New real estate business model sweeping the nation comes to Denver
If you don’t read the real estate industry press, you might not know about iBuyers, real estate firms who provide sellers all-cash offers, often within a few days. Unlike the flippers of old, these high-tech firms make offers closer to market rate and charge a convenience fee.
Also under these models, sellers can choose their move-out date. The all-cash offer and move-out timing gives sellers certainty in a process that typically has huge, complicated moving parts, involving buyers with cold-feet, negotiations, contingencies, multiple showings and more.
These models wipe these headaches off the table.
And these are not lightweights. One player you’ll know, Zillow.
The other, Opendoor, you might not know but it’s a serious player. In September it raised $400 million to fund its operations, bringing its total equity funding to over $1 billion. It also has over a $2 billion in debt financing it can use to purchase homes. It’s currently in 16 markets and expanding rapidly.
Both firms have announced plans to open shop in Denver this fall. Opendoor announced it will begin operating in mid-October and Zillow will begin operations before the end of the year (Denver will be its fourth market; its others are Phoenix, Las Vegas and, when it launches this year, Atlanta).
Other prominent iBuyers include Redfin and Offerpad. Legacy companies Coldwell Banker and Keller Williams Realty also recently announced iBuyer programs. None of these, however, have announced Denver plans yet.
How these models work
Sellers visit an iBuyer website and enter some basic home information and some photos and then request an offer. IBuyers process the request and then present a non-negotiable offer, often within 24 hours. When sellers accept, they typically pay a fee, which, in Opendoor’s case averages 6.5 percent.
Zillow’s program, known as Zillow Offers, is a little different. It presents offers in conjunction with comparable market analyses from agents who advertise with it. This allows sellers to evaluate the offer Zillow makes against what an agent thinks it will get on the open market. Zillow has said it offers approximately 2 percent less than its value estimate to account for any needed repairs and carrying costs.
When a sale is completed with these firms, they own the home and then do minor repairs and list them themselves — they become sellers. They are not as much like flippers as efficient sellers. They, of course, hope to sell the home for more than they bought it for, but, often, that won’t be a big jump, if past markets are any example.
Another important aspect of these models, is that iBuyers don’t place offers on all homes in a market. In Denver, for example, they will only make offers on homes around the area’s median home value, which, in October, is just over $400,000.
What I think
I think these companies offer homeowners a compelling option when selling a home. They take the hassle and uncertainty out of the process. These are good for sellers who need to sell quickly or have a strong aversion to the selling process.
But they also charge a premium, and sellers who sell to them don’t have someone representing their interests, an agent, by their side.
I would counsel any seller considering this option to consult with an agent they trust. In some cases, it might be a good option for them. In others, it will not.
If you have questions about these models, please give me a call, 720.877.1538. I’d love to help.