What is iBuying and Why It May Be a Bad Idea for Home Sellers
The rise of iBuying has been a game-changer in the real estate world, offering a faster and more convenient way to sell a home. But while the concept of selling your home to an iBuyer (instant buyer) may seem appealing, it’s important to understand the downsides before jumping into a quick sale. For many homeowners, iBuying might not be the best choice, and here’s why.
What is iBuying?
iBuying is a real estate model that uses technology to make instant offers on homes. Companies like Opendoor, Offerpad, and RedfinNow operate as iBuyers, purchasing homes directly from sellers with cash offers based on market data and algorithms.
Here’s how it works:
Sellers submit details about their home through the iBuyer’s online platform.
The iBuyer uses algorithms and market data to generate an offer, often within 24 to 48 hours.
If the offer is accepted, the iBuyer conducts an inspection and may deduct repair costs from the final offer.
The sale is completed on a quick timeline, sometimes in as little as two weeks.
This quick, no-fuss process can sound ideal for those looking to sell quickly, but there are significant downsides to consider.
Why iBuying May Be a Bad Idea
While iBuying offers speed and convenience, it comes at a cost—often a steep one. Here are the main reasons why iBuying may not be the best option for most sellers.
1. Lower Offers Than Traditional Sales
The most significant drawback of selling to an iBuyer is that you’re likely to receive a lower offer than what you’d get in a traditional sale. iBuyers typically make conservative offers because they aim to resell the property at a profit. They factor in holding costs, repair expenses, and the risks associated with flipping a home.
While the offer may seem fair at first glance, iBuyers are notorious for undervaluing homes compared to what a seller might receive on the open market. In a hot market where bidding wars are common, you could miss out on a significant amount of money by choosing an iBuyer over listing your home with an agent.
2. High Service Fees
In addition to lower offers, iBuyers charge service fees that can be just as high—or higher—than the commission fees you’d pay a real estate agent. iBuyer service fees typically range from 5% to 10% of the sale price. These fees are designed to cover the convenience they provide, but they cut into your final profit.
In contrast, real estate agents charge a commission (usually 5% to 6%), but they also work to maximize the sale price through marketing, staging, and negotiating. The service fees from iBuyers often don’t come with the added value you’d get from a skilled agent working on your behalf.
3. Repairs Can Slash Your Final Payout
Once an iBuyer conducts a home inspection, they often adjust their offer to account for necessary repairs. While this is a common practice in any real estate transaction, iBuyers are known for taking a more aggressive approach to deductions. They may flag minor or cosmetic repairs and subtract significant amounts from their original offer to cover these costs.
Sellers who work with iBuyers often find that the final payout is much lower than expected after repair deductions. In contrast, a traditional buyer may be more flexible with repairs or negotiate them into the final sale price, allowing the seller to retain more value.
4. Missed Opportunities in a Competitive Market
In a seller’s market, where demand for homes is high and bidding wars are common, opting for an iBuyer can mean leaving money on the table. Homes that are well-priced and well-marketed by a real estate agent often attract multiple offers, driving the final sale price higher than the listing price.
An iBuyer locks you into a single offer, typically without the chance to generate competitive bids. By taking the “easy” route, sellers miss out on the potential for a higher sale price through traditional marketing and negotiation. In a hot market, the benefits of selling on the open market far outweigh the convenience of an iBuyer.
5. Lack of Personalized Attention and Expertise
When you work with a real estate agent, you get personalized attention and expert guidance throughout the entire sale process. Agents bring a deep understanding of the local market, offer advice on staging and pricing, and negotiate on your behalf to secure the best possible deal. They also handle the many details involved in a real estate transaction, from paperwork to inspections to closing.
With an iBuyer, you’re dealing with a large company and an algorithm—not a local expert who knows your neighborhood and can advocate for your best interests. You lose the human touch and expertise that can be invaluable when selling one of your most significant assets.
6. Limited Market Availability
Not all homes are eligible for iBuying. iBuyers often have strict criteria for the types of properties they purchase. They typically focus on homes that are in good condition, within a certain price range, and located in specific markets. If your home doesn’t fit their criteria—whether it’s too old, too expensive, or located in a less popular area—an iBuyer may not even make an offer.
This limited availability means that many sellers are excluded from the iBuying process entirely, forcing them back to the traditional market anyway.
7. Selling Quickly Doesn’t Always Mean Selling Smart
The primary appeal of iBuying is speed. If you need to sell quickly—perhaps due to a job relocation or financial constraints—an iBuyer can offer a fast and convenient option. But for most sellers, selling quickly doesn’t always mean selling smart.
A traditional real estate agent can still move the sale along efficiently while working to maximize your return. They’ll help you weigh your options, market your home effectively, and negotiate for the best deal. Selling too quickly through an iBuyer might solve a short-term problem but create long-term regret when you realize how much you left on the table.
In summary
While iBuying can offer speed and convenience, it often comes with significant downsides, from lower offers and high fees to missed opportunities in competitive markets. For most sellers, working with a real estate agent offers far more value, ensuring that your home is sold for the best possible price while providing expert guidance throughout the process.
