We are sure by now that you have heard ads on the radio, or received junk mail form companies who want to buy your house. The new phrase for these types of companies is “Internet Buyers,” or “iBuyers.” They try to sell convenience, and generally promise a fair offer. But fair to whom?
We like to think of these entities as real estate pawn shops, and you need to know three things about them.
1. Your Equity is their profit.
2. While they don’t charge “Real Estate Commission,” they charge fees higher than most commissions.
3. They are negotiating against you, and not for you. They are the buyers and represent themselves.
There are many companies out there like Offerpad, Open Door, and now even Zillow that want to buy your home. They offer convenience, the promise of flexible closings, no real estate commissions, and a host of other things as incentives. The general idea is that they want to make selling a home as convenient as trading in a car. And let’s be clear, they actually do deliver on their promises, although a lot of their marketing is misleading at best.
They make their money by getting a home seller to give up cash in exchange for convenience.
The business model is to buy homes for far under actual value and then resell them quickly, often after a quick cosmetic update. In order to do that and still stay profitable they need to buy homes for actual value minus the cost of repairs and minus their desired profit margin, which is typically quite substantial. It is not uncommon for offers to come in at 60% to 70% of actual value. Of course, sellers often don’t know that because they haven’t taken the time to either do the research or to have a real estate professional do the research for them.
In a real life example, in April of this year I had a former client get an offer from one of those companies accompanied by a very strong presentation to buy their home for $272,000. Then the seller chose to become my client again instead, and we sold the home for $305,000. Yes, that offer was for $33,000 less than the home was worth on the open market.
But that isn’t all.
While it is true that they don’t charge real estate commissions, the do charge a “Service Charge.” They also charge a “Convenience Fee” and furthermore want you to use their own title agency. When all was said and done, just ONE of the fees totaled more than 8%, much more than we charged to do the whole transaction. And of course, that was on a reduced offer price to begin with. The devil is in the details.
Lastly, remember that these are multimillion dollar companies that are looking to profit off of you, and don’t have any fiduciary duties to anyone but themselves. In other words, they have licensed real estate professionals in their corner. That begs the question: Who is looking out for the sellers best interests? Although it seems easy to sell a home on the surface, there are all kinds of contract law nuances, renegotiation after the inspection process (another thing they are notoriously aggressive about), possible appraisal issues, and all kinds of other hoops and hurdles that pop up during the escrow process. Sellers who sell directly to the buyer without anyone on their side are in sort of the same position as someone innocent who is using the prosecuting attorney for advice in a court case. The home buying experts are looking out for their best interests and their own best interests only.
For these three reasons alone, we really don’t advise selling to these companies without at least doing some research first. Look, we get it; sometimes time is more important than money. In a probate situation, a foreclosure situation, or if someone loses a job and time is not a luxury that a seller has in abundance, taking less for your home to sell it quickly makes sense.
But if you want to keep your equity, pay less for services, and have someone on your side, please give us a call. We can go into more detail. Heck we can even help you get a bid from these companies for free, so you can really compare hard facts and numbers. But in the end, you WILL find that the traditional sale will be in your best interest. Every time.
For more information, or even a visit to your home with no obligation to evaluate it, please call Rebekah at 801 574 7643 (Rebekah@agentswithoptions.com) or Vince at 480 720 4040 (firstname.lastname@example.org) . Call before November 31 2018 to see what special incentive we may be able to give you as we help you buy your next home at no charge to you!