What is iBuying, and how does it work?

Homeowners who want to sell quickly and skip the hassle of showings, repairs and wading through a lengthy closing can speed up the process by using an iBuyer. These speedy sale platforms — the “i” stands for instant — are tech companies that purchase homes from sellers directly, without any third-party involvement (like a lender or a real estate agent). They can make an offer on your home, typically in all-cash, in as little as 24 hours. They can often schedule closing dates to suit your timetable as well. But, if this all sounds too good to be true, be aware that iBuying transactions do come with some drawbacks. Read on to learn more.

What is iBuying?

The iBuying approach to selling a house has roots that predate the internet. Years before real estate websites came along, local companies would put up signs around town offering to pay cash for homes — they’d then flip the properties for a higher price, making a tidy profit. Today these companies can be easily found online, following the same general approach: making quick cash offers for homes and reselling them.

“The iBuyer is typically a company whose business model is to buy properties from homeowners, do minor, usually cosmetic repairs, and then sell at a profit,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence firm. “For the home seller, the benefits are speed — the transaction typically happens very quickly once the offer has been accepted — and certainty, as the deal closes immediately, as opposed to putting a property on the local multiple listing service and waiting for offers.”

This approach can be very attractive to sellers who need to close a sale quickly, whether for lifestyle or financial reasons. But it’s not always as simple as it sounds.

How iBuying works

The iBuying process itself is very straightforward. In most cases, a seller provides some basic information about their home, or sometimes even just a street address, and within a short period of time, the iBuyer makes an offer — sight unseen.

These companies use algorithms to base their valuations on a property. “Then, an iBuyer makes a cash offer, sometimes as quickly as within 24 to 48 hours,” says Jade Lee-Duffy, a San Diego–based Realtor. “This process is meant to streamline buying and selling property, essentially cutting out the middlemen of banks and real estate agents.”

The convenience of this process, however, comes at a price for sellers. Because iBuyers need to make a profit, they typically purchase homes for much less than their estimated market value. “Keep in mind iBuyers are not going to pay premium prices for homes, so the offer will most likely be low,” says Ralph DiBugnara, president of Home Qualified and vice president at mortgage company Cardinal Financial.

In addition, while an iBuyer’s offer is made sight unseen, if the seller accepts, the next step is typically a professional, in-person home inspection. If any unexpected or costly issues are discovered during the inspection, that will likely impact the initial offer. “It could cause them to lower the offer, or cancel it,” says DiBugnara.

Is it worth it?

Selling your home this way may be worth it if you have to relocate quickly, need the money fast, or don’t want to deal with the hassle of showings and a lengthy closing process. Selling to iBuyers also does away with any uncertainties about when your home will sell, and because they pay in cash, you don’t need to worry about a buyer’s financing potentially falling through.

However, if your main goal is to get top dollar for your property, iBuyers are not the best choice. In addition, some charge steep fees that can be equal to, or possibly even more than, what you’d pay in real estate agent commissions on a traditional sale.

Popular iBuyers

Even though iBuying grew amid the highly competitive post-pandemic housing market, it still represents a very small share of the overall real estate market. According to data from CoreLogic, iBuyers accounted for less than 1 percent of home investor purchases in the first half of 2023 — and even at its peak in 2021, that figure was less than 2 percent.

“iBuying represents a pretty miniscule percentage of overall home sales, but is becoming a more accepted practice and happening in more markets across the country,” says Sharga.

Historically, just four companies have accounted for the lion’s share of iBuying business: Opendoor, Offerpad, Redfin and Zillow. Combined, they made up more than 95 percent of iBuyer purchases from 2017 to 2021, according to another CoreLogic study.

However, while Opendoor and Offerpad remain two of the biggest players in the industry, the other two have since bowed out. Redfin shuttered its iBuying business, RedfinNow, in November 2022. Zillow shut down its iBuying business even before that, but returned to the market, in a sense, through a partnership with Opendoor. The two companies announced in August 2022 that they were joining forces in a deal that allows home sellers on Zillow to request an offer from Opendoor.

iBuying pros and cons

The iBuying process is different from a traditional home sale in many ways. Here are the main benefits and downsides:

Pros

• More certainty: In addition to closing more quickly than a typical transaction, which involves real estate agents and lenders and scheduling hassles, there are fewer uncertainties associated with iBuying. “There are [less] little headaches from a seller’s standpoint: no showings, no open houses and fewer potential contingencies to deal with,” says Bill Gassett, a RE/MAX Realtor and owner of Massachusetts-based Maximum Real Estate Exposure.
• More efficiency: In these transactions, sellers deal directly with just the one company throughout, rather than a succession of mortgage lenders, real estate agents and others. Most importantly, the speed with which the deal goes through means the seller gets their money much faster — crucial for those who need cash quickly or need to relocate in a hurry.

Cons

• Less profit: The flipside, however, is that a seller will net less money when working with an iBuyer than they likely would if selling the traditional way. In addition to the lower offer price, you could get hit with fees that can add up to the same amount you would have paid in real estate commissions, or even more: iBuyers often charge fees that amount to 6 to 8 percent of the home’s purchase price, says Gassett.
• Less personal attention: In iBuying, much of the process is done online: “There’s a lot less contact with a specific agent,” says Lee-Duffy. Sellers typically get less personal service or one-on-one attention than they would with a traditional sale, in which a real estate agent spends time consulting with the homeowner before, during and up to the closing.
  

iBuyers vs. homebuying companies

If you want to sell your home fast but are unsure whether iBuyers are the best approach, there’s another option: companies that proclaim, “we buy houses.” 

Similar to iBuyers, these operations will make a quick, all-cash offer for your home and can close the deal very quickly. And also similarly, the offer you’re likely to get could be far less than fair market value. Unlike most iBuyers, though, cash-homebuying companies will typically purchase your home as-is, meaning you won’t need to make any repairs at all, even if your home is in very poor condition. This can make them a good option for those whose property needs more work than they are willing, or able, to put into it.

If making top dollar on your home sale is more important to you than speed or convenience, the best option is selling the traditional way, with the help of a real estate agent who knows your local market well.

FAQs

• Who are the biggest iBuyers?

  The biggest players in iBuying are Offerpad and Opendoor. Opendoor also has a deal with Zillow. However, neither company operates in every market in the U.S., so be sure to check online whether they are buying homes in your area.
  

• What does iBuyer stand for?

  The i in iBuyer stands for instant — these companies are able to buy your home fast, making an offer nearly immediately after you provide your information.