What are iBuyers?
An iBuyer is any company that makes an offer on your home instantly. We’re starting to see businesses like OfferPad, Opendoor, and Zillow purchasing homes from people. They usually offer more convenience than your traditional sale, but that convenience comes with caveats. For instance, you can’t use iBuyers for comps. Unfortunately, because they’re considered ‘off market’ deals, appraisers are not allowed to use them in the report. Sometimes these buyers are paying above market value (with costs of course) or below market value so it can’t be treated as a comp.
During the appraisal process, the appraiser will use sale prices from comparable homes to help determine your home’s value. These are known as “comps.” With more and more iBuyers buying up more houses, the appraisal process has been affected. Traditionally, the appraiser will typically choose 5-9 properties that are most similar to the property being appraised. Properties that are more similar in features or were sold more recently will be weighted more in the appraisal.
Most comparable properties will fall within the following criteria:
- Sold in the last 6 Months (more emphasis placed on sales within the last 3 months)
- Within a mile radius (the closer, the better)
- Similar Size
- Similar Features
An appraiser will take a recent sale and adjust its sales price to determine the value of the home being appraised. Let’s say an appraiser is hired to determine the value for property “A”. He or she may look at Property B (a recent sale in the area) and adjust its value.
Sales Price of example Property B: $315,000 (used as a base price)
+ $4800 for larger square footage (Property A is given more value because its larger)
– $2650 for smaller lot
– $10,000 for backing up to a busy street
+ $12,500 for having a pool and spa
+ $1000 for having a fireplace
– $10,000 for not having as many kitchen upgrades
Adjusted Value for Property A (one that’s being evaluated): $310,650
In the example above, the appraiser would do this same comparison for every comparable property chosen. Once all the adjustments have been made, the appraiser will determine a value. However, iBuyer sales are not allowed to be used for appraisal comps, meaning there are less and less sales that can be used for comps, meaning your appraisal value may be affected.
If you have any questions about iBuyers or the appraisal process, please don’t hesitate to contact us!