March 30, 2021
In the real estate world, traditional wisdom for decades has been that buying or selling a home is among the most stressful of life experiences. Many potential homeowners fear the process, voicing concerns about timing, transparency, commissions and potential complications. And the stress isn't limited only to sellers; buyers also feel the anxiety of shopping for a home, and are not at all prepared for the hard work of negotiating a contract, qualifying for a mortgage or compiling the necessary documentation to ensure a smooth closing and transfer of deed.
Alternatives for home sellers are slim. Discount brokers and do-it-yourself “FSBO" listings have gained traction in some markets. Street corner "I buy ugly houses" signs are common, especially in slow markets. Local agents and brokers are the primary sources of information and expertise for sellers and buyers alike, even though they both are likely to do some online research in advance. However, since about 2014, new players known as iBuyers have emerged, offering a better way. Their existence and growing popularity represent not only a new dimension for real estate in general, but they have also sparked concern among agents and brokers. The primary claim of these instant-buying companies is that they will simplify the entire selling process, eliminate uncertainties and reduce the stress.
Companies like Opendoor and, more recently, Zillow and Offerpad target sellers who are eager to sell quickly and move on. They are also appealing for out-of-town owners or for those who have inherited property they do not wish to hold. Their business is, essentially, built on technology. Offers are based in statistics, identifiable trends, and data that is readily available through the digital universe. The business plan is a simple one: Buy at or near market value, invest as little as possible, and turn the property as quickly as possible. Because these companies can make an offer quickly, frequently without even a site visit, they have attracted a great deal of attention. And for some sellers they are the right choice.
But they are not free. Opendoor, which currently enjoys the largest market share among iBuying companies, charges a seller commission ranging from 6% up to about 12% for properties with more risk. Income is generated by the fee as well as by the difference between price paid and the selling price, typically around 5%, much of it generated simply by appreciation. In a sense, the companies are house flippers on steroids. Because of their financial strength, the low margin works for such companies.
Mike Delprete, a well-known real estate tech strategist, offers some fascinating insights about the growth of the instant buying market. Based on his findings, he believes that the market share realized by iBuyers may remain relatively low, and that the real business boom is likely to be related to lead generation. He points out that Zillow, by its own admission in 2018, actually purchased only 200 homes from an interested seller pool of approximately 20,000 homeowners. The startling statistic is that 45% of those homeowners who contacted the company later listed their homes with established local real estate agents.
This analyst believes that, not too far in the future, selling leads to local brokers and agents might generate an even greater income stream for Zillow. Consider that an advanced warning about the importance of building relationships now that might pay dividends in the future. The chasm between iBuyer vs real estate agent may be bridged by yet unforeseen developments.
Understand that you generally cannot compete against iBuyer transaction speed, but that you can outperform consistently in other ways.
Emphasize Your Strengths: Express in direct terms to sellers that personalized service, attention to detail and hyper local knowledge are benefits iBuyers cannot provide. Always emphasize that you're licensed, and you possess local market knowledge. Talk about your brokerage support team, your relationships with other agents, your marketing strategies, your sales record, and your commitment to sell their home for top dollar as quickly as possible.
Acknowledge the Pros & Cons:
Cons: The price a iBuyer offers will almost always be lower than selling on the open market, even if it's not more than a percentage point or two. In addition to that, the fees will be higher.
Pros: Preparing a house for sale involves effort, and maintaining a home in show-ready condition is not always easy. iBuyers remove that stress from the equation as well as the stress of an inspection period.
In the end it comes down to time and stress vs. money.
Alleviate the Stress: Time on the market, negotiations and inspections are all stressors for sellers. According to statistics, about one-third of recent real estate sellers and buyers alike point to lack of transparency as a major concern. Ultimately those fears of the unknown can really play in favor of the iBuyer. Take the time to explain the process in detail including potential scenarios you could run into. Know the average days on market in your area, and relationships between listing price and sales price. Highlight your track record and always be honest in responding to seller questions and concerns.
Embrace Available Technology: It's not only the top nationwide i-Buyers who have access to relevant technology. You can also adopt useful tools that support a smooth, low stress, transparent transaction. Examples of technology tools that help buyers and sellers have a better experience are showing services like TourZazz or Calendly, transaction timelines like Shaker, digital escrow services like Earnest, easy disclosure tools like Glide and moving support services like MoveEasy.
Expand Your Network: Real estate is a people business. Make it a priority to strengthen existing relationships with other agents, with lenders and title companies, with city officials and building contractors, with previous sellers and buyers, with neighbors and friends. You never know where your next referral will originate. At the same time, take advantage of professional courses, and investigate what's new nationwide in the expanding and changing world of real estate. If it becomes a reality that today's iBuyers become a source of tomorrow's leads for you, so much the better.
The overarching theme is that realtors need to play to their strengths focusing on their local knowledge, ability to market and sell and their personal relationship skills. It also can’t hurt to invest in tools that show you’re committed to making things as easy and stress free as possible. Now it’s time to get out there and win that listing!
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