Roofstock offering 1 percent referral fee to agents

Roofstock, a website that lets investors find and purchase tenant-occupied single-family rental homes online, is offering a 1 percent referral fee to real estate agents for referring an investor who buys any of the properties listed on its site.

The company, which has raised $13.25 million in funding, currently only carries about 70 listing scattered across Florida, but it has plans to soon expand to Las Vegas and Atlanta, as well as a number of other markets in the coming months.

The startup posts exclusive listings owned by institutional investors that have snapped up single-family rentals homes en masse and are now seeking to offload them.

Earning referral fees

Roofstock is designed to make it easy for investors to buy and manage homes without living near them, so agents can still earn Roofstock’s referral fee by referring investors operating in the markets outside of where Roofstock’s listings are located — just as long as they buy one of Roofstock’s listings.

“In states where we cannot offer referral fees we are open to finding other ways to work with agents and brokers that conform with appropriate laws, like marketing partnership or pay-per-lead structures,” said Roofstock CEO Gary Beasley in an email.

Beasley is the former chief financial officer of ZipRealty, a high-tech brokerage that was acquired by Realogy in 2014. Later, he served as CEO of Waypoint Homes, a firm that has bought and managed thousands of single-family rental homes — just the sort of institutional investor that is listing properties with Roofstock.

To some agents, Roofstock’s referral offer may represent a pay cut from the higher compensation — often at least a 2.5 percent commission split — that they could typically earn by representing an investor in the purchase of a single-family rental.

But the offer may become more attractive when considering that agents don’t have to represent the investors they refer to Roofstock to earn the fee. And it could start to look like bonus income if an agent wouldn’t have otherwise been able to represent a particular investor in the purchase of a listing at all.

Screen shot showing a Roofstock listing.

Selling a single-family home rental can be expensive. For one, sellers have to pay what is typically a 5 to 6 percent commission to a listing broker (who usually splits that fee with a buyer’s broker).

The properties can be challenging to sell if they are occupied due to the inconvenience that the process can cause for tenants, such as having to vacate the property for showings. So investors typically have to wait for a tenant’s lease to expire and for that tenant to move out before listing a property.

The property then often needs to be fixed up to compete with other vacant for-sale homes that might appeal to investors. This, combined with the time it takes to sell the home, can take three or four months, easily amounting to a cost of 5 percent or more of the value of the home (lost rental revenue plus repair costs) — on top of the listing commission.

How Roofstock works

Roofstock is designed to slash these costs by lowering the listing commission and making it more feasible to sell with a tenant in place.

It serves as a listing broker, property information provider and transaction platform for single family rentals, charging around half a typical commission to sellers (2.5 percent) and a 0.5 commission to buyers.

A large part of the goal is to limit disruption to tenants so they stick around. That way, the home continues to generate revenue for the seller during the sales process and for the buyer once the transaction has closed.

Every Roofstock listing is advertised at a non-negotiable price and features property and neighborhood details, including current rent and annual yield, school and crime ratings, and virtual 3-D tours and models (InsideMaps).

They also include property inspection and title reports from third-party vendors, as well as “lease and tenant summaries.” The last document attests that a tenant doesn’t have a criminal background history and earns a monthly income that’s at least three times their monthly rent.

Tenants are supposed to only be disturbed once, when a home inspector and a real estate agent — both helping Roofstock assess the value of the home — visit the home together. At that time, tenants are informed that their homes will be listed for sale and that a condition of the transaction will be that the buyer honor the terms of their existing lease.

Money-back guarantee

Some investors might not want to base their decision to purchase a property on information provided by a party tasked with helping sell the property. Roofstock’s 30-day money-back guarantee might be enough to push some off these skeptics off the fence.

If an investor doesn’t like the property they buy through Roofstock and asks for their money back within 30 days of their purchase, Roofstock will list the home for free for up to 90 days.

If the property goes under contract in less than 90 days at a price that’s less than what the investor bought it for, Roofstock will make the investor whole when the transaction closes. If the property doesn’t sell after being listed for 90 days, Roofstock itself will buy the home back from the investor.

“We’re happy to buy these homes back if we miss something,” Beasley said.

Real estate agents, property managers and financial advisors can contact Roofstock to learn how to register clients to earn referral fees if their clients buy homes through Roofstock.

Agents who cater to single-family rental investors might view Roofstock’s referral fee as nothing more than an offer of compensation that’s far less than what is typically offered by a listing broker.

But the fee may seem more reasonable when considering that buyer’s agents hardly have to do any work to earn the fee. It could also start to look like bonus income if the investor being referred to Roofstock wouldn’t have otherwise purchased a home working with the buyer’s agent, or if the investor buys a property that’s located in a state where the agent isn’t licensed.

If investors are willing to pay a buyer’s broker’s commission directly (rather than have that fee paid by a listing broker) and also pay Roofstock’s 0.5 percent fee, they still can choose to be represented by a buyer’s broker in the purchase of a Roofstock listing, Beasley said.

Roofstock plans to eventually list properties owned by mom-and-pop investors, not just institutional investors. Beasley said Roofstock also would be open to carrying properties purchased by tech-powered home flipper Opendoor.

That’s a prospect that seems plausible given that two of Opendoor’s major shareholders have invested in Roofstock.

Email Teke Wiggin.