Over time, society has experienced a shift from offering interpersonal services to automated services. However, not all of these changes are good changes. Take the real estate market as an example. Homeowners looking to sell their property may gravitate towards iBuyers, or instant buyers, rather than opting for an experienced real estate agent to help sell their home. Unfortunately, these iBuyers aren’t as good of a deal as they might initially seem. Opting to sell to an iBuyer will likely lead to a lower sale price obtained and higher fees paid. On the other hand, licensed realtors can locate higher-paying buyers and often have substantially lower fees than iBuyers do. Understanding the differences between licensed realtors and iBuyer companies is an essential first step in selling your home at the best price possible.
What do Real Estate Agents Do?
Licensed realtors, or real estate agents, are people who represent both buyers and sellers of real estate property. Working with a realtor is the traditional method that people use when looking to sell their home. Licensed realtors essentially act as a facilitator in the home sale process. It’s their job to work with clients to assess the value of the property, list the home, finalize property repairs, and ensure that the house is properly prepared and staged. Realtors also typically oversee open houses, facilitate property showings, and help in negotiations. Fundamentally, licensed realtors use their knowledge and expertise in the housing market to assure that all property sales follow local regulations while interacting with buyers on behalf of the seller.
After listing the home and interacting with buyers, realtors act as the middleman in negotiations. When an offer is made on the property, the realtor can present this information to the seller. At this stage, they work together to determine if they’ll accept the offer or counteroffer. With the help of the real estate agent, the seller can be confident that they will make a sale that best suits their needs, as well as receive the best market value deal for their property. When an offer is accepted by the seller, the realtor initiates the purchase process.
How iBuyers Work
Instant buyers, more formally known as iBuyers, are changing the way the housing market runs forever. Common iBuyer companies include Opendoor and Offerpad, but there are many other rapidly emerging groups. These companies are gaining popularity with sellers because of their fast cash sales. However, this does not often benefit sellers.
The iBuyer process is automated and direct. Instead of having a facilitator like a real estate agent, the company interacts directly with the seller. This interaction is, for the most part, holistically virtual. This means that sellers won’t have personal correspondences with interested buyers, nor can they develop a relationship with an agent whose priority is to look out for the seller’s best interest. Rather, the iBuyer uses algorithms that take the location and neighborhood real estate market into account to determine what they think the seller’s property is worth. They can then make the seller a cash offer with this number, which represents the company purchasing the home as-is. In other words, the seller does not need to make any immediate repairs or upgrades, nor do they need to prepare the home for staging and open houses. However, if any repairs are necessary, the seller will have to pay for them later in the transaction process. Following the offer, if a seller accepts, they can choose their preferred closing date to facilitate the purchase process.
Differences between Realtors and iBuyers
Although they may seem similar at first glance, working with realtors and iBuyers when selling your home are vastly different in their procedure. First, a common misconception is that iBuyers tend to close deals faster than a real estate agent can. This stems from how iBuyers offer below market value on a home and pay cash, while real estate agents are known to put work in to get the clients the best sale price possible. However, many agents can usually close a deal just as quickly as an iBuyer can. Additionally, some real estate brokers will make sellers a cash offer if preferred. This means that clients get the opportunity to work with an agent but also receive a cash offer – just like an iBuyer would provide – but without the added fees and expenses. iBuyers also claim to purchase the home as-is, but most will schedule an inspection which the seller must pay for. On the other hand, realtors help the seller update the home in a way that can result in the greatest profit. Thus, a seemingly shorter timeline isn’t always the best option for property sales.
Another significant difference between iBuyers and realtors is in their expenses. Even though iBuying companies tend to advertise lower commission percentages, they have higher fees and may decrease their original cash offer after the inspection is conducted. When it’s all said and done, a 5 to 6 percent commission rate for a licensed real estate agent usually results in a smaller expense for the seller, thus resulting in a greater profit yield on the sale of their home. This is substantial because agents have a deeper understanding of the real estate market in your area and work based on trends rather than automated and computer-generated algorithms. Sellers often get better advice from realtors, who want a seller’s property to succeed, compared to iBuyers who simply want the best deal that they can get.
Because of the considerable differences between realtors and iBuyers, it’s essential that sellers understand the benefits of realtors and, subsequently, the consequences of iBuyers.
Benefits of Realtors
When deciding whether to sell your home with a real estate agent or an iBuyer, it’s vital to understand the number of benefits someone has when working directly with a licensed realtor. Most importantly, realtors tend to help sellers make more money than what an iBuyer offers for their property. This is because licensed realtors use their knowledge of the current market to sell homes on the market at a retail price. iBuyers, on the other hand, typically undercut the value of a property because they need to sell it to someone else to make a profit. One MarketWatch study found that realtors tend to help sellers make an average of 11% more on their properties compared to iBuyers. That means that on a $450,000 home, a realtor could help sell a property for an average of $49,500 more than an iBuyer. With this, sellers will have lower fees, commissions, and greater profits when working with realtors instead of iBuyers.
An additional benefit of working with a realtor is the deeper interpersonal connection that forms. When working with an iBuyer, most interactions are conducted virtually and with multiple people. However, a real estate agent can provide support and discuss options with sellers based on their individual needs. This provides comfort and security during this potentially stressful period.
Consequences of iBuyers
Many homeowners are gravitating towards selling their property to iBuyers due to the convenience that they offer. While not having to stage your home, make repairs, and spend time negotiating may seem tempting in a short-term timeframe, it often doesn’t benefit you in the long run. By practicing delayed gratification when working with a licensed agent, sellers could potentially profit much more than they would have if they sold to an iBuyer. As mentioned previously, real estate agents are trained to follow housing market trends to help clients get the most money possible for their property. iBuyers, however, tend to take advantage of sellers and offer lower cash deals so that they can turn a greater profit when they sell the property to someone else. This means that iBuyers will often give you less money than what your property is truly worth with the hope of a quick turnaround time. While this may be beneficial for people in a rush to sell their homes, it isn’t the best option for most parties.
In addition to offering sellers less money for their property, iBuyers tend to have substantially higher fees associated with their offer price. iBuyer fees can be as high as 15 percent of the sale price, while real estate agents’ average fees are between 5 and 7 percent. For reference, this is about a $20,000 difference on a $200,000 home. Thus, selling your home to an iBuyer could result in substantially lower profits than if sold in collaboration with a licensed realtor.
Choose a Licensed Realtor
Instead of selling your home to an iBuyer company, working more intimately with a licensed realtor can ensure your profits are greater. Chris and Melissa Lombardo, your local husband and wife real estate team, can help you sell your Colorado home for what it’s truly worth. Don’t settle for fast cash with iBuyers when you can get the most out of the current market retail pricing. Contact us today to chat about how we can help you with your property sale!