The way people are buying and selling homes is changing with the introduction of new technologies. Online purchase models like Redfin, Opendoor, Offerpad, and Homesite are all entering the market to compete with realtors for home purchases.
They offer different pricing schemes that may not align with what a typical buyer would offer for your home. This article will explore how these iBuyers work and highlight their pros and cons compared to using a traditional realtor model for selling your house.
How an iBuyer Valuates a Home
There are a few major iBuyer companies that have different ways of valuing properties. Each company has a different algorithm based on buying homes, but almost all of them use “comps” in their valuation models.
This is a list of recent sales in your area to help estimate what you can sell your home for. Some companies will do these comps in-house, and some will outsource it to third-party data providers like RealtyTrac.
How a Realtor Valuates a Home
While a Realtor is still going to look at recent sales in your neighborhood, their valuation model also takes into account the unique features of your home.
Just because you have a newly finished basement with a bar and pool table doesn’t mean it will add value to your house since not everyone likes to play pool.
They will pay the most attention to the size of your home, the number of bedrooms and bathrooms, garage or lack thereof, lot size, among other things.
The Selling Process with Opendoor
Opendoor gives you a firm offer online, and they want to close within 3-4 weeks. They will send someone over to your house to take pictures and videos of the property, including the front and backyard, so that their staff can review it.
Their research may come back with a new number if they believe it is over-valued. In some cases, Opendoor may need to replace certain items in your house, like a broken dishwasher which you would be responsible for.
The selling process with a Realtor
This will vary from realtor to realtor, but a listing agreement is generally signed with a commission rate and duration for the agreement. An appraisal may be required before they list your home, depending on if it was just bought in the last 12 months. Their realtor will set an open house date so potential buyers can come to see your house and meet you.
Advantages of Opendoor
1. Finding a Good Realtor can be Challenging and Time-consuming
Opendoor makes this process easier by giving you the option to be matched with a realtor that is familiar with their company. This means there is no “up-front” cost for sellers who use Opendoor when selling real estate. Realtors who are not affiliated with Opendoor will charge a sales commission paid by the seller when the home sells.
2. Cash Offer Made on Home and Quick Turnaround Time
An Opendoor offer is made with cash, and the sale closes immediately after an inspection is completed. Today, most listings are for “contingent” offers, giving buyers time to do inspections before purchasing a home. This process can take up to two months or longer, depending on how long it takes your buyer to get approved for financing.
3. Limits Human Interaction for Those who Feel Intimidated
Opendoor’s goal is to provide a streamlined and less stressful experience for sellers. This means they handle all communication with buyers, including sending out email updates when needed, scheduling walk-throughs of your home, and turning in offers for repairs if necessary. The entire selling real estate process through Opendoor takes about two weeks in most cases.
4. No need to Stage or Market the Home
Opendoor requires that all homes comply with their basic criteria for selling. Aside from this, sellers are not required to do any other repairs or improvements before receiving an offer. This is extremely helpful for those short on time, have physical limitations, or not have the money to repair their property.
Challenges of Opendoor
1. Cash Offers are Usually Lower and Make it Difficult to Account for its Fair Value
If you are not motivated to sell your home, an offer from Opendoor will be much lower than the home’s current market value. This is because they have to factor in their purchase price and associated costs.
Their goal is to receive the total market value for their home when all expenses are accounted for. As a result, it isn’t easy to compare the selling price under these conditions.
2. High Transaction Fees when Compared to a Realtor Commission
Opendoor charges a transaction fee of 5.5% on the selling price, which is 2-3 points higher than what you would pay when using a traditional realtor. When using Opendoor, you will not have to worry about marketing costs, showings expenses, closing costs, or any other associated fees that Realtors charge. With all of these expenses considered, it makes sense why their prices would be higher.
3. Zero Negotiation Leverage
When selling with Opendoor, you will not have the opportunity to negotiate a better offer. In most situations, sellers can counter back and ask for more money from buyers if they feel their initial offer is too low. This option is not available when using Opendoor as a selling platform, which can be frustrating for those trying to get top dollar for their home.
Advantages of Realtor
1. Lower Fees and Negotiation
When selling with a traditional realtor, like The Kay-Grant Group, you will pay a commission of about 3%, and they usually require that the seller repairs or improves upon some regions of their home. This is beneficial for those who want to sell but cannot afford Opendoor’s service fees or lack time to make any improvements on their property.
2. Profit Potential
A realtor will only sell your home for what it’s worth. This means that there is room to negotiate a deal on the price of your home if it has been sold multiple times before. Opendoor, on the other hand, offers set prices based on their company policies, limiting any chance of negotiating. There are also additional fees associated with Opendoor that will not be applied to a traditional realtor transaction.
Disadvantages of a Realtor Sale
1. Contingency Risks
Sellers who turn to Realtors instead of Opendoor are accepting the risks associated with a contingency sale. This means their home will only be sold if the buyers get approved for financing before the deal is finalized. If they are not pre-approved for a mortgage, then there is no guarantee that your home will sell on the market.
2. Repairs and Upgrades
In general, Realtors will not make any repairs or major upgrades to the property they are trying to sell. This protects their business from taking a loss when something goes wrong with the home. Since Realtors do not have access to anything that isn’t directly related to the sale, they cannot be held accountable for potential damages.
Opendoor is a quick and efficient way to sell your home. You will not have to worry about repairing or making any significant upgrades before putting it on the market. Once you are ready for an offer, Opendoor will make sure that they offer you their best price before closing the deal.
A traditional realtor provides many benefits over Opendoor, which can be beneficial when selling a home with multiple repairs. The cost of using a Realtor will also include more negotiation potential and the ability to receive more money for your home.