So, you want to move into a new home quickly but have to sell your existing home first? You’re in the same predicament as 43 percent of homeowners looking to move. It’s one of the reasons the home selling/buying process is considered one of life’s biggest stressors. There’s so much pressure to sell before you buy so you don’t carry two mortgage payments – if you can even qualify for a second mortgage. But if you sell before you buy the next house, you may have to move twice. Meanwhile, you have to live through showings where strangers walk through your home, opening cabinets and closet doors as they assess your personal space. You’d think after decades of this craziness, someone would have thought of a better way.
Fortunately, they have. There are actually a few newer options that give homeowners more control over the timing of their move. We’ll cover two of the more popular ones to help you choose wisely.
You may have noticed signs around your town saying things like “We’ll buy your house with cash.” These and similar online offers are typically advertisements from iBuyer companies who use technology to estimate the value of your home based on similar homes recently sold in your area, then offer a “fair value” to buy your home with cash, sight unseen. The offer may be adjusted, however, after an on-site inspection where the condition of home is assessed. Cash offers close faster because there are no financing, appraisal or home sale contingencies to deal with that can slow or prevent the closing process, a process that can take more than two months from listing until close. Once you’ve sold your property to an iBuyer, the company puts the home back on the market. They’re not in as much of a hurry and can take on the burden of maintaining a pristine home for showings and waiting for an acceptable offer.
It’s an attractive option, but you may wonder how iBuyers make their money if they’re buying your home at a fair value and then reselling it without making improvements as with a flip. More on that “fair value” later, but most charge a fee, anywhere from 5-8 percent of the sales price. It’s more than the average rate you’d pay a full-service real estate agent to sell your home, making it an option to carefully consider before you pull the trigger. If your objective is to sell quickly so you can buy and move faster, using an iBuyer will get the job done, but you’ll pay a premium for it.
The Homeward Way
For homeowners who want to buy their next home now and not feel pressured to sell their existing home first (and make more money doing it), there’s another option that can cost less than using an iBuyer. Homeward approves you and then allows you to use the company’s money to make an all-cash offer on your next home. You can move into your new home immediately after closing, sometimes in as little as 10 days after the seller accepts their all-cash offer.
You can then take your time selling your existing home while you make leaseback (rent) payments on your new home. This gives you flexibility to decide when you move. You can stay in your existing home while remodeling your new home; you can move into your new home immediately and avoid all of the showings on the old home; or you can move whenever you’re ready. As soon as your old home sells, you pay Homeward back and assume ownership of your new home.
Homeward solves a few of common home buying problems. First, homeowners have the cash to make a highly-competitive offer to buy the home they really want without rushing, stress or pressure to sell first. They also avoid having to play the perfect-timing game where they cross their fingers and hope they can sell and buy a new home at precisely the right time. Third, they can schedule their move on their own schedule to fit their needs. Finally, they don’t have to make an offer on a house with a risky home sale contingency that may not be acceptable to the seller.
Homeward Fees vs. iBuyer Fees
Homeward charges a 1.9 percent fee on the purchase price of your new home, plus the daily prorated leaseback until you sell your existing home. Your leaseback payment is similar to local market rents. You’ll know the exact rate in advance before you make an offer. When you buy the house back from Homeward, there are no extra fees. You buy it back at the same price Homeward purchased it for with their cash. No duplicate closing costs, either. Homeward is transparent about their fees and how the process works.
If your existing home sells quickly, you’ve paid a 1.9 percent fee plus a month or so of leaseback payments. You would also pay the typical seller and buyer agents’ fees. Opendoor is a well-known iBuyer and currently advertises an average service charge of 7.1 percent, which includes their service charge and the real-estate agent fee associated with selling your home. Zillow is another iBuyer and does not reveal its fees until you get your offer. Keep in mind that while you may get an instant online offer, iBuyers frequently lower their price once they inspect your home.
iBuyers not only charge a full commission, they “build in a discount to fair value to compensate for the risk they take by providing you with ‘instant’ liquidity…these costs can add up to more than 10% of the fair market value of a home compared to 5-6% in commission with a traditional agent,” says Forbes. “Zillow recently explained that 90 percent of sellers who engaged in its Instant Offers platform decided against the iBuyer offer and chose a traditional agent instead. If 9 out of 10 consumers pass, the pricing can’t be that compelling.”
3 Tips on How to Choose between an iBuyer and Homeward
Buying and selling real estate can be complicated and stressful yet highly profitable if you do it right. Homeward and iBuyers make the process simpler, but you still must consider all of the risks and benefits. Here’s a brief cheat sheet to help guide your decision making process.
Tip 1: Determine Your Goals
Before you can make an informed decision on which real estate transaction you want to undertake, ask yourself what your ultimate goals are. Are you simply looking to move quickly – maybe because of a job relocation – and are willing to pay a premium to do so? Have you found a home already and need to sell your existing home fast? Do you want to avoid the hassle of listing and showing your current home?
Once you have your answers, do your homework on how each option helps you reach your goal in the easiest and most cost effective way. You can visit company websites and/or call each company to speak with a representative. Be sure to have all of your questions written out so you don’t forget anything that’s important to you and can save time.
Tip 2: Calculate All of Your Out of Pocket Expenses
As with any financial transaction, you need to do an apples-to-apples comparison of all of the costs you may incur with each option. Because some iBuyers don’t publish their fees upfront, you may have to call them to see if they’ll disclose all of their fees. Otherwise, check their websites, particularly their Pricing page and FAQ page to see if you can find them. Even if you feel the company has posted all of its fees on its websites, you may want to call them anyway to confirm there are no hidden fees. You should get any verbal pricing in writing.
Do the math. Add up all of the commissions and fees first. Consider whether the company is purchasing your home and what that price will be, or if the company allows you to sell your home on the open market. What’s the difference in how much you’ll take home after you sell? Will you be selling your home yourself or will you be paying an agent commission to do so? What is that commission? All of these factors will result in a ballpark cost to you.
Tip 3: Read The Fine Print
Until you enter into the approval process, it may be difficult to know exactly what you’re getting into. Some companies publish all of their pricing, terms and conditions, and how the process works on their websites. Others will ask you to apply first, then send you their fees and offer. Whatever the case, do not enter into any agreement without first carefully reading what you’re obligations are at each stage and the fine print on the contract. You don’t want any surprises in an investment this large, so be sure you have all your facts before you agree to anything.
Once you go through these steps you should have a good idea of the timing, process and cost of iBuyers vs. Homeward. If you’d like to learn more about Homeward, check out the How It Works page.