They are calling them the i-Buyer. We know them by names such as OfferPad or OpenDoor, and now Zillow is sticking their toe in this market. The May 2018 Cromfort Report tells us that market share for this type of “buyer” is now 4% of the market.
What do they do? They allow a potential seller to go online and get a cash offer on their home in 24 hours. They not only look at public records and comparable sales, but they also factor in condition of the home which sets this process apart from the Zillow Zestimate. They move quickly to an inspection process, and then they are done with their due diligence. They appeal to the type of seller that needs to sell now, cannot afford to be on market with two mortgages, have a family situation that makes showings impossible or very poor, or a home that is just tough to sell. They also offer flexibility on closing dates, and an opportunity to lease back to help with moving.
Sounds great, but what about fees? Right now the average fees for OpenDoor are running around 5.9%, and repairs are added to that. After all that, OpenDoor’s gross margin is around 4.6%. A Realtor charges about the same fee as a commission, and there are still repairs. The Seller will pay closing costs in both cases. The average cost to sell a house is 8-10% when it’s all said and done.
Why doesn’t everyone do this? There are some restrictions on the type of properties they will take on. They will say no to properties occupied by a renter, in an age-restricted community, near flood zones, foreclosures, with leased solar, or unpermitted additions. In addition, by agreeing to go forward with using the iBuyer, the home never gets exposure to the open market, and you are selling to a buyer that has no emotional motivation to buy the home, thus any additional value or urgency to buy is missing.