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iBuyer –  The Instant Cash Offer Option

iBuyer – The Instant Cash Offer Option

Author: Carl Langschmidt

The iBuyer is an instant offer real estate business model whereby a seller can immediately sell their house and leave the headaches and hassles to the iBuyer to complete. In may ways all sellers want an instant offer but when understanding the cost they choose to go the traditional route. While it’s a great and convenient concept the problem with the model is it ain’t cheap.

The current process is something like this:

1 - The iBuyer estimates the homes current market value (to manage their risk they typically offer a point or 2 less than true market value)

2 - They apply a further 5% discount for commissions, a small staging discount and of course a discount for any local transfer taxes they may incur.

3 - Seller receives and instant offer with a closing at their convenience.

Pretty straight forward, the seller gets an offer 6-10% below the fair market value. While it’s not highway robbery it’s an expensive convenience but New tech companies like Opendoor are trying to invigorate and reinvent this business model that was traditionally seen as a sleezy “Cash for Homes” desperate seller option.

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The challenge and opportunity.

Imagine seeing the home of your dreams or getting a job offer that requires immediate relocation. Now imagine selling your home within 24hrs and skipping the chores and and work associated with selling (no painting or staging, no keeping the home in showroom condition) for anyone who has sold it sounds awesome until you see the price tag. Now is it possible to make the iBuyer cost reasonable? I think so, here is what would need to happen:

1: Transfer Tax Exemption/License – iBuyers will need to lobby for a land Transfer tax exemption or license that allows them to delay the Transfer taxes payment for up to 12 months until they find a new buyer. On a $2 million Rosedale home in Toronto, the transfer tax is almost $100K. This is the biggest hurdle that needs to be solved. These licenses could be a revenue generator for municipalities and it could be a win win.

2: Upside Loss Protection – Every seller thinks their home is worth more than the comparable sales and sometimes they are right. For this reason, if iBuyers offered a rebate back to the seller on any amount over 6% their model might take off big time.

The convenience factor of the iBuyer model is appealing from a convenience perspective and should some entrepreneurs overcome the hurdles above they might just disrupt real estate like nothing we have seen before.