Direct buyers of real estate, often known as "iBuyers," are corporate entities that use either their own cash, venture capitalist funds, Wall Street-backed funds, or a mix of them all to buy real estate directly from sellers.
While a new term, the direct buyer isn’t a new phenomenon. Corporate entities have been purchasing single family residences in many mid-tier and growing markets for years, buying homes to add to their vast investment and rental home portfolios. The last few years have seen venture capital- and Wall Street-driven technology companies, brokerages, and franchises enter the market as direct buyers to add to their product offerings for consumers through their agents.
Regardless of the corporate make-up of the entity, the traits of the direct buyer tend to be similar. The process to purchase the home takes far less time as they use cash to buy homes from sellers. Computer algorithms combined with people determine the offer price, which is usually below market price of the home should it enter the market in the traditional way using an MLS. In lieu of a commission, a convenience fee is charged to the sellers which, in some cases, can be higher than traditional commissions. Sellers, now assured of a quick closing, have the confidence to buy their next home through the traditional route or through the direct buyer’s inventory and partnerships (some companies have partnered with new construction builders, for example). In addition, the direct buyer will take ownership of the home to turn it into a revenue stream as quickly as possible through the rental market or a flip after refurbishment.
The process usually entails the following steps:
- A seller of a home enters the address of their home, along with answers to any questions the direct buyer may have of it, into a website owned by a direct buyer.
- The direct buyer, using an algorithm, determines the approximate offer price on the home with contingencies like physical condition of the home itself. The seller agrees to pay a convenience fee at closing which can run the gamut between a flat fee, or a percentage of the sale price.
- The direct buyer then sends an intermediary — an employee or even a REALTOR® — to the subject home to ascertain condition, lift contingencies, and determine final offer price.
- Once contingencies are lifted, the seller and direct buyer agree to a closing date that, because there is no mortgage, can be a matter of days rather than the 30 to 45 needed to close on a home the traditional route.
- Once closed, the direct buyer takes ownership of the property like a traditional home owner to either rent or refurbish and sell back on the open market.