With more than 1,000 Inman posts, Bernice Ross is a long-time contributor whose weekly column on real estate trends, luxury, marketing and other best practices publishes every Monday.
While iBuyer companies continue to make news, there’s an interesting trend afoot that virtually no one seems to have noticed: Opendoor, Knock, Offerpad and Redfin might not be as formidable as the press makes them out to be. Could it be that the real winner in the iBuyer arena is the agent conducting an old-fashioned print marketing campaign?
According to Inman’s iBuyer guide, “IBuyers are companies that offer homeowners cash for their houses. The companies typically do minor repairs and maintenance, then try to quickly relist the home and sell it for a profit. Homes can reappear on the market within a matter of weeks or months, but the key is to buy and sell a lot of houses and do it quickly.”
These companies use property valuations to make relatively quick offers sight unseen, and they typical close in a few days. Convenient as that might sounds, there are several reasons instant home purchases aren’t good for sellers, including: inaccurate valuations, lowball offers and fees adding up.
To put things further into perspective, Forbes explained the following:
If you purchased your home for $400,000 with 20 percent down, you showed up to closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers you $380,000 for your home — a 5 percent discount to fair value — you will lose $20,000 on the value of your home, plus pay a 5 percent commission (an additional $19,000).
This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $39,000 to your original down payment of $80,000 — you will be giving up close to 50 percent of the equity you put into your home partly for the convenience of a quicker sale.
So who is really benefiting from the iBuyer model? It doesn’t seem to make sense for the consumer, does it?
When consumers are informed, traditional agents usually win
When sellers fully understand the costs associated with working with an iBuyer, they normally choose a traditional agent. Zillow reports that 90 percent of its Instant Offers are rejected in favor of working with a traditional agent.
By the same token, Redfin CEO Glenn Kelman says, “Most customers who get a Redfin Now offer don’t take it.”
Other cracks in the iBuyer model are showing up on Yelp. While reviews of traditional brokerage models are easy to find on Yelp, Inman reported that the 500 Opendoor and Offerpad Yelp reviews are buried where no one can find them through Yelp’s online search tool or through Google search.
Needless to say, many of the reviews are scathing and could turn off most buyers who are thinking of using this model.
How to compete against iBuyers
To take advantage of the iBuyer model on your listing appointments, first show sellers how much they would be likely to net using the traditional commission model. The second step is to recommend that the sellers obtain offers from several iBuyer companies. These offers are usually good for 30 days.
Once the sellers receive one or more iBuyer offers, compare how much they will net with each iBuyer offer as well as the net they would achieve with you using a traditional commission model. Please note that most iBuyer models do charge for repairs in their bid, so it’s important to do an apples-to-apples comparison with or without the repair costs.
The next step is to ask for a 29-day listing. If you haven’t sold their property by that date, the seller has the option to take one of the iBuyer offers or to extend their current listing with you.
Straddling both the traditional and the iBuyer model
An emerging model that Mike DelPrete identified at Inman Connect New York as “Opendoor’s worst nightmare” was 160,000 Keller Williams agents “in people’s living rooms and kitchens waving around an iBuyer brochure and saying, ‘We do that too.’”
Multiply that offering across all the Realogy brands, and it’s easy to see how the competition between various iBuyer models might become so fierce that profit margins might no longer be sustainable.
Watch Mike DelPrete’s entire briefing of the iBuyer landscape below.
What everyone seems to be ignoring
What no one seems to be talking about is the extent to which individual agents have embraced a hybrid of the traditional buyer model and the iBuyer model.
I jointly own a property with my brother in Southern California. Over the past several months, I have received print marketing material from 10 different individuals. Of these, seven of them were from people offering to buy our home for all cash. Here’s a small dose of what I’ve seen:
- The first of these offers was from HomeVestors, which claims to be “America’s No. 1 homebuyer.” This model has been around as “We Buy Ugly Houses” since 1989. It currently has 900 franchises in 45 states, something the new players in the market will take some time to achieve.
- The second category was the brokerage or agent who was looking to locate properties for clients who would buy the property with or without tenants, no appraisal and no commission if sold to their buyer. Two of these were from Century 21 agents. The third person was licensed, but was buying for their own account and could “Buy it today!”
- The third category included unlicensed investors and individuals who were buying for their own account. Their offers included:
- We can buy your house as-is for cash. You don’t have to worry about repairs commissions or closing costs.
- We have bought properties in as-is condition with no warranties from the seller. There were no contractor inspections, no termite report and no repairs requested. We accept properties with problem tenants, close sales in five days for all-cash and also pay all seller’s costs.
- I own a small investment company and would like to give you a fair cash offer. We handle the entire transaction and pay all costs associated with the sale. All we need to do is take a quick look inside your home. We can close the transaction and get you the cash in less than 14 days. We buy with cash, as-is, and we can beat any offers you might have!
That’s seven offers to purchase our property as-is, all-cash. What’s fascinating is agents and investors have been using this approach for decades. Furthermore, many top producers offer to buy the home themselves if they don’t sell it.
Given that NAR’s profile of homebuyers and sellers for 2018 shows that 75 percent of sellers hire the first agent with whom they speak, the question is: Will the same thing happen in terms of iBuyers?
Will the first agents who reach the seller be the ones who will ultimately win the iBuyer game? If so, the big company iBuyer models might have a very rocky road ahead because both individual agents and investors are clearly beating them to the punch.
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.