UPDATED: Apr 12, 2024
Home sellers want to make as much money as possible, and home buyers want to spend as little as possible, but both buyers and sellers value certainty. So, what if you didn’t have to make your new home offer contingent on selling your previous home because you knew you had an offer on it?
An iBuyer in real estate uses technology to provide offers on homes, streamlining the process for people looking to sell a home while at the same time buying another. iBuyers then proceed to sell the homes they buy, providing a resource for buyers.
Let’s take a close look at how iBuying works, carefully highlighting its advantages and disadvantages.
An iBuyer company uses technology to make an offer on a home in a day or two without you having to go to the expense and effort of listing your home for sale. Sounds fast, right? Well, the “i” in iBuyer stands for instant.
iBuying is a simpler alternative to the traditional way home sales work. Because iBuyers have the financial means to buy homes in cash, you can avoid costly repairs, receive an all-cash offer and control the closing date when selling a house to an iBuyer.
The algorithm that iBuyers use to determine the offer price is sometimes supplemented with information from real estate professionals. You can accept the iBuyer offer or choose to move ahead with putting your property on the market.
Going through an iBuyer can be a good option for those who don’t have the time to market and sell their home or need more time to find a new place.
iBuyers combine market data with information they have about your home, putting the data into a powerful algorithm that generates an offer. The automated valuation model (AVM) technology processes data about the home and comparable properties to generate an instant offer.
During a typical home sale, real estate agents do a competitive market analysis (CMA) by comparing recently sold properties with similar characteristics to determine the current market value of a property. Performing a CMA is time-consuming, but AVM technology can do this almost instantly.
After the CMA, real estate agents will help you put your property on the market, which can yield advantages – particularly in a competitive market. Even if the iBuyer’s offer is based on market value, it’s important to realize that appraised values can lag behind what’s actually happening in a market since all appraisals are based on past sales, even if they’re recent.
Real estate agents charge a commission that’s usually around 6% of the sales price, but depending on the price you get, you may find that it’s worth it. Many iBuyer companies also charge a commission similar to agent commissions in a traditional sale. iBuyer fees typically range from 5% – 10% of the sales price.
Let’s take a close look at how the iBuying process works.
You can get an instant valuation on your home by entering your address and other basic information about the property, as well as your name and contact information. Details such as the square footage, the number of bedrooms and bathrooms, and the home style will affect the property value.
Based on what you entered, comparable homes and whether the home meets the company’s criteria, the iBuyer’s software provides an offer that you’ll either accept or reject.
Because iBuyers purchase homes as-is, you don’t have to make any repairs before selling your home. However, if your home is in rough shape or needs a little work, this could affect what the company is willing to offer. The iBuyer may ask that you schedule a free home assessment. If repairs are needed, the expenses could be deducted from your net proceeds.
Once you and the iBuyer have come to an agreement, you can choose a closing date that works for you. Closing on a house through an iBuyer sale typically happens within a few weeks, which is much faster than the traditional closing timeline.
iBuyers have websites where they list available inventory, allowing you to buy a home directly from the iBuyer. Depending on the site, you may be able to schedule a tour or take a virtual tour. Be prepared for iBuyers to have specific rules such as the requirement that you have a mortgage preapproval. Some iBuyers may offer their own financing, although you should be free to get a mortgage anywhere.
It’s a good idea to be prepared to pay for certain closing costs, although you may find that closing costs are cheaper than with a traditional real estate transaction because you’re not dealing with as many costs.
Buyers should also ask themselves these questions to ensure that working with an iBuyer is right for them:
How you sell your home to an iBuyer can vary depending on the company you’re selling to, but certain factors will affect the home value you’re given.
When determining a market value for your home, the algorithms consider factors such as the style of the home, number of units, square footage, and number of bedrooms and bathrooms. Additional amenities such as a finished basement may also be considered. The computer calculations may be bolstered or adjusted based on feedback from local experts.
Selling your home to an iBuyer:
Sellers should ask themselves these questions ahead of time to be sure that working with an iBuyer is right for them:
Working with an iBuyer has both benefits of drawbacks. Here’s a summary of them.
Pros |
Cons |
Less work: You don’t have to stage your home or market it. |
A service or listing fee: This is generally how iBuyers make money and cover their costs while they hold the house, waiting to sell it. |
No repairs: If repairs need to be done, iBuyers generally handle them. |
The potential for less profit: Depending on how competitive your market is, it can be hard for appraisals to keep up with what’s happening on the ground, so iBuyer offers may skew low. |
A guaranteed offer: iBuyers make guaranteed offers. Consequently, you won’t deal with any financing issues. |
A less personalized experience: Because the iBuying process happens mainly online, you won’t have the same level of interactions and back-and-forth you would with an agent. |
When selling a home, money plays a big part in any decision. Ideally, you’ll want to take the highest possible offer with the lowest possible service fee if you choose to go with an iBuyer.
However, you’ll also want to ensure you’re working with an entity that has your best interests in mind. Use these tips when choosing an iBuyer:
Not a ton of iBuying companies are out there, and those that do exist accounted for less than 2% of home investor purchases in 2023.
Currently, these companies offer iBuying services:
The Rocket Homes Offer Guarantee program is available in select markets now, but we’ll be rolling it out to more areas in the future. One of the big distinctions of our program as compared to other iBuyer offerings is that we pair you with a real estate agent from the start.
The Rocket Homes Agent will either help you list your home or move forward with our Offer Guarantee program. And if you don’t have financing lined up already, we help you apply for a Verified Approval from Rocket Mortgage®.
Rocket Homes then gets you a guaranteed offer – from one of our iBuyer partners – that’s good for the next 60 days. Importantly, this is a cash offer. It’s not going to fall through at the last second. At this point, you can accept the offer or list your home on the market.
From there, you can search for a home with your Rocket Homes Verified Partner Agent. After you’ve had an offer accepted, you’ll activate your guaranteed offer, sell your current home and close on both homes at the same time – unless you choose not to.
You’re not required to accept the guaranteed offer, and you’re always free to negotiate a better offer if you can.
Check out the answers to the most frequently asked questions on iBuying.
iBuying may be worth it if you prefer a fast and convenient way to sell your home, without the hassle of preparing for showings, staging and dealing with potential buyers. However, you’ll need to consider some downsides – including the fact that iBuyers make offers based on algorithms and market data, which may result in a lower sales price than you’ll find with traditional sales.
If you want to sell your house fast, you can sell as quickly as a few weeks. If you need more time, the iBuyer may let you push the closing date out several months.
iBuyers aim to make an offer that’s as close to fair market value as possible. If the property needs repairs, the estimated costs are deducted from the proceeds.
The primary goal of flipping a house is to generate a profit. House flippers rely on buying low and selling high, rather than providing buyers and sellers with a fair market price.
Yes, iBuyers are generally open to negotiating, but this depends on the company. However, iBuyers may be less willing to consent than traditional buyers and sellers.
Working with an iBuyer can be a great opportunity for homeowners looking to sell a home quickly or avoid the stress and work of a traditional sale process. However, for the reasons discussed above, this selling process isn’t for everyone. Be sure to carefully weigh your needs against the services an iBuyer has to offer and make the best decision for your unique situation.
Regardless of whether you’re ready to work with an iBuyer or make a home purchase the more traditional way, you can start the mortgage application process today.
Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.
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