(A guest post from the Ilumni Institute)
There’s a growing trend in real estate called iBuying, and divorcing homeowners have become prime targets. If you haven’t already heard of it, you will soon enough! This post will provide you with the insights you’ll need to weigh the pros and cons of letting your client sell to an iBuyer while protecting them from these predators who are looking to cash in on your clients’ real estate assets.
iBuyers are large-scale companies that use automated pricing algorithms to make offers on houses. They are a type of investor that has repackaged themselves with a “value proposition” of speed and convenience. Some of the more recognizable names in iBuying are Opendoor, Offerpad, and for a while, Zillow Offers. iBuyers employ telemarketers whose job is to troll county records for recent divorce filings and solicit divorcing homeowners directly. They offer to buy homes for cash, as-is, by a specific closing date.
When a seller agrees to discuss the offer, the iBuyer names a price that is based on their analysis of the home’s market value and the estimated amount of work they think it needs. Sellers get the convenience of picking their moving date, so it’s very easy to time a move with the purchase or lease of another property. While this may sound like a great solution to liquidating the house in a case, it does come at a heavy price to your client.
iBuyers are most attractive to sellers who have some time urgency. Key examples are estate sellers, sellers moving for work, and of course, divorcing couples. iBuyers identify divorcing homeowners as “distressed” and “desperate,” so this is one of the top markets that they target aggressively.
The goal of any investor is to buy low and sell high, so when you’re contacted by an iBuyer you can be sure you’re not going to be offered top dollar for your property. And because iBuyers are speed-oriented, they charge heavy fees because, naturally, they want to cushion themselves against any risk they’ll take on. iBuyers sell homes for a profit, so they work their bid in a way that covers their costs, including repair costs, holding costs, and closing costs. This comes out of the sellers’ bottom line, either through a lower offer or through extremely high fees.
One of the more interesting positions I’ve seen iBuyers take is trying to convince homeowners that “When you sell to us, you don’t have to pay a commission or pay for any repairs.” That is just a spin on words! For most sellers, the cost to sell to an iBuyer is dramatic, and the true cost of selling a home at such a low price outweighs the cost of paying an agent’s commission and crediting a buyer for repairs.
The only true test of fair market value is to make the house available to the open market. Selling a house can be a real pain; however, a few months of inconvenience can earn a seller tens of thousands of dollars over what an iBuyer would pay—enough to pay legal fees, joint debt, months of support, and secure new housing for two individuals who will begin their long journeys to financial and emotional recovery.
I’ve never met a divorcing client who had money to waste. My suggestion is to put the house on the open market and let the best offer win. The only time I would recommend selling to an iBuyer is if foreclosure is so imminent that it would be better to cut losses and take something rather than lose it all.
If you have a client who is entertaining an iBuyer, I'll be happy to do an assessment to determine if the offer is good for the client’s circumstances or if they'd be better off going the traditional route.
I hope this has been helpful. As always, keep my attorney document portal handy in case you need title documents or property values—and call me anytime for all things real estate!
CDRE, SRES, CDPE, CLHMS, GPS
Los Gatos, CA
SHANNON ROSE/ROSE GROUP
KW BAY AREA ESTATE
16780 LARK AVE.
LOS GATOS, CA 95032