Uncategorized August 23, 2019

Are Institutional Buyers (iBuyers) a Good Deal?

The term “iBuyer” may not be familiar to the consumer., but most have heard of OpenDoor, Perch, etc. I like to define “iBuyer” as an Institutional Buyer, aka sharks. They sell convenience to the consumer. If the consumer doesn’t realize their real risk (and most don’t), it can look very tempting.

Here’s a realistic view of what convenience costs for a house selling $270,000.

Institutional buyers are short term investors

The iBuyer isn’t going to make a profit by carrying houses on their balance sheet. These investors are taking advantage of a seller’s market. In San Antonio on average, homes sell in less than two months. Mostly, iBuyers are flippers.

Institutional buyers have all the power in the transaction

In Realtor® represented transactions, the Seller can negotiate repairs after the Buyer inspection. Typically, these repairs cost less—sometimes much less—than $3,000. The Seller can decline. And in our market where multiple buyers are vying for houses, buyers may not ask for any repairs.

With an iBuyer contract, the Seller has already agreed to make any repairs required by the iBuyer. Inspectors are required to note every deficiency, so there will be a lot more expense in meeting iBuyer required repairs. (I also wonder if those repairs get made.) The Seller has signed away their ability to negotiate.

Institutional buyer service charges are higher than Realtor® representation

Just remember that the iBuyer is not working for you and wants to mitigate all costs. I expect those costs include the ones they will incur when they sell your house. A good Realtor® absorbs the marketing costs by being good at their job and earning new business. Regardless, the typical actual service charge is higher than Realtor® representation. (See above: $16,200 versus $23,085.)