What Is An iBuyer vs a Real Estate Investor: Know the Difference
Selling or buying a home is one of the biggest financial transactions you’ll make over your lifetime. You have access to more information than ever, but the process can be overwhelming if you don’t know how it works. Should you sell it yourself (FSBO), hire a realtor, or call a real estate investor?
What Are Your Options?
It all depends on why you’re selling, how fast you need to sell, and what you want in return. If you sell it yourself, you won’t have to pay realtor’s fees, but you’ll need a lot of time and knowledge. A realtor may be your best bet if you want someone to do the legwork and get you the highest dollar.
If you’re in a hurry to sell or don’t want the hassle of preparing and showing, a real estate investor may be a good option. Investors have been around for a long time, but now they’re competing with a new breed called iBuyers, or instant buyers. You’re probably asking yourself “what is an ibuyer?”. These new companies use technology to figure out how much a house is worth before they make an offer.
If you bought a house before the age of the internet, you probably remember the mysterious “multiple listings” notebook your realtor used to show you what was available. Well, that’s changed. Today, you not only have access to all the homes listed in the MLS, but you also know how big they are, what they last sold for, and how much your taxes will be.
You can look at the location on an aerial map, see pictures of all the rooms, and check out the school systems, thanks to marketplaces like Zillow and Redfin. Real estate investors and tech-oriented buyers use the same data to estimate the value of your home, but there are distinct differences between the two. We’ll explain what is an ibuyer and give you the pros and cons you need to avoid costly mistakes and make wise decisions.
What Is An iBuyer?
So what is an iBuyer? Not all online investors do things the same way, but they all use tech-savvy ways to invest in real estate online. Instant buyers use an automated evaluation model, or AVM, to assess a house’s value and make an offer, relying on their reputation to gain buyers’ trust. Their goal is to buy homes at prices that allow them to make a quick profit, usually without seeing the property in person.
Relatively new but well-known companies, including Zillow, Redfin, and Opendoor, are perfecting their techniques and offering their services across the United States. Unlike local real estate investors, they may charge fees and closing costs or request inspections and repairs. It’s your job to know how they operate and whether they’re offering you a good deal.
What Is a Real Estate Investor?
Real estate investors work on a smaller scale than iBuyers. They may use technology, but they also use signs, media and mailings to reach a local audience. Known for hassle-free transactions and few demands, they target homeowners who need to sell for reasons like divorce, financial problems, or relocation plans. Real estate investors don’t charge fees, and they may work with the seller to remove clutter or find new housing.
Like the larger companies, real estate investors have unique styles and policies. It’s up to the buyer to ask for references and check for reviews at sites like the Better Business Bureau. Selling to an investor usually gives the homeowner more freedom to negotiate, make special requests, and get out of the house easily and quickly.
Who Should Sell to iBuyer Companies?
Consider this method if you’re looking for these advantages:
1. Quick sale
A fast turnaround may be the biggest asset. Using details you provide online, the company will assess the value of your home and make an offer within as little as one day. Closing usually takes place in 10 to 14 days, compared to six to eight weeks for traditional real estate sales.
2. Hassle-free transaction
If you’d rather handle the sales process from your home than go to banks and law offices, an instant buyer fits the bill. You can get the money immediately without worrying about contingencies, loan approval, or counter offers.
3. No repairs
Selling through a traditional real estate company usually requires staging a home, sprucing up the lawn, and making repairs. If you’d rather sell it as-is and avoid the time, expense and inspection worries, consider an instant buyer. They will make an offer based on the photos you send and fix it up themselves.
The Cons of Selling to An iBuyer
The lure of a no-strings-attached sale is appealing, but homeowners should think about the cons before signing a contract:
1. Lower price
To resell your home for a profit, these companies must pay less than the market value. Whether the trade-off is worth it for you is a personal call.
2. Higher fees
They don’t charge a commission, but they have high transaction fees. Research by Collateral Dynamics says they charge a “convenience fee” of 6 to 9.5 percent, and some also charge another 1 percent for closing costs. Overall, sellers will pay from 7 to 10 percent of the sales price.
The average cost of selling through a real estate company runs from 5 to 9 percent, a little less than the 7 to 10 percent in transaction fees for an internet buyer. Real estate investors pay a lump sum for the home and absorb the costs of closing and repairs.
Because the concept is relatively new, instant buyers may not cover all geographical areas, especially rural or scarcely populated ones. They may not be the best choice for unique properties or those with stunning features like swimming pools or ocean views. Instant buying works best when the home for sale is like other homes in a particular area and, therefore, easy to compare.
4. Unexpected negotiations
Although instant buyers make an initial offer based on the information you provide, they also require an inspection. If the house doesn’t meet their standards, they may lower the offer. They may also turn down homes that don’t meet their specific criteria, such as those related to age and building materials.
What Is An iBuyer vs a Real Estate Investor
Both instant buyers and local real estate investors want to buy your home and sell it for a profit, but they differ in size and resources. A company that does instant buying is a corporation with employees and cash reserves. An investment buyer is an entity, often local, with limited resources.
Local real estate investors may have a website that allows you to request a quote or provides information about how they do business. Because they deal with sellers on a personal level, they can be more flexible than big companies.
What Are the Benefits of Selling to a Real Estate Investor?
1. An as-is sale
Because investors don’t plan to live in your home, they are less sentimental than traditional buyers about decor and school districts. They look for homes that needs repairs or updates and get them ready to sell.
After they’ve inspected your home and made an offer, you can count on the sale to a real estate broker being completed. Most pay sellers a single lump sum, sometimes in cash, eliminated the uncertainty of mortgage approvals and contingencies. Before you sign a contract, ask for bank statements or other documents to prove the investor has the needed funds.
3. Convenient, fast closing
Investors pay in cash, and they can give you the money as soon as you agree on the terms of the sale. If you sell to a traditional buyer, you’ll usually wait two months or longer before closing. With an investor, it takes around two weeks.
A local real estate investor may work with you to meet your needs. Some buy homes and rent or lease them back to the seller. You might even find an investor willing to take over your loan. Others offer flexible moving dates, and some even help with relocation.
What Are the Disadvantages of Selling to a Real Estate Investor?
Like any other endeavor, you need to do your homework before signing a contract with an investor. Consider these factors when you do your research:
1. Below-market value price
To prepare a house for sale and make a profit, real estate investors must pay less than market value. They don’t have to tell you how they’ll use the property. Depending on how they use the property, it may be worth more or less than you think.
Scam artists sometimes use real estate investment as a cover for their shady dealings. If you don’t check out the reputation of the person you’re dealing with, you may fall prey to a swindle. One way to keep this from occurring is to consult a real estate broker or attorney before signing any contracts.
3. Unknown buyers
Just as investors don’t have to tell you how they’re using your property, they don’t have to tell you who the new owner will be. It could be someone who will be an asset to your neighborhood or someone who plans to cut down trees and build cheap apartments and take advantage of renters. If the home has sentimental value, ask questions before you go through with the deal.
4. Foreign buyers
Sometimes, well-intentioned buyers from other countries buy houses in the U.S. and then run into unexpected legal problems. Get as much information as possible to keep legal or tax issues from delaying the sale if you sell to a foreign buyer.
Which Is Best For You?
There is no one-size-fits-all solution for selling your home. Now that we’ve answered the question of “What is an iBuyer?” and “What is a real estate investor?,” it’s up to you, the seller, to choose the one that best suits your needs.
Regardless of your choice, always do your homework. Ask for references from past clients, check for complaints with the Better Business Bureau, and look for unbiased reviews from independent sources. To get a better idea of what your house is worth, schedule a free consultation with a realtor, and get quotes from online sites of instant buyers.
You can also talk to real estate investors in your area. The more information you have, the better choices you can make.
Do You Want More Information?
If you’re interested in learning more about selling your home, complete a 60-second survey for a quote. We’ll put you in touch with a local expert who can answer your questions and guide you through the process.
Our system involves three easy steps. You tell us about your house, and we’ll make an offer within hours. Then, we’ll set up closing when it’s convenient for you and pay you in cash.