iBuyer Trend – Leaving Money on the Table?

iBuyer Trend – Leaving Money on the Table?

iBuying is a website that launched in May 2017 that promises “hassle-free” house sales. And to be fair, the platform does offer convenience when it comes to selling houses, and that too, at a low price. So what does it mean for the real estate industry in Las Vegas? Is buying luxury real estate through iBuyer worth it?

The short answer to this, in our opinion, is that while you get cash conveniently and quickly it doesn’t necessarily mean that you’re getting the best value. So in our opinion, iBuyer is great for getting money quickly but not if you’re looking for a good deal on your biggest asset.

Let’s get into a bit more detail for that.

iBuyer – What Is It?

As mentioned above, iBuyer is a platform where you can get an offer on your property within minutes, hours, or at most just a few days. You get quotes from investors and if you choose to accept the deal, you can get the money in a couple of days.

The iBuyer Catch

The platform seems promising and the promise seems amazing, right? But there’s a catch to buying and selling real estate in Las Vegas (or anywhere for that matter) with iBuyer.

On one side of the deal, it’s you offering your asset. On the other side is an investment company or an investor looking to make quick money. Furthermore, iBuyer charges a commission, but a discount to compensate for their ‘risk’ in giving you instant liquidity. This is known as a liquidity premium.

If the investor isn’t able to sell the property quickly enough after buying it from you or in a profit, they’ll lose money; hence the risk. These losses can be more than 10% of the fair market value, along with 5%-6% commission paid.

Here is a table to illustrate our point better:

Purchase price $500,000
Commissions (5%) $25,000
Fair Value Discount (5%) $25,000
Offer $450,000
Loss on sale $50,000

This transaction cost is much higher than that in the open market (5% compared to 10%-12% with iBuyer). If your property is on a mortgage with 20% down payment, i.e., $100,000, with the transaction costs you’d end up parting with 30% of your equity; just leaving it on the table.

Disclaimer: There are numerous factors to consider in every investment, including real estate. The information provided above is just a matter of opinion and can change with time. It shouldn’t be construed as legal or tax advice; neither does the report constitute a financial promotion or investment advice. It is general information and before making any such decision, you should seek out licensed professionals and see all ends clearly.