What is an instant offer? There has been growing interest of late (the earliest programs started in 2014) in getting an instant offer to sell your home, without making any repairs or improvements, and close in a 2-3 weeks. Known as iBuyers, companies like 0pendoor and 0fferpad have taken the original concept started by We Buy Ugly Houses and given it a much-needed improved image. Simply put, these are investors who will purchase your home in any condition at below market value in exchange for the convenience of a guaranteed quick sale.
Why would anyone want to sell their home for less than market value? This could make sense for people relocating, divorcing or selling an estate. In other words, for anyone looking to give up money to save time. It’s the paramount of all trade-offs, where humans trade time for money every day, in a quest for convenience. Think of it like eating: cooking a meal from scratch takes the most time but costs the least money; cooking a prepared meal takes less time but costs more money; eating out takes no time to cook but costs the very most.
Are these instant offer programs here to stay? Things just got very real when Zillow recently announced a test program to act as a buyer of homes in Phoenix. So now they will provide you with an estimated home value for your property and offer to buy it from you. Hmmm… hardly seems independent or objective to me. How do you really know what your home is worth? Without getting an impartial 3rd party opinion, it’s like taking collectibles (think baseball cards) to a store, asking the clerk what they’re worth, then accepting their offer to take them off your hands. Does “in that condition, the most I can give you is $20 for the Babe Ruth rookie card” sound suspicious to you?
Does it make sense to sell your home below market value in a hot and rising market (ie. a seller’s market)? Probably not. The majority of homes are selling within 30 days (time on market) then buyers typically need another 30 days to close the deal with their lender. The homes of my clients are selling much faster, often getting multiple offers in the first week. Which brings up another point: exposure to the open market is good for sellers since it allows them to experience price discovery (the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers). So if you don’t expose your home to the market and choose to make a private deal with one party to buy it, how can you be sure you got a fair price? You can’t.
What to do? As with most things in life, price shopping will be rewarded. That is, get several opinions of value. Perhaps you get an instant offer, then get a realtor’s opinion of value, and finally order an appraisal on your home. Review all three numbers carefully and be sure to look at your expected net proceeds under the instant offer versus selling with a real estate agent. With the instant offer companies charging 7-13% in fees to take your home off your hands for below market value, the typical 6% commission model suddenly looks pretty good. And with a realtor, you have someone working for you instead of against you like with the instant offer. The more you make, the more the agent makes. The less you make in the instant offer, the more profit the buyer company makes.
