The True Cost of iBuyer Convenience

iBuyers are well-funded venture capital companies that seek to buy houses directly from sellers at wholesale prices so that they can turn around and quickly resell those properties at retail prices for a hefty profit. They are called iBuyers because they can get an offer to a seller almost instantly using computer algorithms to determine a price 

iBuyers try to persuade sellers that the tried and true value of using an agent to sell a house is a time-consuming hassle while the iBuyer offers a faster and more convenient solution.

For the sake of discussion, let’s say that’s true. Does this mean you should avoid the supposed brain damage of using an agent and take the iBuyer alternative?

Imagine you came across this job posting:Part-time worker needed. Will require 60 hours of your time over the next three months. No special skills required – practically everyone is qualified. Completely legal. Comfortable, non-hazardous working conditions. Pays $45,000.

Would you be interested in that job? At $750 per hour, most people would jump at the chance to take it.

Well, this is essentially the job you are taking on if you sell your house with an agent and it is the likely monetary return you will receive by doing so.

Let’s work through the numbers.

Our own research recently in metro Denver shows sellers getting 9.5% less net money in their pockets from an average iBuyer deal than they would have gotten by selling their homes using agents. Research nationwide suggests the average differential is about 9%. Let’s use 9% since that accords with both national and local averages.

With the average home price in metro Denver hovering around $500,000, the additional 9% you get using an agent amounts to $45,000. This is the additional money you can put in your pocket by taking on the supposed extra work entailed in selling your house with an agent.

How much time is this “job” of selling your home going to take? Here are some estimates, which we believe are wildly exaggerated on the high side:

• Interview/Hire Agent:  8 hours
• Price the Home:  2 hours
• Pre-Sale Preparation: 24 hours
• Showing:  8 hours
• Contract Negotiation:  4 hours
• Address Inspection Issues:  8 hours
• Deal with Appraisers/Lending Issues:  2 hours
• Attend Closing:  4 hours

It adds up to 60 hours. Divide this into the $45,000 additional dollars you have in your pocket by using an agent and you find that you are getting $750 per hour!

What if we’ve underestimated the hours required? Fine. Bump the time required up to 90 hours and you are still making $500 an hour.

What if you have a less expensive house worth only $300,000 and the extra 9% is only $27,000? OK. Your 60 hours of work is still giving you an hourly rate of $450.

Most sellers would be well served to take a week or two of vacation from current jobs to invest that time in getting their home sold. After all, how many of us make $450 per hour or more at our regular jobs?

iBuyers try to get sellers to focus on the alleged time and inconvenience of going the time-tested route of using an agent without considering the return on investment that sellers receive from their efforts. As you can see, that ROI is sizeable.

The catchy headline from one iBuyer advertisement is “Sell your house. Skip the hard parts.” They don’t tell you that you’ll also be skipping the profitable parts.