The real estate market has changed with the introduction of iBuyers – corporate buyers who make fast offers on homes using technology. iBuyers offer sellers a quick and easy way to offload their properties, but real estate licensees need to know the challenges these transactions present. Understanding how iBuyers work helps licensees avoid potential problems and costly lawsuits.
In this blog, we’ll cover everything you need to know about iBuyers, the risks, how to spot iBuyer scams, and steps you can take to keep your real estate business safe.
What Are iBuyers?
iBuyers, or “instant buyers,” are companies that use technology to make fast cash offers on homes. Because they choose properties based solely on an automated valuation model, they bypass traditional sale processes like negotiations and inspections. This may appeal to sellers who want a hassle-free, fast sale.
There are four main ways people can deal with iBuyers:
- Homeowners can sell directly to an iBuyer, skipping the typical real estate process.
- A seller might still retain the services of a real estate professional who can facilitate the sale, working with the iBuyer and providing support and advice to the seller through the transaction.
- Buyers can purchase a property directly from an iBuyer without the services of a buyer’s agent. iBuyers will typically show all their properties on their website and consumers can ask questions or schedule tours directly with the iBuyer.
- A buyer who wants to purchase an iBuyer’s property might still engage a buyer’s agent to help them navigate what properties are available.
Opendoor® was the first large iBuyer to hit the US real estate market. However, since then other competitors have emerged, like Offerpad®.
The Pros and Cons
There are some benefits for sellers when it comes to iBuyers, but there are also some negatives. Let’s look at the pros and cons:
| Pros | Cons |
|---|---|
| ● Sellers avoid the hassle of doing costly repairs and staging before going to market. | ● Offers are usually less than what you could get on the open market. |
| ● There is no need for open showings. | ● Service fees are usually higher. If a seller also uses a real estate agent, they may need to pay iBuyer fees and agent commissions. |
| ● No waiting around for buyers to arrange building and pest inspections. | ● iBuyers typically don’t negotiate or there are very limited opportunities to negotiate on terms. |
| ● The buyer buys the property ‘as is’. | ● iBuyers operate only in specific areas so selling to them isn’t always an option. |
| ● Transactions close quickly, often within days. | ● iBuyers don’t care about unique home features or the special touches a seller has made to their home — the decision is based purely on an algorithm. |
| ● Cash offers provide certainty, reducing concerns over financing issues. |
The Risk of iBuyers to Real Estate Licensees
When working with iBuyers, real estate licensees face several risks:
Conflicts of Interest
Some iBuyers offer kickbacks or incentives to real estate agents, creating a serious conflict of interest if you’re supposed to be acting in the best interests of your client. Financial incentives can influence licensees to direct clients to iBuyers, even when it’s not the best option for the client.
Buyer/Seller Confusion
Working with iBuyers is different than your usual buying/selling process, and some clients may not fully understand the nuances. Disputes may also arise if clients realize the fees are more expensive and that they must pay fees to the iBuyer and commissions to you as their representing agent. So, it’s important to communicate well upfront about all of the costs involved and how the process works.
Impacts on Your Commission
Lower real estate agent commissions may apply to properties involving iBuyers because typically there is less work involved in buying or selling iBuyer properties. But, if you have a difficult client or face other challenges along the way, you still may need to spend considerable time working on the translation, advising and supporting your client.
Legal Liability
iBuyer transactions can still encounter problems. Sellers may feel pressure to accept an offer quickly, placing them in a highly vulnerable position, only to realize later they made the wrong decision. These legal issues could also extend to you as the real estate licensee. You must ensure you advise your clients to the best of your ability to avoid negligence or misrepresentation claims. The last thing you want is for a client to sue you because they feel you coerced them into accepting an iBuyer deal.
Spotting a Scam — Red Flags to Watch Out For
While legitimate iBuyers absolutely exist, scams can happen. It’s important for licensees to be alert to potential fraudsters. Watch out for these red flags:
Red Flag #1: Unverified Buyers
If the buyer can’t provide sufficient proof of funds or credentials, they may not be a legitimate buyer. Always take the time to verify the buyer’s identity before proceeding with a transaction.
Red Flag #2: Overly Generous Offers
Be cautious of offers that appear too high, because typically iBuyers will offer less than you could get if you went out to the open market. Scammers often attempt to lure sellers in with inflated offers, only to later ask for upfront fees or disappear after collecting personal information. If it seems too good to be true, it’s likely a scam.
Red Flag #3: Poor Communication
A trustworthy iBuyer will respond promptly and professionally. If communication is delayed, vague, or evasive, it’s a sign that the buyer may not be legitimate.
Red Flag #4: High-Pressure Tactics
Scammers use high-pressure tactics. They do this because they want people to skip their normal due diligence steps and act now. If an iBuyer insists on closing quickly or pushing for fast action, slow it down. Never skip steps in your normal procedures and ensure you carefully vet the buyers and the offer they’ve submitted.
Red Flag #5: New or Unknown Company
iBuyers have been around for a while now. If your client receives an offer from a company that has only recently been registered and is largely unknown in the industry, this is a red flag. Delve deeper and find out who they are before your client agrees to anything.
Tips for Real Estate Licensees To Minimize the Risks
Educate Your Clients
It’s important to explain how iBuyers operate, how offers are calculated, and what fees are involved. Clients also need to have a clear picture of the pros and cons of dealing with iBuyers.
Due Diligence and Research
Before working with any iBuyer, verify who they are and make sure they are not a scammer. Check reviews, research their track record, and ensure they have a reputable history in the market.
Stay Neutral and Don’t Accept Kickbacks
If iBuyers do offer you incentives, ignore them and instead make sure you focus on what’s best for your client. Your advice must be based on helping your clients reach their goals, not the potential financial kickbacks you are likely to receive.
Pay Attention to The Fine Print In Contracts
Ensure all your agreements are rock solid and protect your client’s interests. It is recommended that you consult a real estate attorney to review any contracts involving iBuyers.
Protect Your Business with CRES Real Estate E&O Insurance
Navigating iBuyer transactions can be daunting, especially if you haven’t come across it before in your real estate business. Having the right Errors and Omissions insurance as a real estate licensee is crucial. CRES E&O + ClaimPrevent® gives real estate professionals the legal protection you need, so you’ll have the confidence to manage any iBuyer transactions that come your way.
As part of one of the largest insurance brokers in the world, we have access to more real estate E&O options than just about anyone. Let us find you superior protection at an exceptional value, with pre-claim legal help included.
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