Introduction
iBuyers vs. MLS: The Costly Truth Behind Quick Home Sales. In the wild world of real estate, you can’t flip through TV channels without stumbling upon iBuyer commercials promising a quick, painless sale. They paint an appealing picture—no open houses, no haggling, just a smooth, easy transaction. But do these tech-savvy middlemen save you money, or are they cleverly hiding significant costs behind that polished facade? Let’s dive into the financial nitty-gritty of selling your home through an iBuyer versus listing it in the MLS with a real estate broker.
Costs Associated with iBuyers
Many sellers are unaware of the true financial and opportunity costs of using an iBuyer. Prominent iBuyers like Opendoor, with 67% of the market share, and Offerpad charge the following fees:
- Service Fee: This is the primary fee charged by iBuyers and usually ranges from 5% to 15% of the home’s sale price. For example, if your home sells for $300,000, the service fee could be between $15,000 and $45,000.
- Closing Costs: iBuyers may charge sellers for closing costs, which can include title insurance, recording fees, and other administrative expenses. These costs typically range from 1% to 3% of the home’s sale price.
- Repair Costs: If the home requires repairs or improvements before it can be resold, the iBuyer may deduct these costs from the offer price. The amount can vary widely depending on the condition of the home and the extent of the repairs needed.
- Additional Fees: Some iBuyers may charge additional fees for services such as helping the seller find a new home or providing other services related to the sale.
Example of Potential Costs
- Sale Price: $300,000
- Service Fee: 5% ($15,000)
- Closing Costs: 1% ($3,000)
- Repair Costs: 2% ($6,000)
- Total Fees: $24,000
Keep in mind that these fees can vary between different iBuyers and may depend on the specific terms of the agreement.
iBuyers aim to purchase homes at a price that allows them to resell for a substantial profit. They often make offers on properties with very limited time for acceptance, typically below market value, preying on sellers’ emotions with the promise of a hassle-free process. Contracts may include clauses allowing iBuyers to terminate without recourse, which can cause significant stress if the deal falls through just before closing due to changing market conditions.
It’s important to note that a real estate brokerage offering full-service or flat-fee MLS listing services has a fiduciary duty to represent the seller’s best interests, unlike iBuyers. Sellers may consider traditional real estate brokerages or flat-fee MLS listing services as alternatives to the iBuyer concept.
Benefits of Listing in the MLS
When listing a home in the MLS, sellers benefit from exposure to potentially thousands of buyers, including those working with buyer agents, via MLS and IDX feeds to numerous websites. Full-service listing brokerages often charge a substantial percentage of the sales price as a commission, while flat-fee MLS listing services, such as Ohio Broker Direct, charge a minimal flat fee, saving sellers thousands of dollars in commissions and service fees while maintaining control over all aspects of the sale.
Several companies have tried the iBuying concept, with many attributing their failures to the use of algorithms. Redfin and Zillow both exited the iBuying market after significant financial losses. Opendoor and Offerpad have also seen significant changes in their stock values since their peaks in 2021. Their lowest to current values are as follows:
- Opendoor: $35.20 (current) from $14.00 (2021)
- Offerpad: $18.75 (current) from $7.50 (2021)
Companies like Opendoor and Offerpad continue to use automated valuation models (AVMs) and other algorithms to quickly assess the value of homes and make purchase offers. However, the effectiveness and accuracy of these algorithms have been a point of contention, especially after Zillow’s exit from the iBuying market due to significant financial losses.
Pros and Cons of Selling Through an iBuyer
Pros:
- Convenience: Offers a quick and hassle-free process, with fewer showings and less preparation.
- Speed: Faster transactions, with the potential to close within days or weeks.
- Certainty: Fewer contingencies, reducing the risk of deals falling through.
Cons:
- Cost: Service fees of around 5%, plus closing and repair costs.
- Lower Offers: Typically offers below market value to ensure their profit margins.
- Limited Time: Short acceptance periods can pressure sellers into making quick decisions.
- Contract Clauses: Potential for iBuyers to terminate contracts without recourse.
Pros and Cons of Listing in the MLS with a traditional Real Estate Broker
Pros:
- Exposure: Maximizes visibility to thousands of potential buyers via MLS and IDX feeds.
- Higher Offers: Competitive offers due to market exposure and buyer interest.
- Representation: Fiduciary duty to represent the seller’s best interests.
- Flexibility: Ability to negotiate terms and conditions that meet specific criteria.
Cons:
- Time: Longer process, with potential for extended listing periods and multiple showings.
- Commission: Full-service brokers charge a substantial percentage of the sales price as a commission.
- Preparation: Requires more effort in preparing the home for showings and open houses.
Pros and Cons of Using a Flat Fee MLS Listing Broker like Ohio Broker Direct
Pros:
- Cost Savings: Minimal flat fee, eliminating thousands of dollars in commission and service fees.
- Control: Sellers maintain control over all aspects of the sale, including pricing and negotiations.
- Exposure: Listings in the MLS provide visibility to thousands of potential buyers.
- Flexibility: Ability to choose the level of service and support needed, tailored to the seller’s preferences.
Cons:
- Time and Effort: Sellers need to invest time in managing the sale process, including showings and negotiations.
Lawsuits Involving iBuyers and Full-Service Brokerages
iBuyers:
- Opendoor: The Federal Trade Commission (FTC) filed a lawsuit against Opendoor Labs, alleging that the company made false claims about offering market value for homes and saving sellers money. Opendoor agreed to pay \$62 million to settle the charges.
- North Carolina Real Estate Commission: Disciplined Opendoor for failing to disclose material issues in three separate transactions. The company agreed to take corrective actions.
Full-Service Brokerages:
- National Association of Realtors (NAR): NAR settled a class-action lawsuit for \$418 million, accused of inflating agent commissions through its MLS rules. The settlement includes changes to commission structures and increased transparency.
- HomeServices of America, Keller Williams and others: Settled lawsuits related to inflated commissions, agreeing to pay millions in compensation.
Final Thoughts
When it comes to selling your home, the choice between an iBuyer and a traditional real estate broker ultimately hinges on your priorities and circumstances. Listing your home in the MLS maximizes exposure and enables you to potentially receive higher offers due to market competition. However, it requires more time and effort compared to using an iBuyer or a flat-fee broker. If speed and convenience are paramount, and you’re willing to pay a premium for it, an iBuyer might be the way to go. However, if maximizing your profit and benefiting from experienced representation is more important, listing your home in the MLS with a real estate broker, or even using a flat-fee MLS listing service, could be the better option. Make sure to weigh the pros and cons carefully to ensure you make the best decision for your unique situation. Remember, in real estate, knowledge is power, and a well-informed seller is a successful seller.