“iBuyers,” the new real-estate companies that buy homes directly from customers, have grabbed media attention, investor dollars and consumer acceptance. Their approach offers a seemingly modern solution to the often laborious and invasive process of selling a home.
But that convenience comes at a cost. A MarketWatch investigation of multiple transactions involving iBuyers shows that their offers would net their customers, on average, 11% less than owners who choose to sell their homes on the open market, when fees and other costs are considered, translating to tens of thousands of dollars lost. The findings also revealed considerably more uncertainty around the transactions — the scope of inspections, for instance — than the iBuyer model purports to offer consumers who are looking for ease.
This data come from a series of inquiries involving a real-estate startup called Knock. As MarketWatch has previously reported, Knock is often lumped into the category of iBuyers, but its model is quite different from theirs. Knock advances homeowners cash to buy their next home and, once the customers are settled, sells the previous home. Customers pay a fee for the overlap period.
In many cases, Knock solicits bids from such pure-play iBuyers as Offerpad and Opendoor when it’s ready to sell its customers’ homes. (Zillow
In most cases, however, Knock determines it’s preferable that its agents list a property on the open market rather than accept an iBuyer offer. That means its set of customer experiences are a natural experiment: a sort of Darwin’s Galapagos for any industry observer curious about how iBuyer offers stack up to actual sales prices.
Using a combination of public-records searches, conversations with Knock customers, and data collected from the company itself, MarketWatch was able to create a data set of 26 sales. Most took place in or around Atlanta, the city where Knock started and where it, Opendoor and Offerpad have a strong presence. A few transactions took place in the Raleigh-Durham metro area in North Carolina, and a few were in Charlotte. In most cases, MarketWatch was able to match the sales price to an offer from both Opendoor and Offerpad, but in some cases only one iBuyer offer was received.
This is not “big data,” to be sure, but there are clear patterns in the information recorded. The table below shows the averages for each city. In the 35 listed comparisons — that is, a completed transaction matched to an iBuyer offer — the instant offer was higher in four cases.
Notably, not only are iBuyer offers generally lower than the ultimate sale prices, but their fees are often higher as well. Knock always charges a 6% commission for selling the existing home, but fees charged by Opendoor and Offerpad vary widely. (So do commissions across the real-estate world: If a homeowner hired a full-service brokerage he or she could expect to pay about 5% to 6%, while discount brokerages like Redfin
have built brands around charging much lower commissions. The national average in 2018, according to industry source REALTrends, was 5%.)
Jeremy Ano used Knock to sell a house in Acworth, Ga., in suburban Atlanta, this past spring. He and his wife run a business and home school their kids, and they’d outgrown the house. But he dreaded having to clean up and get two kids and two pets out the door every time someone wanted to tour the house.
Ano, who describes himself as someone who likes to do lots of research — including an exploration of how much he could expect to fetch for his home based on recent comparables — initially reached out on his own to Zillow, Offerpad and Opendoor.
“First of all, they gave us lowball offers,” Ano told MarketWatch. “But that still didn’t solve our problem of where do we move to? We’d essentially be homeless.” He knew that the ultra-competitive Atlanta market he’d run into sellers unwilling to accept an offer that was contingent on his selling his own home.
Ano received an offer of $248,747 from Offerpad. Several weeks later, citing “recent market activity,” the company sent another offer, unsolicited, of $256,459. Offerpad wanted a 7.5% commission. Opendoor offered $278,300 — less an 11.5% commission. After a Knock agent listed the home, it sold for $297,749. Once Knock’s 6% fee was taken out, and a seller concession of $10,000 was granted during the inspection process, and about $7,000 was spent out of pocket on repairs, the Anos netted about $262,000.
Repairs and other prep work is where comparing offers gets hazy. The Ano home was 23 years old, and it needed a fair amount of work. While iBuyer offers are often also known as “instant offers,” they are anything but. In fact, they’re always contingent on a home inspection, which some observers believe are carried out in a way that squeezes profit from sellers.
“If you’re comparing iBuyers’ offers it’s very black-and-white,” Knock CEO and co-founder Sean Black said. “The front-end stuff is very upfront. The repairs are the gotcha.”
A home inspector with an incentive to, in Black’s words, “cover his butt,” in the eyes of the iBuyer that hired him, will almost always build a lengthier list of upgrades needed for the home to sell than a real-estate agent might in order to potentially reduce the final sales price.
Indeed, Ano said he felt nickel-and-dimed. “The kinds of repairs that they were hitting us with, I felt, were very petty. They were subtracting a large amount for petty things, and had huge fees on top of that. If I’m going to sell to an iBuyer why would I pay [what amounts to] the traditional Realtor fee?”
(Actual seller concessions are taken into account in our calculations, in determining how much each Knock customer netted, although it’s impossible to know how much any iBuyer home inspection would have cost the customer in either concessions or out-of-pocket repairs.)
In response to MarketWatch requests for comment, an Offerpad spokeswoman looked into the offer made for Ano’s house and detailed the work the company’s evaluators thought would have been necessary to get the house sold. She also noted that there were fewer comparable sales than usual to provide a baseline for pricing. “It represented a little more risk, and, as a company doing this at high volume, we’re always looking at the risk we take on,” she said.
But, she added, Offerpad has “a 94% customer-satisfaction rating. The No. 1 reason sellers come to us is for convenience and control over the process. Sellers come to us because they don’t want the house to sit on the market. They’re looking for peace of mind, with no negotiations. Typically customers are families with a working mom and dad, and the majority have dogs and kids. They’re not interested in doing showings. They want to set the closing date.”
It “sometimes happens, we know,” she said, that an open-market price is more attractive.
In response to a request for comment, an Opendoor spokeswoman made effectively the same point: “Homeowners typically spend weeks or months getting ready for a traditional home sale, taking on costly repairs, coordinating multiple open houses and tours, and then waiting for an offer. The process of traditional home selling is often riskier, can take an average of 90 days, and a seller isn’t guaranteed a price or that a sale will go through. Homeowners may also be saddled with a double mortgage or forced to move twice during that time, which isn’t possible for all sellers. By selling directly to Opendoor, homeowners get a guaranteed price and timeline for their move, and they don’t have to worry about the hassles of repairs, renovations and open houses.”
It’s worth noting that the modern real estate landscape offers consumers all kinds of models for listing homes and closing on transactions, and for some people, like the Ano family, a fast close isn’t always the best option.
Abra Summers, another Atlanta-area Knock customer, came to the company after rejecting offers from iBuyers that she said were “about $25,000 less” than what she believed her Sugar Hill home to be worth. But ultimately, she said, because the family needed to move quickly, she might have considered working with an iBuyer: “Just the thought of listing our house the traditional way and letting people come in at all hours didn’t seem practical. It felt like an insurmountable obstacle. We didn’t know what to do.” The family juggles two jobs, two kids, and three pets.
Summers reached out to Knock and decided to work with the company even though, as she said, “it seemed too good to be true.” She and her husband went house hunting the next day, made an offer on a property they liked, and, once they were out, made a few repairs to their existing home before it was listed.
“We could have done them while we were living in the house, but things like carpet are way easier when you’re out,” Summers said. “The stresses of not having to live there while we were dealing with the sale was so worth it to me.” Even though the house was listed for sale in the dead of winter, it was under contract in just 10 days.
Both Summers and Ano and another Knock customer, Angie Thomas, who lives in the Raleigh, N.C., area, were candid that, while the Knock process worked for them, it might not be right for everyone.
Still, the repair issue faces any customer who prepares to sell a home in any manner — and introduces a layer of uncertainty into the process that the iBuyer business model ostensibly solves for.
“As a business model it’s brilliant,” said Daren Blomquist, a longtime industry analyst now at Auction.com. “A typical cash buyer is often going to buy as-is, and often there’s no inspection at all.” The iBuyer model “takes advantage of the cash discount without taking on as much risk.”
More fundamentally, Blomquist pointed out, “the buyer-seller relationship is naturally adversarial.” Not everyone will choose to work with a disruptor like Knock, but it — and old-fashioned real-estate agents — at least have the same motivation as the homeowner: maximizing the sale price. In contrast, as a customer of an iBuyer, a homeowner is on the other side of the deal.
Still, for everyone interviewed for this story — and the unnamed people whose home transactions appear in the spreadsheet — there is one fundamental, crucial truth. After decades of doing it the same, traditional way, Americans suddenly have options when it comes to buying and selling homes. As Knock’s Sean Black put it: “Why wouldn’t you get multiple offers?”