7 Ways Opendoor and Other iBuyers May Rip You Off
This year we've seen a rise in mega home buying companies. These companies were built on the model of making it easy for sellers to sell their home, but still get a fair market offer. Sounds great, right? But it turns out they have a few tricks up their sleeves to make sure you don't walk away with actual fair market value. 1. Their Definition of Fair Market Value is Questionable Like any other home buyer, listing agent or investor, companies like OpenDoor run comps. This means they look for similar homes near yours and see what they sold for. They come up with a price per square foot that they think your house is worth, and give you an offer based on this. Here's the gotcha, they will pull the lowest comps they can find, often reaching outside of your neighborhood in order to find comps that will pull the value down. In contrast, reputable investors like Justice Home Buyers will often look at higher end comps as they intend to add value to your house once they buy it. This doesn't mean investors will offer you that higher price, rather that their final offer will be based on a much higher starting number. 2. Their Initial Offer Will Change After a Walk Through Now most ibuyers are up front about this, so this shouldn't come as a surprise, however what may come as a surprise is how high their repair estimates are. It is not uncommon for them to lower their offer because they claim your house needs all new flooring, a kitchen update, bathroom update, etc. It's also not uncommon for them to lower that offer, and not even replace the flooring they claimed needed to be replaced and just pocket the money instead. In one case they estimated the cost to replace a sliding glass door to be $10,000. This is a repair that shouldn't cost anymore than $5,000, and that is high end. On the other hand, reputable investors wait to do a walkthrough before giving an offer. Home buyers need to factor in repairs to any offer, and this can be done before the offer is actually submitted. Investors will also use realistic numbers when estimating a repair budget. Profits are already factored into the final offer, so there is no need to look for extra money in the repair budget. 3. Fees, Fees, Fees IBuyers make money in two ways. First, they charge fees to the sellers, and second, they sell the houses for more than the pay to buy and fix them up. There are many fees that can be charged in the real estate world, but typically sellers can count on paying 6% for commissions, and usually not much on top of that. According to this article, Opendoor sellers typically pay about 8% in fees to Opendoor, but they may charge you up to 12%. That is just for using their services! This is in huge contrast to reputable investors. No reputable investor charges you a fee to buy your house. Good investors want to buy your house and they handle all fees associated. Real estate transaction fees are part of the cost of doing business, and this should be considered before making an offer. 4. They Tack on More Repairs Right Before Closing You made it through the walk through. You're happy with the offer, even after the fees. You are just days away from closing and suddenly you are told they need to lower their offer by another $10,000 because they need to do another repair that wasn't previously identified. This is particularly insidious because so close to closing you likely feel stuck in your contract, and are willing to just lose that $10,000 because you don't want to start the whole process over again. It's not unheard of for investors to find additional repairs on further inspection. However, this should not be a surprise, and it should not happen 2 days before closing. Any potential additional repairs should come as the result of having inspections done by professionals in their fields. For example, a licensed plumber may be required to do a static test on older plumbing to determine if repairs are needed. A reputable investor should be in communication with you about this and unless you are selling in a week, this should be done at least a week before closing. 5. You Pay Closing Costs It doesn't matter if you're in a buyer's market or a seller's market. With ibuyers, you pay closing costs. This is another $4,000 to $5,000 out of your pocket. Closing costs are a common point of negotiation in any real estate transaction. However, in an investor type transaction, it is unusual for the seller to pay closing costs. Again, this is another cost of doing business. Reputable investors like Justice Home Buyers typically calculate this into their costs so sellers don't have to pay for it. 6. They May Cancel the Contract Right Before Closing Day It may be hard to believe, but companies like Opendoor can just decide the transaction isn't profitable enough and cancel the contract, leaving you in a lurch. Unfortunately, the consequences of this can be far reaching. If you are buying another house, this cancellation can cause you to have to back out. This means you could lose your dream house because your buyer made an irresponsible offer that they couldn't follow through on. Real estate contracts get cancelled all the time in the investing world. A good real estate investor will cancel the contract early into the process because they know the impact it can have on the sellers. 7. They Don't Care About You There are very likely many agents that that work for these companies that do care about you and do want to help you, but the company doesn't. Like many large companies, it all comes down to the mighty dollar and the individuals involved are incidental. Reputable investors are concerned about you. They are in the business of solving problems. That means they buy your house on a time frame that works for you. They look for a strategy that works for you. Every transaction is unique and a good investor will tailor to the buyer. In Summary Businesses like Opendoor do offer a great service to many. However, that service comes at a price and comes with some risks involved. If you are looking to sell, it certainly doesn't hurt to get an offer from businesses like Opendoor, but it is very risky to not have a back up plan. Justice Home Buyers has purchased houses when Opendoor has either lowered their offer or cancelled the contract altogether. If you need a backup plan, contact us today at firstname.lastname@example.org or (512) 537-7757.