You may have seen recent news articles about iBuyers coming to New York, specifically in the Long Island and Westchester areas, but you probably aren’t familiar with what an iBuyer actually is. Since we’re in the business of buying and selling homes in New York, as soon as this was announced we got an offer on one of our properties and went through the process ourselves so that we could write this detailed comparison. In this blog post, we’ll explain from our first-hand experience what the iBuyer process is like as well as the pros and cons of selling your home to an iBuyer on Long Island.
What is an iBuyer?
iBuyer stands for “instant buyer” and they are a new breed of home buying companies that purchase homes nationwide and were started by internet businesses like Redfin and Zillow. What makes them unique is that they have a technology-focused approach to making offers on homes without human involvement (initially). They’ll make an offer on your home and will buy the home themselves, do some very minor repairs and then list the house on the market.
Advantages of Selling a Home in New York to an iBuyer
Selling to an iBuyer has some of the same advantages as selling to a local real estate investor, especially when comparing this option to selling your house traditionally and listing with a real estate agent.
Fast Cash Offer
The process to get a ballpark offer is very quick. You go online, fill out your information, and answer a few questions about the property. After that, you are presented with a ballpark offer range. If that ballpark range is of interest, in order to get the “real” offer, there are a couple of additional steps. The next step is to set up a time to do a video walkthrough of the home over zoom with a sales rep. Assuming that goes well and the iBuyer is interested in the property in its current condition, they will set up an external inspection of the property. After these steps are done, you will receive your final offer. This process took us 3-4 days from start to finish.
While the process is a bit slower than getting a cash offer from a local real estate investor who will make you an offer on the spot during an on-site appointment, this is obviously much quicker than listing the house with an agent and not knowing what you’ll receive until the offers start coming in.
Close on Your Timeline
One of the biggest perks of selling to an iBuyer is that they will close on your timeline. During the offer process of obtaining your official offer, you will specify when you want to close. Assuming there are no issues that hold up the closing, like trouble getting a clear title, for example, the iBuyer will do their best to close on the chosen date. This can be of great importance if you are trying to coordinate a move or the purchase of a new home.
Downsides of Selling to an iBuyer on Long Island
While some of the main key advantages of selling to an iBuyer vs a local real estate investor are the same, there are some key differences between the two that make selling to an iBuyer less ideal in certain situations.
iBuyers have very specific buying criteria
iBuyers are a lot more specific about what properties they will buy than a local cash home buyer. Because these are nationwide companies with very limited local market knowledge, they look for more standard or “cookie-cutter” style homes where they can avoid incurring additional costs or risks. For example, many iBuyers will not purchase homes in flood zones or ones with septic systems/cesspools, which ends up ruling the majority of homes in Suffolk County and many homes along the south shore of Long Island. Additionally, an iBuyer on Long Island will stay away from homes that have any open permit or certificate of occupancy issues.
The house must be in good condition, vacant, and broom clean
iBuyers on Long Island are also very particular about the condition of the homes they purchase. They require that all appliances and mechanicals (i.e. heating system, air conditioning, hot water heater, etc.) be in full working order. Additionally, they will not purchase homes that need a lot of renovations, whereas local cash home buyers often seek out these kinds of problem properties.
As a local home buyer, one of the common reasons that we get contacted about purchasing a house (especially since COVID) is because the homeowner is looking to sell the property that is occupied by tenants. This is a no-go for iBuyers, as they require that the property be delivered completely vacant.
Lastly, while local cash buyers will let you leave any unwanted items behind, which is particularly popular in downsizing or inheritance situations, per their contract, iBuyers require that the house be delivered in “broom clean” condition, or else they will charge you for any rubbish removal.
The offer you initially get is not what you will receive
When you get the instant ballpark offer, you may be pleasantly surprised with the price. But after the virtual and external inspection, you will receive the formal offer. Here you’ll find that the iBuyer adds a 5%+ “service charge”, they’ll charge you for any repairs needed, and most surprisingly, they will charge you, the seller, for closing costs that are customarily paid by the buyer such as title and appraisal costs. That being said, the final offer will be at least 6-10%+ lower than you expect after seeing the up-front instant offer.
iBuyers can back out of the contract for any reason
When reviewing the contract sent by the iBuyer one thing took us completely by surprise, and this was the iBuyer’s deposit. On a $700,000 purchase price, they were only willing to put down a $1,250 deposit. On Long Island it is customary to put a 5-10% deposit down on purchases. When we read even further, it turns out that the iBuyer has the right to back out at any time for any reason while only forfeiting $500 of the deposit, not even the whole $1,250. This means that you have no certainty that they will actually close since they may back out at the last minute, leaving you in a really bad situation if you are purchasing another house or moving.
You’ll lack attorney representation and input
In New York, it is customary for the seller’s attorney to write the contract to ensure that the best interests of the seller are represented. In our hundreds of real estate transactions, there have only been 1-2 instances where the seller decided to forgo an attorney and write the contract themselves (not recommended). When the seller’s attorney writes the contract and sends it to the buyer’s attorney, there are almost always some edits/tweaks made by both sides as part of negotiations. Only after the attorneys agree on the terms will the contract be sent for signature, first by the buyer, then by the seller.
Now that you understand the typical process, here’s how it works with an iBuyer. They’ll send an e-sign contract for you to sign and while it mentions you should consult an attorney in the middle of the 20-page document, they don’t make it obvious or part of their process. Even if you choose to involve your attorney and send them the contract written by the buyer, your options are limited because the iBuyer will not accept any edits/markup by your attorney to adjust the contract to better protect your interests.
Why Many Choose to Sell to a Local Cash Home Buyer instead of an iBuyer
While selling to an iBuyer on Long Island may initially sound like a dream come true, many of the downsides of selling to an iBuyer are the exact reasons why people choose to sell to a local cash home buyer instead. When you sell to a local cash buyer like Leave The Key Homebuyers, we will buy your house no matter the area, no matter the condition, and no matter how many repairs are needed or whether your boiler is working or there are missing permits. When we make an offer to buy your home, our offer is exactly what you’ll receive, less any closing costs that are customarily paid by the seller – we don’t deduct any bogus “service charge” or repair costs. Your attorney will be the one to write the contract of sale so you can ensure you are well protected and represented. And most importantly, we’ll put down a non-refundable deposit so that you can have confidence we will close on the sale of your home so you can make concrete plans for your future.
If you have any questions about working with an iBuyer or want help understanding their offer and whether that’s the best option for you, don’t hesitate to reach out and give us a call at 631-388-7771.