Published September 29, 2023

iBuyers : 4 Reasons Why It's A Bad Idea in 2023

Written by Louis Williams

iBuyers : 4 Reasons Why It's A Bad Idea in 2023 header image.

If you've never heard the term "iBuyers" - you're not alone!

This "cutting-edge" real estate phenomenon has been steadily gaining momentum from 2014 up until the height of the pandemic, with staggering investments exceeding billions of dollars. Even industry giants like Zillow have jumped aboard. Known as "iBuyer," a term derived from "internet buyer" or "instant buyer," this trend is revolutionizing the way homes are bought and sold. It's an innovative, tech-driven approach that promises to make real estate transactions remarkably intuitive and accessible for everyone.

The process of selling your house to an "iBuyer" company usually involves submitting house information like address and condition, with the potential for upgrades. An automated valuation model assesses if your home meets the company's criteria, and if so, you'll receive an all-cash offer. After tentatively accepting, a home inspector evaluates your property, and the offer may be adjusted. Upon inspection, you'll get the final all-cash offer. If you agree, the company facilitates a quick closing, often within a week.

However, due to the ever-volatile shifts in the market, and failure to try to "automate" the sale of residential houses, huge shareholders of this idea, including Zillow and Redfin closed their iBuyer business for good - as early as 2021. Even major shareholders suffered terrible losses (OpenDoor and OfferPad, specifically)

Why did you think we'd get to this point with so much promised to us? In terms of algorithms, there are some things that simply cannot be automated. In this blog, we'll explain why using an iBuyer without understanding its limitations can be a bad idea in 2023.

1.)Residential Homes are One-of-A-Kind!

No two homes are alike, whether they are townhouses or condos.

As futuristic as the automated valuation model is, each home has its own unique set of circumstances. Combine this with an ongoing rise in interest rates, and the model's inability to offer everyone money has recently become a major reason why big real estate companies have abandoned this idea.

People, not algorithms, determine the price in this case. That's why buyer and seller agents are in high demand because they will get you the deal you want, not because an algorithm told them to, but because they understand your situation as a seller.

2.)Transparency is not THAT transparent

When you are working with a Realtor, all the rates will be disclosed to you upfront. The fees will be discussed with you during your appointment with them, or even earlier! You will sign lots of documents to protect your interest until closing.

We can't switch it up once it's in the contract - Every change will require the signatures of all parties concerned. Every possible detail is disclosed right up front. Sure, extra closing costs might come in but those things are not predictable (but it will for sure take around 3% max for average closings).

On the iBuyers' side though, aside from hitting you with prices that are going to be "competitive" (meaning, lesser price than what a realtor could give you), there are other factors that they can throw at you. These come usually near your closing date when you have no other choice but to "accept".

For example, If you decide to have the iBuyers handle the repairs following an inspection, a deduction is made from the final offer. If the repairs are substantial or extensive, the cash offer for the house may be significantly reduced.

However at this point in time, you might have already been in the process of moving out from your home and are now deep into buying your new home. Worse - you might have moved in already and have no choice but to accept.

3.) You Lose Selling Power

You own the home, and it is your right to have negotiating power over it.

Realtors will always give you options and decisions on the entire process, which includes the selling price point, selling conditions, whether to accept or deny a buyer's request to repair something -the whole nine yards!

You will feel like you are in control, and Realtors will be siding with your interests even after settling everything at the closing table.

iBuyers on the other hand, can dictate the price that they will give you, together with other costs that might come with it, all because "iBuyers take a significant risk in paying quickly and closing fast when purchasing a home.". With iBuyers, the value that was offered in exchange for your house cannot be adjusted. This is entirely disadvantageous especially if you are not in a rush today, and you have a beautiful home that you can sell for the highest bidder.

The discussion regarding the home's final selling price is necessary to complete a deal when selling a home with a realtor.

By using a Realtor, you may expect them to steer the conversation between the buyer and seller toward a resolution. A realtor will ALWAYS work towards your best interests, whereas an iBuyer will provide you with the price they believe to be the most accurate, so you cannot, for example, request a higher price.

4.) You Lose Human Connection

Forget emotions and the joy of connecting with other people when iBuying. It's a non-emotional transaction. Although you're going to be safe from the pandemic with the iBuyer's no face-to-face interaction, you will miss out on the entire home buying/selling process, which you can use to your advantage in wealth-building.

Some people would rather interact with a live person about their house than browse a web application. You yourself may feel more at ease knowing your house is being taken into account in the most personal way by using Realtors.

Realtors are experts in human communication and some of them are master negotiators who will not only do their best to sell your home but also will be your

partner throughout the process.

Life happens - and sometimes, we need to act fast. But sometimes acting fast doesn't correlate to acting right. At the end of the day, it's your property, and yours alone to profit from or to lose. Always seek advice for big decisions in your life. Being a homeowner is the American dream, and you deserve the best with every move that you will do.