We know you've seen those recognizable signs claiming, "We Buy Your Home 4 Cash" or "Cash Now For Your Fixer." The premise behind this business model: individuals or private groups of investors will purchase a home quickly, with cash, well below market value, and then fix it up and resell it for a nice profit. Recently we're seeing a new trend called iBuying gaining traction in real estate markets around the country. Smaller investment organizations are making these quick and simple purchases, but large corporations including Zillow, Opendoor and Redfin have also joined in on this approach to real estate investing.
The business model mimics the method used by private and individual investors. These companies send their rep to view the property and they make an offer. If the offer is acceptable to the seller, the investors purchase the property with cash and a quick closing. The buyers then make necessary repairs and upgrades and get the home back on the market as soon as possible. Clearly the iBuying service is geared toward distressed properties and desperate homeowners—people who need to avoid the hassle of a long home selling process, or who don't have the financial means to fix up their house and get it market ready.
If the hardships of life hit hard, this theory sounds like a good option, especially when buyers dangle that quick relief in front of a seller's face. Sometimes sellers can have cash in as little as seven days. It's important to remember that these are for-profit businesses and their model isn't set up to benefit the home seller. These investors are looking to make money. Not only do these companies secure an already reduced sale price, but sellers can expect to pay an extra fee of 6 to 10 percent. That's upward of two times as much as a typical real estate commission of 5 to 6 percent.
Is this new selling option a threat to the real estate profession and to home buyers looking for their own great deal? In our opinion, it isn't. These businesses have been around for a long time, since the 1970s, and while they do make up a considerable chunk of the home purchases nationwide, most homeowners will choose a different path, aspiring to receive top dollar for their home.