What is an “Instant Offer” on Your House and How Does it Work?

Jul 18, 20190 comments

As the digital age merges with the real estate industry, some companies are looking for new ways to streamline the home buying and selling process. If you’ve been following developments in this realm, you’ve probably heard about how you can get an “instant offer” on your house. These offers come from online companies and are sometimes referred to as “iBuyers”which can mean “instant buyers” or “internet buyers.”

These companies offer a service that will pay cash for your home, can close as quickly as you need, and promise to make the process streamlined and easy compared to a traditional sale. These services can be helpful for home sellers who own distressed properties that they don’t want to fix up, or sellers who are in a situation where they need to sell a house fast because of a relocation, job loss or other situation. However, sellers should do their due diligence and be aware of the pros and cons of going with such an option.

Related Article: How to Identify a “We Buy Houses” Scam

Who are the iBuyers?

The four main companies that are dipping their toes into instant offers for houses are OpenDoor, Offerpad, Zillow Offers and Redfin Now. These are the markets they are currently serving:

OpenDoor

  • Atlanta, GA
  • Austin, TX
  • Charlotte, NC
  • Dallas-Fort Worth, TX
  • Denver, CO
  • Houston, TX
  • Jacksonville, FL
  • Las Vegas, NV
  • Los Angeles, CA
  • Minneapolis-St. Paul, MN
  • Nashville, TN
  • Orlando, FL
  • Phoenix, AZ
  • Portland, OR
  • Raleigh-Durham, NC
  • Riverside, CA
  • Sacramento, CA
  • San Antonio, TX
  • Tampa, FL
  • Tucson, AZ

Offerpad

  • Phoenix, AZ
  • Tucson, AZ
  • Orlando, FL
  • Tampa, FL
  • Atlanta, GA
  • Las Vegas, NV
  • Charlotte, NC
  • Raleigh, NC
  • Charlotte, SC
  • Austin, TX
  • Dallas, TX
  • Houston, TX
  • San Antonio, TX

Zillow Offers

  • Phoenix, AZ
  • Las Vegas, NV
  • Atlanta, GA
  • Denver, CO
  • Charlotte, NC
  • Raleigh, NC
  • Houston, TX
  • Riverside, CA
  • Dallas, TX

*Launching in Miami, Minneapolis-Saint Paul, Nashville, Orlando and Portland, OR by the end of Q1 2020

Redfin Now

  • Inland Empire, CA
  • Los Angeles, CA 
  • Orange County, CA 
  • San Diego, CA 
  • Denver, CO
  • Dallas, TX

How Does It Work?

Many sellers mistakenly think that iBuyers will make an offer to purchase your home sight unseen and send you cash the next day. While there are property purchasing companies in the US that do purchase homes without seeing them first, most of the iBuyer startups do not operate quite this way. Here’s how the process works, for the most part:

  • Step 1: Request an offer: This part is pretty straightforward. There is an online form where you can submit your property address, give a little bit of information about your property and formally request an offer.
  • Step 2: Receive your offer and decide whether to accept. It can take 24-72 hours for each company to calculate an offer and send it to you. This is far from an “instant” offer, but still can be much faster than listing your house and waiting for a buyer. The offer will typically be below market value. That is the trade-off of having someone else take on the burden of fixing, listing and re-selling your property later.
  • Step 3: Undergo an inspection or evaluation. Within a certain amount of days, an inspector will visit your property to determine if there are undisclosed repairs that need to be made. Then, the offer is usually amended to account for repairs, or…
  • Step 4: Decide to make repairs: Both OpenDoor and Offerpad have an option where sellers can “credit” the companies for the repairs needed or you can perform the repairs yourself before closing. Zillow and Redfin don’t have this option.
  • Step 5: Close on your property and pay service fees: After you have successfully negotiated any repairs to be made to the property, it’s on to closing. The seller will be responsible for closing costs which usually run between 1-3% of the purchase price. These companies also charge a service fee ranging from 6-13% of the sales price. Read on below for further details on the fees.

What Are the Fees?

All of the companies named above charge a “Service fee,” which comes out of the net proceeds of your offer at closing time and is based on the final purchase price. The costs for each company are broken down in the following chart:

Related Article: How to Avoid the Hidden Costs of Selling A House

OpenDoor

6-13% of offer price

Offerpad

6-10% of offer price

Zillow Offers

7% or higher

Redfin Now

7% of offer price

Now you might be asking yourself, “Why would I pay as much (or more) in service fees as I would pay a realtor to list my home, where I could possibly get a better price?” That’s a fair question. It all depends on your circumstances. If you have the time to repair your property, you may find it’s better off to list the property. If you’re in a hurry to get out, you might be willing to pay for the convenience of a fast sale and avoid making repairs.

Related Article: Selling a Home As Is Vs Fixing it Up

Key Takeaways

A MarketWatch study of “a few dozen” iBuyer transactions determined that sellers who sold to iBuyer companies netted 11% less than sellers who chose to sell on the open market, when all costs are considered. That could translate to tens of thousands of dollars lost. If you’re a home seller considering selling your house to an iBuyer company, a cost-benefit analysis should always be done. Sometimes, you may find that it doesn’t make financial sense.

Selling to Beachworks

Currently, none of the iBuyer companies named above operate in the Seattle market area. At Beachworks, we offer a service similar to iBuyer companies in the Greater Seattle area, but we do several things differently:

  • We Don’t Charge “Service” Fees: There are also no other “hidden” fees like cancellation fees. You may have to pay traditional closing costs and other expenses, but that comes at far less a cost than what many of these companies charge. We are always up-front about what costs are involved.
  • We Don’t Expect You to Repair Your Home: In fact, we look for properties we can add value to. So, we will never ask you to make repairs to your home or ask you to credit the cost of individual repairs back to us at closing.
  • We Value Being Straightforward and Transparent: We are a local, family-owned company with roots in north Seattle. Since we have a stake in the neighborhood, we care about our reputation and integrity. Our goal is to be straightforward and transparent in every transaction.

If you’re interested to find out how the process works when you sell to us or are ready to request an offer on your home, click here.

Summary
What is an "Instant Offer" on Your House and How Does it Work?
Article Name
What is an "Instant Offer" on Your House and How Does it Work?
Description
Real estate companies and startups have started providing "instant offers" for homes. Here's what you need to know about these companies and how these offers work.
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Beachworks LLC
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