iBuyers: Simplifying real estate transactions

Even if you haven’t heard the term “iBuyer,” you likely know the names of popular iBuying companies like Zillow, Offerpad, and Opendoor.

These web-based companies use technology to make instant cash offers to home sellers. They make repairs or improvements on properties if needed, then sell them to prospective home buyers.

In many ways, iBuying is simpler and faster than traditional home sales. But there are drawbacks to be aware of, too.

Here’s what you should know about the iBuyer process if you’re considering buying a home from one of these companies.

In this article (Skip to…)

• What is an iBuyer?
• Buying a home from an iBuyer
• Downsides of using an iBuyer
• The iBuying process
• Which iBuyer is best?
• iBuyer FAQ
• What are today’s mortgage rates?

Vishal Gupta, owner of We Buy Houses in the Triangle LLC, explains: “[iBuyers] often purchase homes that are in at least decent condition and which only require basic minor cosmetic upgrades or repairs.”

“Their business model follows the principle of purchasing at a price lower than what the home seller would likely get if they sold in a traditional way,” Gupta says. “Next, the iBuyer company lists the purchased home for sale at a list price that’s often above comparable homes so that a profit can be made.”

For homeowners, the advantage of selling to an iBuyer company is that you can unload your property quickly, with some platforms promising a guaranteed offer in 24 hours or less.

The seller doesn’t have to renovate, enlist a real estate agent, stage and show the home, or worry about the transaction collapsing because the buyer can’t get a mortgage loan. They can get cash quickly, which comes in handy if they are looking to purchase their next home.

“The instantaneous nature of iBuying means that new inventory is constantly being added to the market,” notes Jarred Kessler, CEO of EasyKnock, a sales leaseback company.

“With buyer demand so high and home supply so low, this makes iBuyer properties for sale enticing to home shoppers who are looking to buy now.”

Another plus of working with an iBuyer is that their listed properties are usually immediate occupancy. That means it’s easy to schedule a home showing, often on very short notice.

“Also, you don’t have to worry about emotions getting involved on the selling side. In a usual transaction between a home seller and buyer, a deal can collapse if either side gains a negative impression of the other,” explains Gupta.

“Most iBuyers go out of their way to ensure the property was renovated properly, and they want a reputation for providing quality homes” –Brandon Brown, Broker/owner, Baybrook Realty

You can likely trust that an iBuyer has made the necessary repairs and improvements to ensure a speedy and hassle-free sale.

However, it’s still recommended you get your own independent home inspection to make sure there aren’t any hidden issues with the home that you could end up paying out of pocket to repair.

“Most iBuyers go out of their way to ensure the property was renovated properly, and they want a reputation for providing quality homes,” says Brandon Brown, broker/owner of BayBrook Realty.

Some iBuyer businesses even provide the peace of mind of a money-back guarantee.

For instance, Opendoor gives buyers 90 days in which to return their new home and get a refund (after a small fee is assessed and conditions are met).

By contrast, traditional real estate agent fees are around 5-6% of the purchase price.

Buyers, on the other hand, usually don’t pay extra to acquire a property from an iBuyer.

One drawback for home buyers is that iBuyers aren’t as willing to negotiate or haggle regarding price or contingencies. They desire a rapid sale with as little red tape and bargaining as possible.

That means you can probably expect to pay more for an available iBuyer property than you would for a comparable property listed by an individual home seller.

Note that you’ll still need mortgage lender preapproval before making an offer on an iBuyer property, unless you intend to pay all cash.

You can either make an offer via your agent or by contacting the iBuyer directly, after which time you can attempt to negotiate price and terms with the company.

You should make your offer contingent on the results of a home inspection; you want to be able to back out of the agreement if any deal-breaker issues are found by the inspector.

If you are not working with your own buyer’s agent, you’ll be assigned an agent who works for the iBuyer company. The agent will help you structure a competitive offer and purchase agreement.

Closing on the home sale

You are typically allowed to pick a closing date within 10 to 60 days after you sign a purchase agreement.

Purchasers of an iBuyer home can choose their own mortgage lender, professional home inspector, real estate attorney, and title company, as well.

Some iBuyers offer mortgage financing if you need it, and others may provide in-house title and escrow services, making the transaction and closing simpler for buyers.

“Don’t skimp on inspections, and be sure to shop around for the best mortgage before purchasing an iBuyer home,” recommends Kessler.

There are three main steps involved in getting preapproved for a mortgage:

1. Fill out a lender’s home loan application online, over the phone, or in person
2. Prove your income and assets by providing key documentation, including the last two years’ worth of W-2s and/or 1099s, the last two years’ tax returns, paycheck stubs for the last 30 days, financial account statements, and more
3. Wait for your lender to approve your mortgage loan

Many lenders use automated pre-approval systems, which can return an approval letter to borrowers in a day or less.

This letter will outline the terms of the mortgage you qualify for, including your interest rate, annual percentage rate (APR), closing costs, and other homeownership costs like mortgage insurance.

Your pre-approval letter will also verify your maximum loan amount, so you know exactly how much house you can afford.

Verify your new rate (Jan 26th, 2021)