ibuyers in New Jersey
Have you heard of the new real estate technology trend referred to as “iBuying”?
Companies like Zillow, Opendoor, and even Redfin have launched new services in the real estate investment space, using technology to make “instant” offers on your home.
There’s a lot of hype surrounding this new wave of online real estate investment services, which have been dubbed “iBuyers.” Taken at face value, it sounds interesting. But if you are a homeowner in New Jersey looking to sell, do your due diligence. Make sure you understand all the fine print before considering this route.
What is an iBuyers?
An iBuyer is a company with considerable financial resources that uses an algorithm to price homes and make offers. The company will decide whether your home is worth purchasing and how easy it will be to sell, then make an offer and give you cash for your home. It will then sell the house and attempt to make a profit.
Opendoor, which started in 2013, was the first major player in the iBuyer arena. Other companies have since followed suit.
Unlike house flippers, iBuyers tend to stick to homes that are in excellent condition. Instead of buying really low, renovating, and selling high, iBuyers focus on homes that only need a little bit of work – if any – so they can sell them quickly and without a lot of additional investment. Since they have so much capital, they can focus on easy sales and volume to make money.
An iBuyer attempts to streamline the real estate process for sellers. If you want to sell your home, you just go to the website of an iBuyer and put in your address, fill out a questionnaire and wait. About a day later, you will get an offer on your home – a cash offer. The process is relatively instantaneous, hence the “i” in the name. If you decide to take the offer, you can be done with the sales process in just a few days.
The thought of selling your home for cash in a few days is undoubtedly appealing, especially compared to the average sales time of 60 days. But there is a catch, as always. You are probably not going to get the maximum offer for your home you might get if you sold by going the traditional route or to a Cash Home Buyer in New Jersey.
An iBuyer knows that they are giving you multiple benefits by expediting the process, and they know they do not have to offer big to win. They also buy numerous homes a day, so they have no interest in haggling.
An iBuyer might be perfect for you – or it might not be.
How Does Their Process Work?
One of the major differences between an iBuyer and a traditional real estate investor is how they determine what to offer on your home. They use what is called an automated valuation model or AVM for short. The AVM is simply an algorithm used to determine a property’s market value. In fact, an iBuyer may not even visit your home in person on occasion because they are relying on their AVM.
Some would say this is modern technology at its finest, while others would say it is a bunch of bologna much like Zillow and their unreliable house estimate. It is next to impossible to arrive at a properties actual market value without stepping inside. There are far too many variables that can impact the value of a home. None the less, this is precisely how an iBuyer will figure out what to offer for your home. A lot can be missed using this process and home sellers are not typically able to negotiate with iBuyers. In many cases, the iBuyers offer is simply take it or leave it. However the process can work for some home sellers in New Jersey. Agents and Cash home buyers use what is called a comparative market analysis which incorporates the data of recently sold homes in your area to determine what your house is currently worth.
What Do They Charge?
The convenience and speed of an iBuyer do come at a cost – the final sale price of your home. iBuyers are not purchasing homes out of the goodness of their hearts. They are in business to make a profit. Every iBuyer is going to charge you a fee for taking the home off of your hands.
The fees they charge can vary but tend to average around 6 to 8 percent. There was one study conducted by MarketWatch that found that sellers make about 11% less from their home sales by using Ibuyers than those who use the traditional real estate agent sales route.
There are costs associated with using a real estate agent to sell your home, too. Usually, you will wind up paying around 5 to 6 percent commission to use an agent – split between buyer’s agent and seller’s agent.
Another study, though, found that iBuyers charge around 13 to 15 percent more in fees than an agent does, so the cost of using an iBuyer is just higher than a traditional agent.
How is an iBuyers Different From a House Flipper?
There is often confusion on how an iBuyer is different from a traditional house flipper. These are actually two different business models. With house flippers or traditional investors, they try to buy low and sell high.
In trying to execute this business strategy, a house flipper will target homes that need significant work like a fixer-upper or are distressed in some way. They often remodel these homes by making significant renovations and then put them back on the market to sell at a substantially higher price.
iBuyers work in just the opposite manner. They will seek out homes that are in excellent condition and make an offer within what many would assume to be “close” to the market value. In many instances, they will make minor repairs before putting the home back on the market to resell it.
Pros of Using an iBuyer
- The seller does not have to spend time preparing their home for sale and or have to stage the house.
- You won’t need to make any repairs to their property. They will be buying your home as-is if your house is in excellent condition.
- It is quick and convenient – closings happen quickly, usually within a couple of weeks.
- The owner won’t have to go through numerous showings on their home.
- The seller will not have to waste their time with open houses.
- Going with an iBuyer removes going through an arduous negotiation process.
- The seller will not have to endure a traditional home inspection process. Inspections are typically much less intrusive.
- There will be no waiting for a buyer to procure a mortgage.
- Sales won’t fall apart because a buyer lost their job or other unforeseen event taking place.
Cons of Using an iBuyer
- Higher real estate commissions – Ibuyer fees generally are 7-8% of the sales price and sometimes more. This is much higher than what traditional agents charge.
- Automated valuations do not give an accurate market value for your property.
- The offer you receive from an iBuyer will be below market value. Keep in mind the iBuyer needs to make a profit. The offer you will receive is often thousands less and sometimes ten’s of thousands less than what you would get on the open market. Sellers will still have the same closing costs as in a traditional sale.
- Real Estate agents can do the same thing. If you price your home aggressively from the start, there is a strong chance you could receive multiple offers being on the open market.
- The iBuyer purchasing method is only available in limited markets at the time of this writing.
When deciding whether going with an iBuyer makes sense, you really have to determine what’s more critical to you. Does making more money from your sale rank at the top of your list, or does a fast sale and convenience outweigh your profit? Only you can answer these questions.
Before moving forward with an iBuyer, make sure you read their reviews.
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