iBuyers have become a significant part of the real estate landscape in recent years. These companies, including major players like Opendoor and Offerpad, represent a unique segment of the market, offering an approach that’s a bit different from traditional real estate investors.
Before we dive into looking at why you should or shouldn’t sell to an iBuyer let’s take a moment to review other types of investors.
- Buy and Hold Investors: These investors purchase properties to rent out, making money through long-term appreciation. They often renovate homes to attract tenants and hold onto these properties for years, banking on the increase in value over time.
- Flip Investors: These investors buy homes and renovate them, usually to resell them for a profit. This method is popular but comes with high risks due to market fluctuations and renovation costs.
- Wholesale Investors: These investors put properties under contract and then sell these contracts to other investors before they close. They operate quickly, often making deals without taking ownership of the properties themselves.
- Real Estate Strategist: This is the category we fall into at MCM Real Estate Services. We focus on solving complex homeowner problems, prioritizing the homeowner’s needs over the property itself. The strategist often facilitates quick sales and provides tailored solutions for unique challenges that other investors may not handle.
Big Box Investors: What You Need to Know
This brings us to what I like to call Big Box Investors, a broad category that includes several different types of companies.
First and foremost are the iBuyers. Currently, the two major players are Opendoor and Offerpad. While Zillow and Redfin used to run iBuyer programs, they shut them down in 2021 and 2022, respectively. With iBuyers, you enter your home details into an online portal, and their algorithm generates an offer.
The second type of Big Box Investor includes hedge funds like Blackrock and Cerberus. We’re not going to focus on them as much, as these funds typically buy brand new homes for rental purposes. You won’t see them making individual offers on existing homes; instead, they prefer to purchase entire streets in new home communities to rent out.
What sets Big Box Investors apart from other real estate investors is the sheer volume of homes they buy and sell. For example, in 2022, Opendoor bought over 34,000 homes and sold 39,000—nearly 100 homes a day. Can you imagine that?
For some, selling to Opendoor is a convenient option. However, before you jump in, there are a few important considerations to keep in mind.
Price Adjustments: The initial offer from an iBuyer may look attractive, but it’s just the starting point. After inspecting your home, the iBuyer will likely adjust the price based on their assessment of necessary repairs. These adjustments, which are based on estimated repair costs, can significantly reduce the initial offer.
Service Fees: iBuyers charge service fees ranging from 6% to 10% of the sale price. These fees cover the convenience of a quick sale without showings or repairs. However, when combined with repair costs and closing fees, they can significantly diminish your net profit. It’s important to note that service fees do not cover repair costs or closing expenses. The exact percentage is determined by the iBuyer, depending on their estimate of how long it will take to resell or rent your home.
Location Limits: While iBuyers operate in many metro areas, they do not buy homes in every neighborhood within those areas. Opendoor, for example, claims to operate in 51 metro areas, but they have specific criteria for the homes they purchase. This means that even if your home is in a listed area, it might not fit their portfolio, leading them to withdraw their offer.
Similarly, as a local investor, I concentrate on specific areas within the DFW metroplex, such as Fort Worth and select high-growth regions of Tarrant, Johnson, and Parker counties. However, as real estate strategist, if someone contacts me from farther areas like Forney or Rockwall, which are beyond my usual scope, I may have contacts to whom I can refer the deal to ensure it gets done.
iBuyers vs. Traditional Investors: Weighing Your Options
Despite these points, many people have positive experiences selling to iBuyers like Opendoor. This method is ideal for homeowners with newer homes or properties in great condition in high-demand areas who need a quick sale and don’t prioritize maximizing profit. They enjoy the convenience of handling everything online with just a few clicks. Many homeowners appreciate this simple, fast, and hassle-free process.
However, keep in mind that the large-scale business model of iBuyers limits their ability to provide personalized solutions. Traditional real estate investors, like myself, offer more flexibility and can address complex homeowner situations. For instance, real estate strategists can handle unique property conditions or personal circumstances that require a tailored approach.
The rise of iBuyers doesn’t significantly threaten traditional investors. Similar to the big box companies from the early 2000s, like We Buy Houses, iBuyers’ large-scale operations restrict their flexibility and ability to offer tailored solutions. As long as there are homeowners with complex needs, there will always be a place for investors who provide personalized and flexible services.
If you want to learn more about real estate investment strategies, join us for our Introduction to Real Estate Investing class. Visit us at www.themcmu.com to save your seat!
