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RICHMOND, Va. – April 27, 2018 – It’s the oldest fix-and-flip pitch in American real estate: “We’ll buy your home, guaranteed, no matter what its condition, and we’ll pay you quick cash with no commissions, and close in seven days or less.”
You’ve probably encountered versions of this on TV or elsewhere. The only way such offers make sense is if the buyers are low-ballers, paying sellers much less than their house is really worth. Some bottom-feeders buy at 25 to 40 percent discounts, slap on some paint, tidy up and flip for a fat profit.
It’s a business model that’s been around for decades because it serves genuine needs: Some people simply want to get out of their houses fast with minimal hassles. Maybe it’s because of a divorce, death, sickness or an inability to handle the costs of ownership. They’re willing to sacrifice price for speed and certainty. It works.
Some deep-pocket, high-tech players in real estate have taken a close look at this model and concluded: Wow! The direct-buy concept has a much broader potential market. Extensive consumer research has shown that large numbers of owners consider the traditional home-selling process too long and too fraught with inconvenience and mumbo-jumbo.
If those sellers were presented with a relatively fair price and quick offer for their homes – even if they net less money – they’d be interested. Unlike the fix-and-flip target market, these owners’ homes are in good shape and sellers could easily take the traditional route – hiring a realty agent.
Enter the “iBuyer.” A handful of internet companies, armed with proprietary valuation data and algorithms, have jumped into the cash-offer arena. At least two tell me they plan to expand to most major real estate markets nationwide. With no obligation, owners can enter basic information online about their homes and receive a tentative offer within 24 to 48 hours. Following an inspection, they may get a binding, all-cash offer. The iBuyer later resells the house.
The pioneer in the space, San Francisco-based Opendoor, has purchased around 15,000 houses and is buying about 1,000 a month, co-founder JD Ross told me recently. Sellers run the gamut: Downsizing seniors, move-up families and folks who don’t enjoy keeping their homes “show ready” for extended periods. The company currently operates in Phoenix, Las Vegas, Orlando, Dallas-Fort Worth, Atlanta, San Antonio, Raleigh-Durham and Charlotte, N.C., but plans nationwide expansion.
Its basic deal for sellers: a “fair” price for the home, plus a “service fee” around 7 percent that can go higher depending on needed property repairs and market conditions. Sellers are under no obligation to accept the offer and can use it to comparison-shop deals from traditional realty agents.
Opendoor’s chief rival so far is OfferPad, which is active in most of the same markets plus Tampa, Salt Lake City and Los Angeles. According to the company, it’s currently doing around $125 million in buy-sell transactions per month. Its basic fee to sellers is 6 percent. Additional charges vary with the condition of the home, location and market trends. The average fee is 7 percent, according to Brian Bair, co-CEO.
Relative newcomers include Zillow – best known for its Zestimate valuation tool and advertising services it sells to realty agents – which is testing its “Instant Offers” program in three markets (Orlando, Las Vegas and Phoenix). Its model brings in institutional investors to bid on houses or allows Zillow to purchase directly for subsequent resale. Home sellers receive a comparative market analysis prepared by participating local Zillow “premier” agents. Sellers can accept the all-cash offer, list with an agent or shop for a better deal.
Jeremy Wacksman, chief marketing officer for Zillow, told me total fees to sellers range from 8 to 15 percent, depending on expected repairs and updates and local market dynamics. Offers may be at a “slight discount” to market value, he added.
Redfin, a national realty brokerage, has begun offering its “Redfin Now” direct-buyer program in San Diego and California’s Inland Empire. Fees average 7 to 9 percent, according to Quinn Hawkins, Redfin new ventures director.
Copyright © 2018, Richmond Times-Dispatch, Richmond, VA, Kenneth R. Harney, Washington Post Writers Group. Kenneth R. Harney heads his own consulting firm in Chevy Chase, Md.