What Is iBuying And How Does It Work?

Homeowners who want to sell quickly and skip the hassle of showings, repairs and wading through a lengthy closing can speed up the process by using an iBuyer. These speedy sale platforms — the “i” stands for instant — are online tech companies that purchase homes from sellers directly, without any third-party involvement (like a lender or a real estate agent). 

An iBuyer company can make an all-cash offer on your home within 24 hours, or sometimes even faster, and can typically close within two or three weeks. They can often schedule closing dates at your convenience as well. But, if this all sounds too good to be true, be aware that iBuying transactions do come with financial drawbacks. Read on to learn more.

What is iBuying?

The iBuying approach to selling a house has roots that predate the internet. Years before real estate websites came along, local companies would put up signs around town offering to pay cash for homes — they’d then flip the properties for a higher price, making a tidy profit. Today these companies can be easily found online, following the same general approach: making quick cash offers for homes and reselling them.

“The iBuyer is typically a company whose business model is to buy properties from homeowners, do minor, usually cosmetic repairs, and then sell at a profit,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence firm. “For the home seller, the benefits are speed — the transaction typically happens very quickly once the offer has been accepted — and certainty, as the deal closes immediately, as opposed to putting a property on the local multiple listing service and waiting for offers.”

This approach can be very attractive to sellers who need to close a sale quickly, whether for lifestyle or financial reasons. If you need to relocate ASAP for work, inherited an elderly relative’s home and don’t want to keep it, or simply need the cash from the sale as quickly as possible, for example, an iBuyer can be a good choice.

Popular iBuyer companies

While iBuying grew amid the highly competitive post-pandemic housing market, it has receded since and represents a very small share of the overall real estate market. According to data from CoreLogic, iBuyers accounted for less than 0.5 percent of all home purchases in 2023, buying approximately 1,000 homes per month over the course of the year. In 2021 and 2022, that number ranged as high as 9,000 homes per month.

“iBuying represents a pretty minuscule percentage of overall home sales,” says Sharga.

Historically, just four companies have accounted for the lion’s share of iBuying business: Opendoor, Offerpad, Redfin and Zillow. Combined, they made up more than 95 percent of iBuyer purchases from 2017 to 2021, according to another CoreLogic study.

However, while Opendoor and Offerpad remain two of the biggest players in the industry, Redfin and Zillow have since bowed out of this sector of real estate. Other popular companies offering iBuyer-like services include Clever, HomeLight, Orchard and Knock.

How iBuyer companies work

The iBuying process itself is very straightforward. In most cases, a seller provides some basic information about their home, or sometimes even just a street address, and within a short period of time, the iBuyer makes an offer — sight unseen.

These companies use algorithms to base their valuations on a property. “Then, an iBuyer makes a cash offer, sometimes as quickly as within 24 to 48 hours,” says Jade Lee-Duffy, a San Diego–based Realtor. “This process is meant to streamline buying and selling property, essentially cutting out the middlemen of banks and real estate agents.”

The process is indeed streamlined — iBuying transactions close much more quickly than traditional ones do. However, the convenience of this process comes at a price for sellers. Because iBuyers need to make a profit, they typically purchase homes for much less than their estimated market value. 

“Keep in mind iBuyers are not going to pay premium prices for homes, so the offer will most likely be low,” says Ralph DiBugnara, president of Home Qualified and vice president at mortgage company New American Funding.

In addition, while an iBuyer’s offer is made sight unseen, if the seller accepts, the next step is typically an in-person home evaluation. If any unexpected or costly issues are discovered during the in-person visit, that will likely impact the initial offer. “It could cause them to lower the offer, or cancel it,” says DiBugnara.

These types of companies can often be picky about what types of homes they’re willing to buy, as well. Since they need to make a profit on each transaction, they are not likely to be interested in homes that need major amounts of work or that don’t meet other specific criteria.

iBuyers vs. other homebuying companies

If you want to sell your home fast but are unsure whether iBuyers are the best approach, there’s another option: companies that proclaim, “we buy houses.”

Similar to iBuyers, these operations will make a quick, all-cash offer for your home and can close the deal very quickly. And also similarly, the offer you’re likely to get could be far less than fair market value. 

Unlike most iBuyers, though, cash-homebuying companies will typically purchase homes as-is, meaning you won’t need to do any sprucing up or make any repairs at all, even if it’s in very poor condition. This can make them a good option for sellers whose property needs more work than they are willing, or able, to put into it.

iBuying pros and cons

The iBuying process is different from a traditional home sale in many ways. Here are the main benefits and downsides:

Pros

• More certainty: In addition to closing more quickly than a typical transaction, which involves real estate agents and lenders and scheduling hassles, there are fewer uncertainties associated with iBuying. “There are [less] little headaches from a seller’s standpoint: no showings, no open houses and fewer potential contingencies to deal with,” says Bill Gassett, a RE/MAX Realtor and owner of Massachusetts-based Maximum Real Estate Exposure.
• No financing: Selling to an iBuying company means an all-cash deal that is not contingent on a buyer successfully securing financing. This eliminates the waiting time of the underwriting process, as well as the possibility that the loan won’t be approved.
• Greater efficiency: In these transactions, sellers deal directly with just the one company throughout, rather than a succession of mortgage lenders, real estate agents and others. Most importantly, the speed with which the deal goes through means the seller gets their money that much faster.

Cons

• Lower profit: The flipside, however, is that a seller will net less money when working with an iBuyer than they likely would if selling the traditional way. In addition to the lower offer price, you could get hit with fees that can add up to the same amount you would have paid in real estate commissions, or even more: iBuyers can charge fees that amount to 6 to 8 percent of the home’s purchase price, says Gassett. You may still have to pay closing costs as well.
• More selectiveness: iBuyers don’t operate everywhere, so depending on your location, selling to one may not be an option. And even if an iBuying company does buy homes in your area, your home may not qualify — they tend to have very specific, and sometimes narrow, criteria for what types of properties they are looking for.  
• Less personal attention: In iBuying, much of the process is done online with very little human contact. Sellers typically get less personal service or one-on-one attention than they would with a traditional sale, in which a real estate agent spends time consulting with and advising the homeowner over the entire course of the sale process.

Is selling my house to an iBuyer worth it?

Selling your home this way may be worth it if you have to relocate quickly, need the money fast, or don’t want to deal with the hassle of showings and a lengthy closing process. Selling to iBuyers also does away with any uncertainties about when your home will sell, and because they pay in cash, you don’t need to worry about a buyer’s financing potentially falling through. 

However, if your main goal is to earn top dollar for your property, iBuyers are not the best choice. If getting the best possible price for your home sale is more important to you than speed or convenience, the best option is selling the traditional way, with the help of a real estate agent who knows your local market well.