Quick iBuyer Sale? Do the Math.

Written by Tony Finley, CFO Long Companies

The allure of the quick offer is simple and compelling. The “painless” convenience is undeniable but the question is at what cost?  Opendoor.com states “your net proceeds can be higher with Opendoor.” [1] Every seller situation has different facts. Calculate your expected returns before making a quick decision.

Quick cash or more cash?

Opendoor’s website shows an example of where a seller of a $200,000 home would net more with Opendoor ($183k) compared to a “traditional” process netting only ($180k) [2].  The sum total of the Traditional column is off by $1,000. The sum total should show $200,000 minus $21,000 equaling $179,000 (not $180,000), but that’s not point here.

From Opendoor.com [3]

Question: Can an iBuyer produce higher net proceeds to a seller when compared to the Traditional broker/agent sale process? Let’s review and analyze each line individually.

Offer Price: The iBuyer starts with the same sale price for both sales methods. Collateral Analytics’ Research estimates iBuyers are discounting their purchase prices three to five percent below market values. [4] With only a 3% price discount, the comparison of cash proceeds is breakeven at best. 

  • Advantage: Traditional

Seller Fees: Sellers may pay commissions somewhere in the range of 6-8% for both the listing agent and the buyer’s agent sales commissions. Opendoor says their service fee “can range between 6-14% based on how long we expect it will take to sell your home.” [5] The service fee “covers the costs of buying, maintaining, and eventually selling your home.” [6]

  • Advantage: Traditional

Staging and home preparation costs: Referring to the traditional sale, Opendoor estimates “these costs at about 1% of the sale.” [7] The comparison is to the iBuyer where “There are no staging, storage, or prep costs when you sell your home to Opendoor.” [8]

However, home staging is not just a cost of sale, staging has the potential to increase the value of the home or reduce selling time. Research from the NATIONAL ASSOCIATION OF REALTORS® showed 44% of buyers’ agents said that staging a home increased the dollar value offered at least one percent, compared to other similar homes on the market that were not staged. [9] Higher home value from staging is a potential benefit of the traditional sale thus negating the costs in the comparison.

  • Advantage: Traditional

Seller concessions: Opendoor’s “analysis of home sales data indicates that when buyers in Phoenix, Dallas, Las Vegas, and Atlanta ask for concessions, they ask for about 1.5% to 2% of the sale price on average.” [10]  There are no concessions when selling to Opendoor.

  • Advantage: Opendoor

Repair costs: Repairs may be required from a buyer’s inspection or Opendoor’s “free home condition assessment.” [11] There is no discernable cost difference between the two sales methods.

  • Advantage: Draw

Homeownership and overlap costs:  Assuming 1% of sales prices for transition costs with a traditional sale, iBuyers may not incur these costs.

  • Advantage: Opendoor

Closing costs: Closing costs cover items like title insurance, escrow fees, and HOA transfer fees. Closing costs will be incurred by the seller using either method.

  • Advantage: Draw

Yes, there are cost advantages to both sales methods. However, reasonable adjustments to the seller’s cost assumptions tell a different story.

Conclusion: “When you sell to Opendoor, the service we provide is simplicity, certainty, and convenience. In return for that service, we charge a fee.” [12] If the sellers’ net iBuyer proceeds are lower, then the seller has an investment question: is the convenience worth the cost?  Adjusting brokerage commissions to 6%, removing staging costs and applying a minimal 3% price discount, iBuyer proceeds are lower than a traditional sale.  This is a best-case scenario. If fees are higher or the price discount is more severe, the seller’s net sale proceeds will be reduced further. In short, convenience has a cost but you have to do the math to find out.

References


[1] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[2] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[3] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[4] “iBuyers: A new choice for home sellers but at what cost?” by Dr. Michael Sklarz and Dr. Norman Miller August 07, 2019 https://collateralanalytics.com/wp-content/uploads/2019/08/CA-RESEARCH-iBuyers-A-new-choice-for-home-sellers-but-at-what-cost.pdf

[5] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[6] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[7] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[8] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[9] Copyright ©2019 “2019 Profile of Home Staging.” NATIONAL ASSOCIATION OF REALTORS®. All rights reserved. Reprinted with permission. March 2019, https://www.nar.realtor/research-and-statistics/research-reports/profile-of-home-staging

[10] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[11] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

[12] https://www.opendoor.com/w/guides/how-opendoors-costs-compare-with-traditional-home-sale

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