Instant Offers & iBuyers

With advances in technology and new ways to utilize data, some companies have sprouted up to create different ways to
sell your property. Basically, they utilize automated valuation models (AVMs) to make quick offers on homes, allowing
them to close in a much faster than typical timeframe, and then resell them. From a seller’s standpoint, it can eliminate
some hassle and uncertainty, but with high “transaction fees” ranging from 7% to 14%, and the likelihood that they will sell
the home for more than they paid you for it, you are simply exchanging that smooth and quick transaction for a portion of
your equity.
Companies that offer this kind of service are only in limited markets across the country right now. They operate by having
homeowners fill out a short questionnaire with information on their home. They feed that data into their AVM, which kicks
back an offer price. They make the homeowner a cash offer to close in a short timeframe (typically about a week) and
specify what the fee will be to proceed through to closing. Once they own the home, they will repair and spruce it up, and
list it for sale on the open market.
It may be tempting to consider such an offer, but keep in mind that this is a straight numbers play. They are determining a
price that allows them the room to cover the costs of the transactions as well as the repairs, while still making some
profit. Their profit will either come from the fee you’ve paid or from acquiring your home at a below market price – although
it could possibly be a combination of the two. An analysis on one company’s transactions showed they were selling
homes at an average 5.5% appreciation, on top of their transaction fee. That’s a lot of money to leave on the table for a
little convenience.
There are other companies beginning to test alternative listing models as well, utilizing technology and AVMs to make
‘instant offers’ on homes, or to help buyers acquire and move into their next home before selling their current one. As
always, it’s important to read the fine print and understand what you are agreeing to, if one of these companies expands
into your area.