For more than two decades, a few bold real estate agents have promised, “If I can’t sell your house, I’ll buy it!” We Buy Ugly Houses was the first company to take this model national.
Today, the next reincarnation of this model — iBuyers such as Opendoor and OfferPad — are often viewed as a threat rather than potential collaborative partners that can help agents close more transactions.
How the iBuyer model works
Both Opendoor and OfferPad have entered the market that We Buy Ugly Houses has dominated for years. Each of these companies promises to simplify the homeselling process while also creating liquidity in the market.
They make a fair offer on the owner’s home and allow the owner to select the closing date. The advantages? No showings, no staging, no buyers backing out and no listing commission.
They do charge a 6 percent to 12 percent “remarketing fee,” closing costs, plus the costs of any improvements they make.
A case study: Opendoor in Phoenix
I recently interviewed Byron Short, the designated broker for United Real Estate Success in Scottsdale, Arizona. Both Opendoor and OfferPad are in the Phoenix market, so developing a strategy that deals with the iBuyer model was important for his brokerage.
Short explains that the iBuyer model is similar to what happens when you buy a new car. You can let the dealer take your present car as a trade-in at a wholesale price, or you can attempt to sell it on your own for the retail price.
Most people prefer to take the dealer’s wholesale price in exchange for not having the hassle of selling it themselves.
Short researched Opendoor’s sales in the Phoenix metro area through the Arizona Regional MLS. Here’s what he found for the last 365 days:
- Opendoor conducted a total of 1,704 closed transactions. Of these, it represented 1,562 seller transactions and 142 buyer transactions.
- Average days on market for Opendoor was 42.8 days, which is typical for this market.
- The median price of its listings was $220,000, $10,000 lower than the median price for the Phoenix metro market.
- Only 134 of its sales were over $300,000, while in the overall market, that number was about 25 percent.
- Their ratio of sales price to list price was representative of most sales in this area.
Clearly, Opendoor is doing the bulk of its business in the lower price ranges and generating results that are typical for the Phoenix metro area.
Is Opendoor’s remarketing fee just another name for commission?
A number of brokers and agents have made the observation that Opendoor’s remarketing fee is greater than the 6 percent commission that many companies charge. According to Short, Opendoor originally charged about 6.7 percent for its remarketing fee.
Today, Short said, that number is averaging about 9 percent.
One could argue that paying that 9 percent is the same as listing your property with a traditional agent for 6 percent — and then paying an additional 3 percent to the agent to sell your house, which is what Opendoor would charge in total under the label of a “remarketing” fee.
Putting the iBuyer model to work in your business
Putting these issues aside, here’s how Short takes advantage of the iBuyer model to help his business. Short has created a strategy that allows consumers to have it both ways — go for the retail price by listing with him, but if the property doesn’t sell during the listing period, sell with an iBuyer at the wholesale price.
Here’s how it works:
- You must have a signed listing before pursuing this strategy.
- Second, it’s important that the sellers have had the property inspected so they know whether the bids the iBuyers provide for repairs are accurate; iBuyers typically use their own inspection companies.
- After the seller has prepared the house for sale and just prior to posting the property on the MLS, the seller contacts Opendoor, OfferPad and We Buy Ugly Houses to obtain a bid from each company that shows what the seller will net.
- After obtaining the bids, the sellers now have a firm buyer offer that they can exercise if the house doesn’t sell with Short within the agreed upon listing period. This is a particularly attractive approach when the seller is purchasing a new home and needs a firm sale to move forward with the new build. (It’s also the reason Lennar is working with Opendoor to expedite purchases of Lennar’s new construction.)
This approach allows the seller to go after the retail price, but to have a wholesale offer ready to go if needed.
If the property doesn’t sell during Short’s listing period and the owner sells to one of the iBuyers, Short offers to do the sale for 1 percent to make sure they are represented.
His reasoning is that in almost every case, those sellers will be purchasing another home, and he’ll represent the sale on the buyer side. Either way, it’s a win for both the sellers and their agent.
If your sellers have a contingent sale, are purchasing new construction or need to sell on a tight timeline, working with one of the iBuyer companies can be a way to let your sellers go for the retail price while still having the backstop of a firm offer that can close on the date they want.
Currently, Opendoor is in the Phoenix metro area, Dallas-Fort Worth metro area, the Las Vegas metro area, the Atlanta metro area, the Orlando metro area and the Raleigh-Durham triangle area. OfferPad is in Atlanta, Charlotte, Las Vegas, Los Angeles, Orlando, Phoenix, Salt Lake City and Tampa.
Bernice Ross, President and CEO of BrokerageUP (brokerageup.com) and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.