iBuyer Beware: How Sellers Lose

It sounds too good to be true: Boot up the old Google machine, punch in some data about the home you're looking to sell and whammo! Have an all-cash offer in less than 24 hours. 

While it’s a possibility with sites like Offerpad and Opendoor, the old adage holds true: If it sounds too good to be true, it probably is.

A 2021 MarketWatch investigation determined that sellers who go with Offerpad and other similar so-called iBuyer sites net 11% less than their counterparts on the open market do. That’s significant money; a home that went for $270,000 in St. Louis with Offerpad could have closed for $303,000 in a similar time frame with the help of a local real estate team. 

“Is closing a few days or a few weeks sooner really worth $33,000? For most people, the answer is no,” said Allen Brake, CEO and founder of The Allen Brake Team, which has been a fixture in the St. Louis region for nearly two decades.

Offers coming from sites run by iBuyers, which stands for “instant buyer,” are determined by an algorithm similar to the one that failed Zillow in its attempt to buy and sell homes. Its algorithm errors cost 2,000 people their jobs – a quarter of its workforce – at the end of 2021. 

iBuyer offers are often significantly less than what sellers could see if they listed with a local real estate team more knowledgeable about the communities it serves. Offerpad, for example, has no agents in the St. Louis region and relies on a team located more than a thousand miles away in Arizona. 

Worse, most iBuyer sites’ fees are significantly higher than local real estate teams’. Offerpad fees are often as high as 10% of their offer. Opendoor’s stretch to 11.5%. 

The total commission on a home sold with a local real estate team in the United States averages 5.8%, according to National Association of Realtors Data. 

And while sites like Offerpad promote “instant offers,” the reality of when you might see that money is far different. All offers are contingent on home inspections, which is one way real estate experts say iBuyer sites squeeze profit from sellers. 

“Once you accept their offer, you’re locked in. There’s no going back,” Brake said. “If they say you have to fix something before they’ll pay you, you either have to fix it or they’ll subtract their cost of fixing it from your profits. There’s no negotiating.”

If you do attempt to back out, you’re legally obligated to pay 1% of the offer price. On a $300,000 home, that’s $3,000. 

Brake said he understands the initial appeal of iBuyer sites, but he asks the people he comes in contact with to look deeper. 

“What they find when they do is that they’re sacrificing a lot of money and getting very little in return. We’re talking about a difference of days when it comes to the closing date,” he said. 

Brake points to a recent weekend in which his team hosted five open houses for its properties on the market. All five were under contract for more than their asking price by the middle of the next week, with closing dates set within the next 30 days. 

What does Brake recommend instead of iBuyer sites? 

“It’s simple: Develop a partnership with a local real estate team who knows the market, who lives in the area, who is transparent about the costs and who has the relationships in the community to make the entire experience as stress-free as possible,” he said. 

He credits his team’s Calm & Confident Home Sales Experience, a 10-point pledge that outlines what his team will do for each of his clients. The pledge includes complimentary home staging, professional photography, a dedicated marketing team to promote the sale and even use of the team’s moving truck when the big day comes.

“Are you going to get any of that from an iBuyer site? Of course not,” Brake said. “There’s no one with those companies who thinks of you as anything but an algorithm output.”

So to Brake and his clients, the answer is simple. 

“If you could get all the things we offer – the staging, the marketing, the photography, the local connections, the preferred contractors to do any work that needs to be done to get your home in the best shape possible – and we can bring you more money than these iBuyer sites ever can without any significant difference in time, why wouldn’t you go with the local team?” he said. “It’s a no-brainer.” 

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