In July, we went to the Inman Connect Convention in Las Vegas to hear the latest trends in technology and real estate. We heard from the CEOs of tech giants like Rich Barton of Zillow, Glen Kelman of Redfin, and Eric Wu of Opendoor. These tech companies are on a mission to change the real-estate industry and often their tactics can be misleading. Their newest disruption factor in real estate is the ibuyer.
We had heard the term “ibuyer” during real-estate conventions last year but frankly did not know much about it. Ibuying is the process of selling your home to a tech company. These tech companies send you an offer and once you sign, your home is sold. Ibuying has increased its market share from 0.02 percent in 2018, which was roughly 25,000 homes bought and sold, to equal that number for the first half of 2019. Opendoor is at the forefront of that trend, doing six times the number of home purchases as Zillow. What is so special about the ibuying process? There is no negotiation involved and no financing. But, is it really so simple?
These tech companies are selling convenience. Their big buzzword is “hassle-free” and certainly that can be meaningful. Selling a home on the open market does take some work. Realtors often advise homeowners that it is important to do necessary repairs to roofs, stucco, hot water heaters and the like. Realtors also suggest paring down on extra furniture, touch-up painting, deep cleaning, and staging, which are all good ideas to help you get the most for your home. Certainly, it is advised to make the house available for showings and for it to be clean and tidy. All of that can be perceived as a hassle for some folks who need to sell. But what is the cost of convenience?
These companies will tell you that the only thing better than an estimate of value provided by a real-estate broker is an offer. They will provide you with a list of comparable home sales and then their offer for your home. One good rule of thumb: never take advice on the value of your home by the same person who is offering to buy it. These comps are often skewed because these companies are for-profit. If they pay honest market value on your home, there is no margin for their ability to turn around and sell it. And that’s what this really is. This is house-flipping on a massive scale, funded by venture capitalism to make a profit.
But the convenience of it, one might say. I am ok with selling my house to Opendoor for 7 percent less than market because I do not want people coming through the house and having to keep it clean. I will just take the lower offer. The under-market valuation is not the only way these companies make money. They charge a service fee and their service fee is comparable to a real-estate commission, ranging anywhere from 5 percent to 6 percent by region. So, you are still essentially paying a real-estate fee; only you are not getting the benefit of a Realtor’s sage advice with the goal of making you the most money.
Well, I won’t have to deal with the costly repairs from the inspections, one might say. In fact, all of these instant offers have a line for anticipated repair costs. Once you sign their contract, they send out their inspector and they come up with their number necessary for them to be able to resell your home. Forget the negotiation and compromise that a good Realtor will provide to you during this process. With ibuyers, this number is non-negotiable.
The goal of the ibuying model is to be the first in the door and make you an offer. And some sellers might be tempted to go that route but, in the end, homes purchased by ibuyers are purchased well below market value. And with hidden fees and surcharges this number is often much lower when it comes to the seller’s bottom line. Is the convenience worth it? Only the seller can make that decision. But as Realtors guided by a code of ethics and a commitment of service to our clients, we feel it important to explore all avenues available. Because the majority of a person’s assets are tied up in their home, we feel exposure to the largest market is often the best-case scenario. And having a knowledgeable and trusted real estate broker available to you will make the experience the most hassle-free and the most profitable for you in the long run.
Roger and Melissa are longtime Realtors serving b oth buyers and sellers. Melissa is a past president of the Santa Fe Association of Realtors and Roger is currently serving as the first vice president. They can be reached at 505-699-3112 or firstname.lastname@example.org or visit them online at carsonandcarson.com