iBuyers are companies that offer sellers cash for their homes. These companies make small repairs and improvements to purchased homes. They then list them for sale, and then attempt to sell the home for a profit. In addition to the appreciation on the home sale, iBuyers make money by charging a service fee to the seller.
The typical iBuyer service fee is 7.5%. But they can range from 5-15%. iBuyers may also charge the seller for repairs or costs related to the closing.
iBuyers can generate profits three ways. First, they capture the appreciation in the sales price of a home they purchase. Second, they charge a service fee to the seller. Finally, they make money from added services to the buyer or seller. This can include as helping the seller find a new home or hire a service provider.
Because iBuyers are new, there is still not an industry standard profit per home. Many iBuyers are still refining their growth strategy and operations.
Many iBuyers do not yet generate a profit on each home. For example, Zillow Offers lost $1-2K per home in 2019 as it grew its operations. But in initial tests in 2018 it did generate a small profit on each home.
The average home purchased by an iBuyer is between $200,000 and $400,000. iBuyers often focus on homes that are affordable in a market. These homes require minimal renovations to be ready for sale. They are often not priced high enough for competition from top listing agents. That said, it’s likely that iBuyers move to higher price points as they refine their business models.
Sellers who work with iBuyers are typically most concerned about speed. iBuyers will make an offer to buy a home within 24 hours. By contrast, an agent may have to market a home for over 60 days before selling it.
Sellers concerned about the sales price of a home are not great candidates for iBuyers. Real estate agents have a strong incentive to maximize the sales price of a home. They receive a larger commission and a better reputation with sellers. iBuyers have an incentive to pay the lowest possible price. That said, it’s also possible an iBuyer can still produce a better financial outcome for a seller. It may provide a competitive offer in the right market. It can also limit fees related to renovations, carrying costs and concessions.
A common misconception is that iBuyers are glorified home flippers. But iBuyers focus much more on move-in ready homes requiring small improvements. Home flips are purchased well substantially below listing price. And they require significant renovations. Many of these homes are purchased in foreclosure. The average investment in a home flip is around $35K. By contrast, Zillow Offer's average renovation cost in 2019 was closer to $15K.
The largest iBuyers are RedfinNow, Zillow Offers, Opendoor, and Offerpad. RedfinNow is owned by tech-enabled brokerage Redfin. Zillow Offers is owned by real estate portal Zillow.