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The Cost of Convenience with iBuyer Real Estate Services

The Cost of Convenience with iBuyer Real Estate Services

Over the last year, a new service has emerged in the ever-evolving world of digital real estate. It’s called an iBuyer or “iBuying.”

An iBuyer is an instant offer real estate business model whereby a seller can immediately sell their house or condo and leave the headaches and hassles of closing to the iBuyer service.

Sounds great from a time and energy point of view, but what about the cost? What about commission? In most cases, all sellers would like an instant offer on their house or condo for sale. While it’s a great and convenient concept, the problem with the model is that it’s far from cheap.

Here’s how the iBuyer real estate model works

1) A seller wants to sell their home quickly.

2) The seller contacts the iBuyer for an estimate of the home’s current market value. In order to manage the risk, the iBuyer typically quote a sale price 4-5% below true market value.

3) The iBuyer applies a further 5% deduction for commissions, staging, and for any local transfer taxes they may incur.

4) The seller receives an instant offer that’s 6-10% below full market value in exchange for the convenience of closing without a headache.

Pretty straight forward. The convenience factor is obvious. However, while this service isn't highway robbery, it is an expensive convenience. The iBuyer service has traditionally been seen as a sleazy “Cash for Homes” option for desperate sellers, but new tech companies like Opendoor, Knock, and OfferPad are trying to reinvent and invigorate the business model for modern, digital consumers.

Still, once sellers understand the real cost of the convenience of an instant offer , they tend to decide against it. According to Zillow, 90% of clients that initially opted for an instant offer platform changed their minds and went with a traditional route with a real estate agent.

The challenge and the opportunity.

Imagine finding the home of your dreams or getting a job offer that requires immediate relocation. Now imagine selling your home within 24hrs and skipping the chores and all the work associated with selling—no painting or staging, no keeping the home in showroom condition. For anyone who has ever sold a house or condo it sounds awesome. That’s until you see the price tag. Is it possible to make the iBuyer cost reasonable? We think so.

How to make an affordable iBuyer service

Land Transfer Tax Exemption

One way to improve the affordability of iBuyer services would be for companies like Opendoor to lobby for a Land Transfer Tax exemption license that allows them to delay the payment of Land Transfer Tax for up to 12 months until they find a new buyer. On a $2-million home in Toronto or Vancouver, the Land Transfer Tax is almost $100K. This is the biggest hurdle that needs to be solved. These licenses could work as a revenue generator for municipalities, which could be a win-win for everybody. Municipalities could make money selling these licenses, and buyers could lower their costs to consumers and their model could grow.

Loss Protection Rebate

Every seller thinks their home is worth more than the comparable sales. Sometimes they are right. For this reason, iBuyers should offer a rebate back to the seller on any resale amount over 6%. Giving sellers this incentive for fair market value might take off big time.

At the end of the day, the convenience factor of the iBuyer model is an undeniable appeal for sellers. Should some entrepreneurs overcome the price hurdles above, they might just change the iBuyer business big time.