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How do iBuyers work?
When working with an iBuyer, sellers generally fill out some information online and receive a cash offer for their home within a week, and sometimes as quickly as 24 hours.
If the seller accepts, the iBuyer may perform an in-person or virtual home condition assessment and determine if they’ll collect a repair credit or reduce their offer price based on the findings.
iBuyers then allow the seller to close in as little as 7 to 10 days, but can also provide longer move-out timelines for those who need the flexibility.
Why sell to an iBuyer?
People who need to sell fast, hate the idea of showing their home, or don’t want to deal with home prep may be inclined to pursue an iBuyer offer. For sellers facing a tight timeline, job relocation, or financial pressure, the simplicity and speed of an iBuyer can be especially appealing.
Buy-and-hold investors
In real estate, a buy-and-hold investor is someone who buys a house and plans to keep it for a while — typically to collect rental income. They can be a real estate beginner who’d like to try their hand at becoming a landlord or a large Wall Street-backed institution such as Invitation Homes.
These types of buyers usually have more capital than the typical buyer due to their real estate portfolio, enabling them to pay for properties with all cash.
“Many of those buy-and-hold investors will still finance the properties later, using a cash-out refinance to pull money out to fund further investments — but paying cash upfront gives them a meaningful advantage in the current competitive market,” Hughes says.
Generally, buy-and-hold investors will look for certain location cues that would make a property easy to rent and result in strong cash flow. A home located near a university, for example, could become an in-demand student rental. Properties located in great school districts or provides easy access to businesses, amenities, public parks, grocery stores, restaurants, public transportation, and shopping centers may also be in the buying parameters of the buy-and-hold investor.
House flippers
House flippers typically buy homes as-is for cash at a sharply discounted rate, with the intent to make improvements and repairs and then resell at a profit. One of the most well-known house-flipping companies is the We Buy Ugly Houses® franchise.
Flippers generally have the loosest standards for the types of projects they’re willing to take on, whether a house looks like it’s straight out of the 1970s or has expensive issues to remedy like code violations, making them good candidates for owners of difficult properties looking to sell their house for cash. Flippers often embrace a home or situation that other buyers find unattractive.
A flipper’s cash offer is usually going to be dramatically lower than market value to account for rehabbing expenses. Flippers often follow the 70% rule, which means they will offer no more than 70% of what they anticipate a home will be worth after it’s fixed up.
This model allows a house flipper to buy homes as-is, reducing the burden on the seller to make pricey fixes that a traditional buyer would usually require.
Individuals with cash on hand
While rental investors, iBuyers, and house flippers do account for a decent portion of cash sales, they aren’t the entire story. Robert Taylor, a seasoned property investor in Sacramento, California, notes that a large portion of cash buyers in his market are not investors.
This could stem from an increasing number of retail buyers choosing to make cash offers as a means of winning bidding wars.
Below are some of the types of non-institutional buyers who may have the cash on hand to transact without a financing contingency:
The creative buyer
Creative buyers who would traditionally use a mortgage are finding ways to pay cash however they can. Options include leveraging their own retirement or securities funds, taking out a home equity loan or home equity line of credit (HELOC), or even receiving short-term loans from family members in order to buy a house with cash.
The extreme saver
Although these types of buyers are rare, Travis Steinemann, a property investor and rehabber in the Baton Rouge area, does sometimes see people who live frugally, have never had a credit card, and pay for everything in cash.
“These people may offer close to full list price since they aren’t trying to make a profit on the property,” he says.
