period between buying the new home and selling the old home.

In the examples analyzed by MarketWatch, Knock had also solicited offers from Opendoor and Offerpad so it’s easy to compare the open market sale with the offers the seller got from those two iBuyers, or in some cases just one. MarketWatch says it used a combination of Knock data along with conversations with Knock customers, and public records to come up with enough data to make a comparison in 26 different transactions. They were mostly located in the Atlanta area. A few were in the Raleigh-Durham part of North Carolina. And a few were in Charlotte.

In the Atlanta area, the average sold price was about $293,000. Average Opendoor offers were $36,000 less than that with a 6.9% sales fee. That adds up to a 12.3% discount on the amount the seller would have gotten on the open market. 

The damage was a little worse for Offerpad. That offer average was about $52,000 less than the average sold price. Fees were higher as well, at 7.8%. The total discount on the sold price was 18.2%.

In Charlotte, the Opendoor discount was only 6%, as compared to the average sold price. Offerpad was more expensive again, at 14.8%. In Raleigh-Durham, MarketWatch only had results for Opendoor, with a 2.8% discount. So the results vary according to region, but again, MarketWatch had the most results and data for Atlanta.

The beauty of this analysis is the use of Knock, which typically advises sellers to put their home on the open market where they are likely to sell for a higher price. Of course, if the home takes a long time to sell, the overlap fees will also add up, so it’s still a balancing act as to what’s going to net you the most money.

Knock also removes the stress of moving by getting you settled in a new home before you have to get rid of the old one. One family told MarketWatch that they started by getting offers from Opendoor and Offerpad, which were lower than they thought they could get on the open market. But even if they had accepted one of those offers, they told MarketWatch, “That still didn’t solve our problem of where do we move to? We’d essentially be homeless.” And they were selling and buying in the “ultra-competitive” Atlanta market.

In their case, they decided to go with Knock. Here’s the breakdown on offers from all three:

  • Opendoor would have netted them about $246,000.
  • Offerpad would have netted them about $237,000.
  • What they got with their Knock deal was close to $270,000.

iBuyer Home Inspections

MarketWatch says that instant offers from iBuyers are supposed to be quick, but are often prolonged by home inspections. And by some accounts, those home inspections may be another way of squeezing the seller out of a few more dollars.

Knock CEO and co-founder Sean Black told MarketWatch, “If you’re comparing iBuyer offers, it’s very black-and-white. The front-end stuff is very upfront. The repairs are the gotcha.” Black says that a home inspector will often embellish a list of repairs to essentially “cover his butt.” This Atlanta family agreed. They say, “The kinds of repairs that they were hitting us with, I felt, were very petty.”

iBuyer Response to MarketWatch

Offerpad said in response to the criticism that it provides convenience and peace of mind to sellers who don’t want a long sales process. And, it also boasts of a 94% customer-satisfaction rating. A spokeswoman told MarketWatch, “Typically, customers are families with a working mom and dad, and the majority have dogs and kids. They’re not interested in doing showings. They want a set closing date.”

Opendoor offered a similar response. A spokeswoman for that company says it can take an average of 90 days to sell a home and the price isn’t a guarantee. Sellers may also wind up with a double mortgage if they have already bought another home. She says, “By selling directly to Opendoor, homeowners get a guaranteed price and timeline for their move, and they don’t have to worry about the hassles of repairs, renovations and open houses.”

For some sellers, the iBuyer choice may be worth it. And if those services are available in your area, as Knock’s Sean Black told MarketWatch, “Why wouldn’t you get multiple offers?”

Links:

(1) MarketWatch Article

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