It seems every day a new whiz-bang idea crosses the threshold of real estate. News that many will not hear or possibly even care. Why would you unless you want to sell or buy?
ibuyer, who and what is it?
We are beginning to witness the advent of companies offering cash offers to sellers with quick closes. The term used in the industry is ibuyer. These companies are large technology companies or brokerages with a lot of cash. Technology companies such as Opendoor/Open Listing, Knock, Zillow and brokerages, Keller Williams and Realogy the parent company of my own Coldwell Banker, are investing and expanding into ibuyer.
As a real estate professional, I can not ignore these players or pretend they do not exist. It may even be prudent to suggest sellers contact ibuyers to compare their offers to the service and belief that I can offer.
Opendoor is a technology company that has moved into the Sacramento area offering cash and flexible moveout terms to prospective sellers. After some cosmetic repairs, they will re-list the property for sale. Redfin and Zillow ibuyer programs are not available in Sacramento yet but has begun presenting cash offers for homes in other parts of the country.
In an article appearing on the Inman Select website, Redfin offers has seller fees of 7-10%. The CEO admitted that many sellers do not elect to accept the offer. However, from Redfin’s point of view, this is another tool in their value proposition to the public.
As companies like Opendoor, Redfin, Zillow, and brokerages start wandering into the ibuyer landscape, the process will evolve to where this will become a niche market that will appeal to a certain percentage of those wanting to sell when time is of the essence or seller’s lack of desire to perform repairs. Also, sellers will not have to experience the drama that comes with putting their home on the open market. However, that may come at a considerable price.
What is not known is the offer price. Will these companies offer at or below market value. Some will try to make their profit on the flip (offer below market value), while others may look to fees for their profit (offer at or close to market value).
So far activity is limited to the lower price points within the market place. You have to remember these companies are needing to re-sell the property quickly to recoup their investment. The lower price point is where the highest demand resides.
Discount brokerages are changing their business model.
Without much fanfare, the two major discount brokers in the area have made changes to their offering to sellers–I am specifically talking about Redfin and Purplebricks.
I am just guessing, but maybe they have realized that appealing strictly on discounted fees will not generate enough traffic to support the bottom line. So, they have either increased the commission or expanded their offerings.
Purplebricks has increased their listing side commission, at least here in Folsom, from $3,600 to $4,950. Plus, they no longer require sellers pay or contractually commit to funding the commission upfront. Now, commissions are payable only if the sale closes.
Compared to commissions negotiated by most brokerages the savings can be considerable. There is a but. With the change, comes an effect on their agents. With the commission no longer guaranteed Purplebricks’ agents might have a conflict, needing to spend the appropriate time to assure the transaction closes and creating the transaction volume needed for their livelihood. Before the latest commission adjustment, agents were paid with the signing of the listing agreement, not anymore.
A changing market will require more than just putting a home on the MLS and a sign out front. Will be interesting how this plays out for Purplebricks and their agents.
I do wish them well as their model offers sellers another choice and choice is always good.
Redfin is expanding its listing offering. The currently published listing side commission is 1% of the sales price. This offering includes a selected listing agent, MLS entry and photos with 2.5-3% paid to buyer’s agent. Having been on the other side of a Redfin listing my experience is that is about all the sellers receive.
Some sellers require a higher level of service. Redfin has announced the addition of stagging to their offering upping the commission to 2% of sales price–basically, doubling the commission. Hmm, seems out of character and excessive when compared to their basic service.
Will this drastically change their transaction total, maybe? I suppose time will tell, but my gut says no.
For both of these companies and their agents, transaction volume is essential. With a balanced market listing agents will have to provide service beyond what has been the experience of the last five years.
So an agent secures a listing, now what to do to secure a buyer?
Know before you commit
Before you decide to list with a particular agent make sure you understand the agent’s offering. In this market be comfortable that the listing price is reasonable and not a feel-good number. Else you will find yourself in the drip-drip price reduction cycle. Unfortunately, there are agents with a habit of suggesting an outlandish price to “buy the listing.”