Is ibuyer bait and switch and other misdemeanors
I am sure you have seen the ads come across the social media sites that you visit. Companies like Opendoor, Zillow, Redfin and even the largest brokerages like Keller Williams and Coldwell Banker will offer to buy your house. These players, plus others extending the same offer, are called ibuyers.
They offer quick and flexible closing dates and cash — no clean-up or showings. What is there not to like? Where do I sign?
Hold on there partner. There needs some examination into what a deal with these companies would entail.
Opendoor exists to buy, rehab, and resell properties, no pretention there. The other companies mentioned have a Plan B.
ibuyers will usually submit an offer within 48 hours of a seller’s request. It may or may not reflect open market value. Hey, what’s a few thousands of dollars when sellers can have the convenience of a hassle-free move; sounds good. Then comes the fine print,
As a realtor working for a brokerage, commissions are a direct cost to the seller. ibuyers do not use the word commission, instead classify costs as fees.
Those fees will range between 7-12%–an agent will ask for 5-6% commission. An agent’s commission is negotiable, ibuyers fees usually are not.
Also, ibuyers will subtract out what they believe are necessary repairs in preparation of their flipping the property.
The results of these deductions and fees leave you with 80-90% of the home’s market value.
Quite possibly, there are situations when using a ibuyer makes sense. But what happens if you say “no way.”
Aah, that is the beauty of Plan B. The ibuyer now knows you are looking to sell your home.
Zillow will refer your name to an affiliated real estate agent. Zillion will receive a referral fee from the agent should you transact with that agent.
For ibuyers who are a brokerage, this is a great lead capture system.
A recent internet article discussed this very issue. A real estate team in Texas advertises they now buy homes. In actuality, they have aligned themselves with three cash buyers who flip houses. Perspective seller calls, lowball offer, seller rejects, however, the real estate team now has a warm lead.
Be prepared; this will happen to you Mr./Mrs. Seller if you make that call.
I am not saying do not to make that call. You never know until you ask. A better plan is to have your agent make that call to the ibuyer. Doing so should not affect the offer.
This entire scenario shows that ibuyers have their hands in someone’s pocket.
One other item. Should you accept the lowball offer, you will re-appraise every home lower in your soon-to-be-forgotten neighborhood.
Now for the misdemeanors
Misdemeanor One
“If I don’t sell your house, I’ll buy it.” How many times have you seen real estate agents advertise this claim?
You will notice they do not state at-market-price. Nor are any of the terms hinted. The fine print will indicate at a price the agent and seller can agree.
If you hire an agent based on the belief they will buy your home at the list price suggested; you will be sorely disappointed. Such claims are marketing, nothing more. After all, who is going to purchase a home resulting in a deficit position?
Misdemeanor Two
Numerous agents claim to sell homes over the listing price. Examples are published showing proof.
The proof is a report of properties listing sold price divided by list price resulting in 100+% above asking.
There is a subtlety to this claim that the average consumer would be unaware.
The actual sold price is recorded for all to see. No getting around that as it is public knowledge in California.
The list price is a different matter; it is the last asking price. There is no accounting for price reductions from the original list price.
I believe using the original listing price would reflect a more accurate portrayal of an agents pricing acumen.
Some agents tend to overprice listings to gain favor with a potential client. I call this buying a listing. They are confident that the seller will accept price reductions if needed.
An example by the numbers.
An agent tells a potential seller they can sell their home for $500,000. The house does not sell after 30 days.
The agent asks the seller to reduce the price to $490,000, still does not sell.
Let’s reduce it to $475,000 the agent asks the seller. The price decreased again, and an offer comes in at $480,000 and closes.
The MLS will report the home sold for 101% above asking. But would not 96% be more accurate?
Update 1/31/2020: Just came across an egregious example of misleading reporting. A home originally listed for $960K had price reductions culminating at $800K–home sold for $755K. The published reporting mechanism shows 94.39% listing price to sold price ratio. Actually, the ratio should have read 78.6%. The reality is the property was extremely overpriced initially. This is an example of my definition of the agent buying the listing.
When I represent a buyer, who is interested in a property, I will research the listing agent, particularly their pricing strategy.
I look at their sold listings reported on the MLS paying attention to the original list price compared to the sold price. A pattern of price reductions, if any, is an excellent clue in guiding my buyer on offer pricing, particularly on new listings.
Misdemeanor Three
“I will list your house for 1%, 2%” or some other low number. Not quite factual. That advertised commission represents only the listing agent.
When listing agents are members of the local MLS, they agree to offer the co-opting broker (buyer’s broker) some compensation. Trust me; it is not going to be a portion of the 1 or 2% advertised. Though negotiable, listing agents will start the conversation at 2.5%, maybe 3%.
The seller’s actual commission expense will be the listing broker’s commission PLUS the co-opting commission for the buyer’s broker.
Not to be lost in all this, the total direct charges of discount brokers will be less, just not the spread implied. There is more involved than price, see my post on discount broker’s service.
Sellers, don’t diminish the role of the buyer’s agent and lowball their commission. They are escorting the only person(s) bringing money to the transaction.
So, is ibuyer bait and switch or something else? Tell me what you think.
Updated 01/31/2020
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