iBuyer Beware! How iBuyers Dupe Unsuspecting Homeowners
iBuyers are growing in popularity but they can actually be detrimental for homeowners and agents alike because what they say and what they do don’t line up.
iBuyers are a more recent addition to the real estate industry, and in the last few years, have grown and become a force to be reckoned with. Some of the biggest iBuyer companies are Redfin, Opendoor, Offerpad and formerly Zillow. You may have even heard the news where Zillow declared they were closing down Zillow Offers, pulling themselves out of the iBuying sector of the industry, and think, “Pfft, they can’t be that big of a deal if they are already shutting that down.” Unfortunately, they are still a big deal, with the potential to do a lot more damage to the pocketbooks of homeowners and the livelihood of real estate agents everywhere.
A Little Bit of History on iBuyers
iBuyers came onto the real estate scene in 2014 when Opendoor began buying homes, followed by Offerpad who entered stage left in 2015 as their first competitor. Others quickly followed and presented a quick and easy alternative to listing traditionally with a real estate agent.
When Zillow swept through the industry as a media resource and dazzled real estate agents and homeowners alike, their market share grew quickly while the other iBuyers began to flounder. It wasn’t long before promoting homes for sale and matching agents to listings wasn’t enough, they finally joined as an iBuyer brokerage with a new branch of business called Zillow Offers and grew quickly into a beast that had agents worried for their businesses, and the industry as a whole. Now, less than a year later, Zillow has pulled out of the iBuyer game, having lost over $380 million.
What iBuyers Say They Do vs What They REALLY Do
We went to visit all the websites of these iBuyer companies to see what they were promising, and the more we read, the more we read between the lines! What they imply is not the reality, so we invite you to check out this list of “perks” they offer that are actually damaging to the homeowner.
What they say: “We make is easy and hassle-free to sell your home!”
What they do: They only want to flip your home and do not represent sellers in ANY capacity or serve the seller’s interests.
I often say that iBuyers should be called iInvestors because they are in the market to flip homes. On their website, they tell sellers that it is their responsibility to do their own due diligence to evaluate and decide whether or not to accept the offer. They count on sellers to NOT understand the terms and lingo or read between the lines. They aren’t there to be your friend, they are a buyer, and they are committed to paying the seller as little as possible for their home.
What they say: “We don’t charge any commissions like a traditional agent.”
What they do: Charge a service fee (or several) that add up to MORE than a commission would be.
These expenses are the costs of buying and reselling the seller’s home, covering holding costs like taxes, maintenance and utilities. This cost is upwards of 7% (even as high as 10%), which is more than what sellers would pay in commission to an agent. Offerpad claims the service charge is only 4-7%, but then they turn around and say that you will ALSO need to pay all the normal transaction fees that traditionally come with selling a home, namely the commission (another 3%) as well as the holding costs of utilities, maintenance, and taxes.
What they say: “We will come do a free inspection to double check dimensions and assess for any repairs.”
What they do: Wait until AFTER the seller is locked into contract to pull a bait and switch.
They look for every possible reason to take money away from their offer, and by waiting until after sellers have already signed on the dotted line, the seller is bound by contract to fix everything, no matter how much it costs. If they refuse, then the iBuyer will deduct significant amounts of money from their already low offer. Since they wrote the contract, they will refuse any further negotiations, and the poor sellers are locked in.
What they say: “You can choose your date of closing.”
What they do: Give sellers NO SAY in any other part of the contract negotiation.
Sure, the seller gets to choose their closing date, but iBuyers demand that sellers vacate their home 24 hours BEFORE closing. Where are they going to go? They need the money from closing on their home in order to close the sale on their new house, which means they are homeless until that money shows up and they can finally finish the sale on their new home and move in.
What they say: “We make it easy to sign your documents.”
What they do: Play word games to have sellers believing this contract was largely their idea, even though the iBuyer dictated the whole contract and locked them into their terms.
These are NOT the homeowners’ documents, they are the iBuyer’s contracts. By tagging the contracts as the homeowners, they are subtly planting the idea that this offer is the idea of the sellers. Do you think with the money and the lawyers that these iBuyers have they are going to write a contract that’s good for the homeowner? No!
What they say: “If you don’t want to sell it to us, we will list it on your behalf.”
What they do: They are not motivated and won’t sell your home, making selling to them for less money more appealing.
Listing with a company that actually wants to buy your property is a problem. If they can buy a seller’s home for a profit, they are NOT motivated to help the seller get the highest price for their home by listing it. They will make no effort to help the homeowner sell, because the longer it sits on the market, the more appealing their low-ball offer looks as a means to “get it over with.”
What they say: “This how much your house is worth.” What they do: They do NOT look at market comparables, they decide what your home is worth and offer as little as possible.
This is a huge conflict of interest because they can’t have fiduciary duty to you and themselves at the same time. As home flippers, they are looking to make a profit. They aren’t going to try and get you the highest amount for your home, they are committed to paying as little as possible so they can get the biggest profit when they turn around to sell it. In our industry, it’s right there in our Code of Ethics: “When representing a buyer, seller, landlord, tenant, or other client as an agent, realtors pledge themselves to protect and promote the interests of his or her client. This primary obligation does not relieve the REALTOR of the responsibility of dealing fairly with all parties to the transaction.” iBuyers are not upholding the Code of Ethics because they are NOT representing the client’s best interest, they are looking out for their own.
TIP: Check out this article by Element Homebuyers, “What Is An iBuyer And Why Selling To An iBuyer Is Risky.”
What We Can Do As Real Estate Agents
The reason sellers reach out to these companies is because they WEREN’T in touch with a real estate professional. This is why most homeowners today lack the necessary information to make the best, most informed choice to get the most money in their pocket.
I fully believe that the iBuyer model isn’t going to last. Zillow is already closing down it’s iBuyer branch, but as long as homeowners are ignorant to the truth of this home buying model, these iBuyer companies aren’t going anywhere and will keep taking business from real estate agents. So, what can real estate agents do to communicate these facts to the homeowners?
Be prepared if this topic comes up as an objection.
Be ready to discuss the truth nature of iBuyers and arm yourself with the knowledge of how they play word games and misrepresent the real estate transaction and contract. You can use the iBuyers own websites like we did to show your homeowners how what they say is not necessarily what they mean.
Power Agents®, we have the slides from the “iBuyer Beware: How To Explain to Homeowners Why They Should List With You” webinar that you can bring along to your listing conversation appointments to be prepared to face this objection. I would also strongly encourage you to watch this online training as well, if you haven’t already.
Validate yourself before you start talking about what you do to market homes.
Before you go to any listing appointment, sit down for 10 minutes with a piece of paper and a pen and list why you are worth what you charge. All the hard work you put in? The time away from your family? The money you spend out of pocket for your homeowners? You want to march into that appointment already being certain of your own value, and that confidence will shine through everything you do and say.
We need the homeowners to see the value of having a real estate agent looking out for their best interests, and if they don’t understand how devastating it can be for them to sell to an iBuyer, we haven’t done our job well.
TIP: This article by DC Title Guy outlines some specifics that real estate agents should understand about iBuyers: “What Realtors Need to Know About iBuyers.”
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Power Agents®, for some excellent and thorough training to understand iBuyers, and become armed with the knowledge of how to combat this objection, head to the Webinars On Demand tab in the Classroom. You can also find great value pieces to give to homeowners in the Listing Appointment tab.
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