A glimpse into the future of residential real estate sales

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Here’s what may happen when iBuyer companies enter our market place

iBuyers

I read an interesting article from Forbes recently by John Wake entitled “The Surprising Way Real Estate Agents are Adapting to ‘iBuyers’ Buying Houses Directly From Sellers.” I invite you to read the article in its entirety here.

The article focuses on residential real estate sales in the Phoenix market which the author calls “ground zero for the iBuyer explosion.” What does he mean by that? Apparently, the largest iBuyer companies, Opendoor, OfferPad and Zillow Offers, either started their operations in Phoenix or concentrate their efforts there. He estimated five to six percent of houses that change hands in that market are sold to iBuyers.

The article focuses, as its title suggests, on how real estate agents are adapting to this disruption in their market. But I find the article instructive to South Carolinians on the topic of how these internet sales are orchestrated and how they might affect sellers in our market when this disruption migrates east to us.

The author says that a homeowner who seeks to sell a house via an internet company must first complete an online form. An offer is typically made within two or three days. If the homeowner accepts the offer, inspectors will be sent to the house and will come back with a list of repairs and estimated costs for the repairs that the buyer requests before the closing.

As in our current process, the seller can agree to make the repairs, to reduce the price of the house to cover the cost of the repairs, or to terminate the contract.

The author suggests that real estate agents commonly complain that iBuyers tend to offer less and to ask for more repairs than traditional buyers. In other words, the seller makes more money in traditional sales involving local real estate agents.

The flip side of that coin is, of course, that closing with one of the iBuyer companies is more convenient than the process in our marketplace. A seller doesn’t have to get the house ready to sell, stage it, keep it clean for showings, or leave home for showings and open houses. The closing date may be more flexible, and there probably will not be contingencies for appraisals and financing.

How are real estate agents in Phoenix adapting? According to Mr. Wake’s article, real estate agents are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the iBuyer offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

In short, real estate agents are attempting to become iBuyer experts in addition to traditional home sale experts.

Real estate lawyers, we need to be ready for this disruption when it hits us. We will want to be able to explain the changes in the market to our clients as well as to educate our real estate agents on how to stay in the game. Let’s keep our eyes and ears open! I’ll help!

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Have you heard about “Zillow Offers”?

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It’s not available in South Carolina yet, but it may be a matter of time

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In early 2017, Zillow tipped its toe into the process of selling homes by launching a product it called “Instant Offers”. The product was initially tested in Las Vegas and Orlando and was described as a method for homeowners to sell their homes for a discounted price without the traditional complications of repairing, listing, staging and allowing for open houses.

The process started with a homeowner providing basic information via Internet about the home (square footage, number of bedrooms and bathrooms, and remodeling information) and uploading photos. The Zillow product then connected the homeowner with investors who buy homes in the area, and, typically, an all-cash offer was made by one or more of the investors. The homeowner paid no fee for the service and was not obligated to accept any offers. Zillow touted the product as a method to alleviate the seller’s stress and to allow the seller to close in a shorter timeframe.

Other companies, OpenDoor and OfferPad were already operating in this space at the time of the Zillow launch. The launch was called another example of technology disrupting the process of closing real estate transactions.

Real estate agents, of course, met the news with alarm. They said sellers would be suckered into making mistakes that might cost them the education of their kids, vacations or just the ability to sleep better at night because they have more money in their bank accounts. An online petition was initiated, asking the National Association of Realtors to threaten Zillow with being removed from access to listings. The NAR responded that it could not sponsor or encourage such a boycott.

Zillow has always stated publicly that it is not in the business of getting rid of real estate agents. Its executives called Zillow a media company, not a real estate company, and said it sold ads, not real estate. Even the Instant Offers program encouraged sellers to use a realtor even while avoiding the traditional listing and sales process. The question then became the amount of commission the real estate agent would earn for reduced services. When real estate agents initially complained about Instant Offers, Zillow responded that 70% of its revenue came from working with real estate agents.

In early 2018, however, Zillow announced that it would begin buying homes directly from sellers and then turning around and selling them. With this announcement, Zillow began selling ads and houses. Two test markets were announced, Las Vegas and Phoenix. Zillow said that when it buys homes, it will make the necessary repairs and updates and list the homes as quickly as possible. Zillow said local real estate agents would represent Zillow in the transactions. Zillow also announced in a press release that the vast majority of sellers who requested an Instant Offer ended up selling their homes with agents.

The program was later launched in several other markets, Phoenix, Atlanta, Denver and Charlotte. And last week, Zillow announced that it would be expanding to Miami, Minneapolis-St. Paul, Nashville, Orlando and Portland in 2019. So far, nothing is in the works for South Carolina as far as we know, but I did get a kick out of one article that referred to one of the markets as “Charlotte, South Carolina”.

Stay tuned for more news on this topic. Real estate lawyers will need to figure out how to remain in the game whether properties are sold through the Internet or not!