How to beat iBuyers every time

After a momentous year for iBuyers, where do instant offer companies like Offerpad, Opendoor and Redfin Now go from here? All February, Inman will dig into iBuyers to determine what the new year has in store, where opportunities lie for real estate agents and what brokerages should expect. It’s iBuyer Month at Inman.

Working with an iBuyer may be convenient for consumers, but few realize they will be selling their home at a wholesale rather than a retail price. Making matters even worse, most consumers who accept an iBuyer offer do so without ever meeting with an agent. Here’s how you can defeat iBuyers and prevent sellers from losing a big chunk of their equity. 

iBuyer ads for companies such as HomeLight, Offerpad, and Opendoor seem to be everywhere. For example, iSpot.tv shows that Home Light aired 42 different national TV ads that ran 4,220 times over the last 30 days. This doesn’t even count all the local TV, radio, print and social media ads that these companies run as well.

iBuyer ads are compelling

iBuyers appeal to consumers by offering to sell their house without the hassle of listing it on the open market. Here’s the pitch from Opendoor: 

Two ways to sell: Close on your timeline

There are two ways to sell your house. The easiest way is selling it to Opendoor. All you have to do is to go to Opendoor.com and you’ll get a competitive offer in just a few seconds, so you can close on your timeline. Opendoor will take a look at your house along with recent sales in your neighborhood and come up with a very competitive offer. You’ll know exactly how much you will get, and you can close whenever you’re ready. 

While this ad promotes the convenience, it fails to address that this sale will be to an investor at a wholesale price. 

Consumers “don’t know any better”

According to speaker and Inman contributor Darryl Davis, the iBuyer model acquires properties at wholesale prices and seeks to resell them at retail (open market) prices. Davis calls iBuyers “iInvestors.” 

When Davis interviewed sellers about their iBuying experience, he found:  

Every single one of these sellers was unaware of the true costs of that model because none of them had talked to a Realtor. Sadly, they didn’t know any better.

Compare the various iBuyer models side-by-side

Zavvie compares the actual cost of each iBuyer model with selling on the open market. This powerful tool allows you to show sellers how much each iBuyer model in your area will really cost the seller to use. (This tool can be white-labeled for use by brokerages and agent teams; it’s not available to individual agents.) 

Two real-world examples that will make your head spin 

The first example is from Zavvie and shows the cost of iBuying for a $750,000 listing. The second example is based on the sale of my brother’s house in California. Each example compares the net proceeds from each iBuyer model with the proceeds from selling on the open market with an agent. 

According to Statista, the average sales price of homes in the U.S. at the end of 2021 was $453,700, and the average amount of “tappable equity” available to homeowners in the U.S. is currently $178,000. 

Using these two numbers, the average homeowner has a mortgage that is 60.8 percent of current market value and has “tappable” equity of 39.2 percent. For the sake of simplicity in the examples below, assume the buyer has a 40 percent equity position of the open market purchase price. 

Please note that iBuyers advertise their closing costs are similar to those of working with an agent. The two examples below certainly support that claim. 

What they don’t discuss, however, is the substantial difference in the real-world offering prices that reflect a wholesale rather than a retail purchase price, which is also clearly illustrated below.

Zavvie’s “Side-by-Side” comparison (Seller has $300,000 in tappable equity): 

• Open market sale: $750,000

Closing costs: $51,000

Seller net after closing costs: $699,000

Net sales price after deducting closing costs: $55,200

Seller net after closing costs: $634,800

iBuyer costs seller an extra $64,200, 21.4 percent more of their equity

Closing costs: $52,800

Seller net after mortgage and closing costs: $607,200

iBuyer costs seller an extra $91,800, 30.6 percent more of their equity

My personal experience: (Seller has $342,000 in tappable equity)

• Open market sale: $855,000

Closing costs: $62,640

Seller net after closing costs: $792,360

Net sales price after deducting closing costs: $61,040

Seller net after closing costs: $701,960

iBuyer costs seller an extra $90,400, 26.4 percent more of their equity

Three campaigns for defeating iBuyers

Here’s what to do to defeat the iBuyers in your market. Using Statista’s average tappable equity position of $178,000, and the range of 21.4 percent to 30.6 percent in the examples of lost equity above, the average seller of a $453,700 home who uses an iBuyer will give up somewhere between $38,092 and $54,468 of their equity. 

Warn your database

It’s critically important that you reach out to your past clients and sphere and educate them about the potential cost of accepting an “instant offer.” (You can use these strategies for general marketing as well.) 

Use a multifaceted approach that employs print marketing, email messages, text, plus social media ads and messages. Here are three campaigns you can use.

1. Don’t throw your equity away

 “Instant selling” in our market costs the average seller an extra $38,000-$55,500!

Contact Sally Agent at 800-555-1212

And protect your equity!

2. Thinking about instant selling 

Don’t!

It can cost you $38,000-$55,000 more!

Contact Sally Agent at 800-555-1212

And learn how to keep your equity!

3. The following message is ideal for short-form videos on YouTube, Instagram Reels and TikTok. 

NO-NO-NO!

Don’t give away $38,000 of your equity just for a quick sale!

Contact Sally Agent at 800-555-1212

To protect your equity!

Have the best of both worlds

Byron Short, the broker-owner of Success Property Brokers in Phoenix, educates sellers on how to have it both ways — they can sell for a retail price by listing with him, but if the property doesn’t sell during the 29-day listing period (iBuyer offers are generally good for 30 days), the sellers can still sell with an iBuyer at the wholesale price if necessary. 

To use this model, the sellers must have their house inspected so they know how much work needs to be done. Since the iBuyer companies use their own inspector and contractors to do repairs, the seller needs to know if they’re receiving an inflated estimate on the work the iBuyer plans to do. 

Once the seller has prepared the house for sale and just before posting the property on the MLS, the seller contacts the iBuyers in their market asking for a bid from each company. These bids show how much the seller will net. (Zavvie provides this data for their users.) 

Forget about instant offers — become a cash buyer instead

According to the 2021 NAR Profile of Buyers and Sellers, 51 percent of all buyers were living in a house they owned when they transacted in 2021. What keeps many owners from listing is they must sell their existing home before they can close on their next home. 

Last year saw the rise of what many people are calling the “Power Buyer” model. Power Buyers such as EasyKnock, FlyHomes, HomeLight, Homeward, Knock, Opendoor, Orchard and Ribbon enable sellers to purchase, often with an “all cash” offer, before selling their existing property. 

These companies either purchase the seller’s existing home, purchase their next home and then sell it to them once they sell their current home, or provide a mortgage solution that allows them to pay all cash. Most will work with agents and many pay agents a commission. 

In terms of the cost, here’s an example from zavvie of how this works using the EasyKnock Power Buyer Program:

Open market sale: $535,000

Seller net after closing costs: $232,500

EasyKnock Cash funding program $400,000

Seller net after closing costs: $225,083 

Total cost to seller: $7,417

When you consider the cost of having to wait to close on your current home before you can buy a new one, especially with the cost of moving twice coupled with interest rate increases, those costs can easily exceed $7,417. 

Here’s how to implement the Power Buyer model in your business:

• Search online to determine which companies are active in your market area. 
• Use the following ad for print, digital and social media marketing: 

Ready to Buy Now but Need to Sell First?

Become a Power Buyer and purchase NOW

Without having to sell your current home first!

Contact Sally Agent at 800-555-1212 to learn how.

Protect your clients and sphere

The most valuable marketing campaign you may ever conduct is the one that helps clients avoid giving away huge amounts of their equity to iBuyers by helping them sell on the open market, and if eligible, working with a Power Buyer to purchase their next home before selling their current property. 

Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, is a national speaker, author and trainer with more than 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.