Kim Bass: Study Says It Costs Sellers More To Work With iBuyers

Wednesday, October 2, 2019 - by Kim Bass, president, Greater Chattanooga Realtors
Home sellers who choose to sell directly to an iBuyer, such as Zillow or Opendoor, often end up paying higher fees than if they sold the traditional way with a Realtor, according to a new study by Collateral Analytics, a real estate analytics firm. Recently Realtor Magazine examined some of consequences of sellers who utilize iBuyers.

iBuyers provide instant cash offers and quick closings, which are perks that are hard for sellers to ignore. Transactions involving iBuyers have been growing at a clip of more than 25% annually in recent years.
But how profitable is it for sellers who choose this expedited route to a sale? The answer hasn't been clear since iBuyers first surfaced in 2014 with the launch of Opendoor.

As of this summer, most iBuyer transactions nationwide occur in Phoenix, but these companies also operate in Las Vegas, Atlanta, Denver, Charlotte and Houston. Yet it’s important for the Greater Chattanooga market to take note that Zillow has recently expanded its iBuyer service to Nashville.

Collateral Analytics, in a white paper, looks to quantify the costs to sellers of working with iBuyers versus taking the traditional route of working with a real estate professional. Researchers estimate that sellers end up paying between 13% to 15% more when working with iBuyers. The percentage reflects differences in traditional real estate agency fees, as well as an allowance iBuyers often request for repairs and an additional 3% to 5% to cover the iBuyer’s liquidity risks and carrying costs. “Most iBuyers will inspect the home, assess a generous home repair allowance, and negotiate (an additional) credit to handle such repairs,” the Collateral Analytics report notes.

However, some iBuyers take on other costs that most traditional buyers wouldn’t. For example, companies such as OfferPad offer to pay the costs of a seller's move up to 50 miles away. iBuyers may also allow a grace period after closing for the seller to vacate the property.

The report also notes that the iBuying model could make properties vulnerable to several financial risks, such as the use of automated valuation models that could inflate property values. Also, properties remain empty while in the possession of iBuyers, which could make the homes vulnerable to theft and other criminal activity.

Wall Street has been betting big on iBuyers in recent years. Opendoor has reportedly raised at least $1.3 billion and purchased more than 10,000 homes in 2018—three times that of its closest competitor, OfferPad. “For some sellers needing to move or requiring quick extraction of equity, this is certainly worthwhile,” according to the research paper. “But what percentage of the market will want this service remains to be seen.”


Habitat For Humanity Of Greater Chattanooga Names Phil Trammell Vice President Of Development

Kim Bass: September 2019 Market Statistics

Large Number Of Residents Opposed To New Project Near East Hamilton; Sabrena Smedley Warns Of Over-Development


Habitat for Humanity of Greater Chattanooga Thursday announced Phil Trammell has been named vice president of development. In his new role, Mr. Trammell will lead Habitat’s local fundraising ... (click for more)

With the kids back in school and the weather cooling, the housing market begins its annual cooldown as well. Nationally, buyer and seller activity remained strong, buoyed by low mortgage rates ... (click for more)

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Real Estate

Habitat For Humanity Of Greater Chattanooga Names Phil Trammell Vice President Of Development

Habitat for Humanity of Greater Chattanooga Thursday announced Phil Trammell has been named vice president of development. In his new role, Mr. Trammell will lead Habitat’s local fundraising efforts, cultivate corporate partnerships, develop and execute fund development programs and collaborate with the board of directors on developing relationships with new supporters. ... (click for more)

Kim Bass: September 2019 Market Statistics

With the kids back in school and the weather cooling, the housing market begins its annual cooldown as well. Nationally, buyer and seller activity remained strong, buoyed by low mortgage rates and a strong economy. The market fundamentals suggest no significant changes from recent trends, other than the seasonally tempered pace we see this time of year. As we move into the final ... (click for more)

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