Direct home purchase is getting more attention in 2018. Some major players in the real estate industry and a few new kids are testing the concept. Are you running into that type of competition? Will you in the future?
The State of Direct Home Purchase
Today, a number of alternatives exist for homeowners who want to explore direct home purchase. Here are two examples:
Zillow Instant Offers
Zillow is testing its Instant Offers program in Las Vegas, Phoenix, and Orlando. When a homeowner expresses interest in working through the Instant Offers program, Zillow will gather information about the home and route it to the companies they have chosen as leading investors in a given location.
The investors will produce an offer based on the information provided without any interaction with the homeowner. However, Zillow also informs homeowners that the offers may change after an inspection, and that the offers aren’t final until a contract is signed.
Zillow says that there is no fee to request an offer, but if the offer is accepted, the homeowner will receive a “clear statement outlining any fees associated with the offer.”
OfferPad is a direct home buyer and seller that is currently operating in Atlanta, Charlotte, Las Vegas, Los Angeles, Salt Lake City, Tampa, Orlando and Phoenix. Homeowners fill out a request for an offer online, then Offerpad provides an offer, based on the supplied information, within one business day.
OfferPad publishes their fees on their website. They say, “OfferPad service fees typically range between 6-9%, vs. traditional real estate fees, which average 10%.”
Andrew Helling, editor of REthority.com, says in his Offerpad review iBuyers use computer models to generate offers. This means that while they are generally accurate, offers are based on averages. If your home is unique compared to the rest of the homes in your neighborhood, the computer-generated offer may be inaccurate.
How Good a Deal are the Homeowners Getting?
Any reasonable homeowner would realize that they can’t get a direct purchase on their home without giving up something. Here’s how the process seems to work, based on the company’s website information.
- Evidently, Offerpad is looking to create a revenue stream by charging a fee for their services. Then, when they sell the home, it would be logical to assume they’ll make a profit at that time, also. In that situation, the homeowner is not only accepting a lower sales price for their home, but they’re paying a fee, too. And, you have to ask yourself, where is a 10 percent real estate commission “traditional?”
- Zillow seems to be taking the same approach. While their website doesn’t quote a fee, they do confirm that there may be one.
Looks like the homeowner is getting a lower offer than they would otherwise, and they end up paying a fee as well. Therefore, the homeowners are trading convenience for a pretty low return on their investment.
Can You Compete?
Here are some things you may want to point out when you’re talking to a prospective seller about the direct purchase approach.
- Computer analysis and algorithms used to generate an offer based on the information entered into a form can get close to market value. However, there are some features of a home that must be seen to be appreciated. You might want to point out the accuracy of Zillow’s Zestimates.
- Real estate agents are dedicated to selling for the highest price the market will bear, which will contribute to their client’s ability to purchase a new home and build wealth.
- Purchasing a home is usually the largest investment a person makes in their lifetime. A rational person wouldn’t invest most of their savings in an investment that had a very low return. Therefore, homeowners owe it to themselves to get the best return on that investment.
There are many reasons why trading off some convenience for a poor return on investment doesn’t make sense. On the other hand, the thought of doing what it takes to sell a home for top dollar can be overwhelming to some homeowners.
If there’s any message in the appearance of the direct home sellers, it’s that you need to focus on improving the customer experience you offer your buyers and sellers. There are many ways to do that, including the effective use of real estate agent software. If you can make selling a home easy for your clients, they’ll be less motivated to make the trade for a direct buy.
Had any experience with direct home purchase issues? Leave a comment below!