Wed. May 25th, 2022
ibuyer-vs.-real-estate-agent:-how-do-the-experiences-compare?

Whether you should use an iBuyer (instant buyer) vs. real estate agent to sell your home is a hot debate in some real estate circles. But the right method comes down to personal preference more so than one method always being better than the other.

To determine which path is right for you, let’s take a closer look at each approach, weigh the pros and cons, and review steps in the process with a side-by-side comparison. In the end, you may decide to blend both strategies for the best outcome.

A computer used to decide between an iBuyer and a real estate agent.
Source: (Hillary Black / Unsplash)

iBuyer vs. real estate agent summary

Selling to an iBuyer

iBuyers introduced a new way to sell a home starting in the mid-2010s. Today, a seller can go to an iBuyer website and request a quick offer online.

Top iBuyer companies include Opendoor, Offerpad, Redfin Now, and HomeLight (we offer iBuying services through our Simple Sale platform).

Each model works a bit differently, but iBuyers in general provide an alternative to the traditional listing process for sellers who value speed and convenience above all.

An iBuyer uses technology to value the home, sometimes performs a walkthrough, and may adjust the price based on the cost of needed repairs. Sellers then pick a move date, and can often close in as little as two weeks.

If you dread home showings more than a root canal, you may see great value in selling to an iBuyer. The main trade-off is that the offer could be less than what you’d get listing the home with an agent, and you’ll pay a fee for the iBuyer’s services.

But you aren’t likely to sell for 70 cents on the dollar. iBuyers generally offer much closer to market value for homes than house flippers.

Selling through a real estate agent

Using a real estate agent, as 90% of sellers do, also provides a number of advantages.

An agent assists in preparing a home to look its best through careful staging reminiscent of an eye-catching department store window display. Their expertise adds a layer of professionalism to a critical transaction through accurate pricing and skilled negotiations.

An agent’s job is to attract buyers and help the house sell at a premium. An agent-assisted sale is likely to benefit from the competition of the open market in which buyers make connections with homes and often bid with their emotions.

An iBuyer offer, by comparison, will be more cut-and-dried and numbers-driven, with little wiggle room for the seller to ask for a higher price.

The conventional selling process will likely take longer and be more disruptive to the seller, however. In addition, the risks of a settlement cancellation or delay are higher with a traditional sale, especially if the buyer is purchasing the home with a mortgage.

When agents and iBuyers work together

Contrary to popular belief, real estate agents and iBuyers aren’t mutually exclusive and they can work together for a seller’s benefit. A great real estate agent may recognize that their seller would appreciate an iBuyer offer and serve the role of transaction coordinator.

An agent facilitating an iBuyer sale may do any of the following:

  • Educate sellers and build their trust in the iBuyer model if convenience, speed, and certainty are their top priorities
  • Help the seller negotiate down an iBuyer’s repair credit to a lesser amount
  • Help the seller find an iBuyer who is willing to charge the lowest service fee (or on the low end for the market)
  • Negotiate a longer occupancy in the property if the seller needs it
  • Offer a commission discount (or not charge commission if the iBuyer provides a referral fee)

One house, two different sales (iBuyer vs. agent)

Let’s say the fictional Sam and Diane bought their primary residence about eight years ago for $320,000. The home is in decent condition; they’ve spent about $30,000 on capital improvements such as replacing the hot water heater and upgrading the kitchen cabinets and countertops. But now, Diane’s mother faces a medical issue, which requires the family to relocate 3,000 miles away so they can help care for her.

The couple doesn’t relish renting a home in their new location. They want some stability for their children after moving nearly across the country. They also don’t want the hassle of renting out their old home or carrying two mortgages. In fact, the money they make from selling their home could go a long way to help with buying another one fast and offsetting their moving expenses.

They’ve heard of iBuyer companies, but they bought this house originally with a real estate agent. So they jot down the advantages and disadvantages of working with each.

‘Let’s list with an agent’

If Sam and Diane’s original real estate agent has moved on or they weren’t thrilled with the level of service, our imaginary couple might easily find another using an online agent-matching service such as HomeLight to locate an experienced agent in their area.

This agent demonstrates a solid understanding of their neighborhood, determines their home’s value through a comparative market analysis, and makes recommendations for minor upgrades to enhance marketability and maximize value.

Sam and Diane are fortunate to be selling during a seller’s market, where homes are receiving 3.7 offers on average and 41% of bid offers come in above list price.

However, there still are some contingencies to clear before they can close, such as the home inspection, the home appraisal, and the buyer’s lender approving their mortgage.

All of this takes time. Recent sales took a median of 30 days to close, with 25% of contracts in the past three months having a delayed settlement.

Although Sam and Diane’s agent could reassure them through every delay and negotiate difficulties with a buyer’s agent, there’s also the possibility that the deal could fall through, adding unneeded stress.

NAR reports that 5% of recent contracts were terminated, with the most common reasons being appraisal issues (13%), home inspection issues (9%), financing issues (8%), titling or deed issues (4%), or contract contingencies (3%).

‘What if we went with an iBuyer?’

Now let’s say Sam and Diane consider working with an iBuyer, such as HomeLight’s Simple Sale platform. To get started, they’ll answer a short questionnaire with basic questions about their home’s condition, how much work it needs, and their selling timeline.

They receive an all-cash offer at an estimated 90% of their home’s value in as little as 48 hours. While they’ll have to weigh the possibility of accepting a lower offer than what they might get from working with an agent, they can skip the listing process, repairs, and open houses.

They’ll also save money on house prep and agent commissions. Sam and Diane see how Baohan Wu used Simple Sale to sell his high-rise apartment and found the process easy, swift, and painless.

“[HomeLight] gave me a very fair home inspection, took zero money out, and then just basically asked me when I wanted to close. That was it. Easy as one, two, three. The closing from start to finish was three and a half weeks, which is great for me. It exceeded my expectations.”

A door of a house purchased by an iBuyer.
Source: (berenice melis / Unsplash)

Advantages of selling with an agent

If it’s been a while since you bought and sold a house, or if you’re feeling overwhelmed with the process of selling, an agent offers you hands-on expertise that helps you:

  • Set the right asking price based on an analysis of comparable sales and current market conditions.
  • Decide which repairs and upgrades to make and which you can skip.
  • Ensure your home shows at its best in photos and in person.
  • Weigh the strength of offers that come in based on your circumstances. Do you prioritize price or a flexible move-out date, for example?
  • Coordinate with potential buyers and their agents to smooth out any hangups.
  • Negotiate so that you get the most money possible at closing.

Agents also can tap into a broad network of potential buyers through the Multiple Listing Service (MLS) and other connections.

“We network our listings to our colleagues, oftentimes drumming up interest before the home is ready to show,” shares Lynn Carteris, a top real estate agent with the Oldham Group in the San Francisco Bay area.

What’s more, they understand what a huge life change selling and buying a home can be, so they’re glad to provide moral support and help where needed. “When our sellers move, we help them with contractors, we provide vendor referrals,” says Carteris.

Disadvantages of selling with an agent

However, there are some disadvantages to selling with an agent. First, you’ll face a longer timeline. On the open market, a house can sell within a week or even attract an offer within a couple of days. But steps like the inspection, appraisal, and loan processing will inevitably add time to closing.

In addition, you’ll typically pay an average 5.8% commission rate in exchange for a real estate agent’s assistance (though half of that will go to the buyer’s agent).

An agent will spend a portion of their commission marketing your property and their expertise on targeted upgrades, pricing, and marketing that can help you get top dollar. It matters who you work with, though; our internal transaction data at HomeLight shows that the top 5% of real estate agents sell homes for up to 10% more than average agents.

Advantages of working with iBuyers

An iBuyer offers a level of speed, convenience, and certainty to sellers that a traditional sale cannot. By providing all-cash offers, iBuyers eliminate the financing contingency from the sale, creating a clearer path to settlement.

Some iBuyers are also more flexible than financed buyers about a home’s condition. HomeLight’s Simple Sale platform, for example, provides cash offers for homes that need work. In addition, sellers do not need to prepare, stage, or show their home when selling to an iBuyer, which can greatly reduce the stress of the entire experience.

Disadvantages of working with iBuyers

For all the speed and convenience an iBuyer provides, an iBuyer sale also has its disadvantages. Although you’ll save money on prep work and real estate agent commissions, the price an iBuyer is willing to offer will likely be lower.

“If you took your house to market, there’s a chance you could get more money,” Carteris says, provided you fix anything that might be detrimental to the sale.

A study by the University of California San Diego echoes that, on average, mortgaged homebuyers pay 11% more than all-cash buyers.

Only the seller can decide whether taking a potentially discounted offer is worth it. An iBuyer study by real estate consulting firm 1000Watt found that 77% of surveyed homeowners would “probably” or “maybe” take 5%-10% less for their home in exchange for the conveniences of an iBuyer sale.

Post its used to decide between an iBuyer and a real estate agent.
Source: (Kelly Sikkema / Unsplash)

iBuyer vs. real estate agent: Side by side

We’ve broken down the main aspects of working with an iBuyer versus working with a real estate agent in the chart below.

Aspect of the Sale iBuyer Real estate agent
Sale timeline As little as 10 days, or up to 90 days if a seller needs more flexibility to stay, depending on the iBuyer One to three weeks to attract an offer, and another 30-45 days to close
Home preparations None required Recommended to address certain needed repairs, deep clean, declutter, and stage the home for viewings
Showings None required, though some iBuyers will perform a virtual or in-person walkthrough Anywhere from 10-25 in-person showings typically required to sell the home
Offer price The median purchase price for iBuyer companies was $344,000 in the second quarter of 2021, and averages between 97.6%-104.1% of market value, according to zavvie September’s median sales price was $352,800, up about 13% year over year, according to the National Association of Realtors
Inspections / repairs Generally no pre-listing repairs required, though some iBuyers will identify needed repairs through an assessment and charge a repair credit Some agents will recommend a pre-sale inspection to identify any issues related to the home’s structure and major systems, seller may need to remedy or adjust price accordingly
Appraisal An iBuyer doesn’t use a traditional appraisal but an automated valuation model proprietary software that processes various data to arrive at an offer price, usually within 24 to 48 hours If a buyer is financing the home with a mortgage, the lender will require an independent, third-party appraisal before closing. If the appraisal comes in under contract value, it could create delays or terminate the settlement
Title search House will need to clear title; iBuyer will have a preferred title and escrow company, as well as closing attorney if needed in certain markets, expediting the title search House will need to clear title; agents will often notify their title officers the moment they get a listing to find any potential title problems
Financing contingency None, since an iBuyer provides an all-cash offer This varies, depending on location, but in general, a financed buyer has a specified number of days to obtain a mortgage for a property under contract (or request an extension)
Agent commission None, but these companies charge a service fee ranging from 5.1% to 7.6% in recent years HomeLight data shows the average real estate commission nationwide is 5.8%, with the seller paying for commissions for the listing agent and the buyer’s agent
Closing costs About 1% to 3% of the sale price (on top of service fee) to include title insurance, escrow fees, and taxes About 1% to 3% of the sale price (on top of commission) to include title insurance, escrow fees, and taxes

Example net proceeds

So, what would our hypothetical couple Sam and Diane earn in a traditional sale versus working with an iBuyer who makes a cash offer? Here’s a breakdown of what it might look like:

List with a Top Agent (Traditional Sale) Sell to iBuyer
Estimated Sale Price: $386,000 (based on their original purchase price plus homes recently selling for a median $66,000 more than their sellers originally paid) Estimated Sale Price: $366,700 (about 95% of market price)
Market preparations: $3,860 (1% of sale price) Market preparations: $0
Agent commissions: $23,160 (6% of sale price) Service fee: $17,370 (5% of sale price)
Closing costs: $7,720 (2% of sale price) Closing costs: $5,211 (1.5% of sale price)
Estimated Net to Seller: $351,260 Estimated Net to Seller: $344,119

The decision

After weighing these options, Sam and Diane decide to go with an iBuyer and sell their house through Simple Sale.

They determine that even if the price from an iBuyer isn’t as high as what a traditional buyer would offer on their gorgeous curb appeal and shiny hardwood floors, they are on a mission to move and can’t afford for delays to throw off their plans. An iBuyer sale will remove the risk of delays so they can relocate and help a family member in need faster.

Plus, with the stress of her mother’s medical condition weighing on her, Diane doesn’t want to deal with showings.

A pencil used to decide between an iBuyer and a real estate agent.
Source: (Kelly Sikkema / Unsplash)

Final thoughts on iBuyer vs. real estate agent

Working with an iBuyer versus a real estate agent are two different home-selling experiences, each with advantages and disadvantages. Our hypothetical couple still would make back their original sale price and a slight profit using an iBuyer, which also would expedite the sale process.

However, there’s nothing to compare with a buyer who’s fallen in love with your home or a bidding war where you can command your price. Plus, that larger profit from working with an agent could go a long way toward helping you relocate.

An iBuyer may be a great option under certain circumstances, but if you want more of a personalized adviser and the potential for greater profits, consider working with a seasoned real estate agent. While an iBuyer offers “an easy way to get in and out of a home,” Carteris says, the process can’t replicate an agent’s individualized approach. “The difference to me is the personal touch,” she concludes.

Header Image Source: (Artur Voznenko / Unsplash)

Leave a Reply