iBuyer Companies: Are They Really Cheaper Than a Real Estate Agent?

Odds are, if you’ve been thinking of listing or buying a home these days, you’ve heard of iBuyer real estate companies. These are companies such as opendoor.com that promise to sell your home for significantly cheaper than your average Real Estate company. However, are these companies actually all they’re cracked up to be, or do their costs end up being just as much as a real estate agent, if not more, when it’s all said and done?

Check out this article we found by Teke Wiggin with inman.com titled “iBuyers Cost Sellers Up to 15% of a Home’s Value, Study Finds,” which takes a hard look at the actual costs of using these “cheaper” options when selling your home:

Market analytics firm Collateral Analytics puts hard numbers on the much-debated costs of using iBuyers.

Offering ammunition to agents who argue that iBuyers are often deceptively expensive, a new study by real estate data analyst Collateral Analytics has determined that the typical cost of using an iBuyer ranges between 13 and 15 percent.

Entitled “iBuyers: A new choice for home sellers but at what cost?” the study conflicts with claims made by some iBuyers on just how expensive such services wind up costing homeowners. Opendoor, for example, represents its service as more affordable than a real estate agent. But if the new research is correct, using an iBuyer would generally cost consumers two to three times more money than if they simply used a traditional agent.

“In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor,” write the authors of the report, Collateral CEO Dr. Michael Sklarz and Dr. Norman Miller, senior vice president of research and development with the firm. “For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen. ”

The analysis adds to a growing debate over the value of iBuyers. Some agents argue these startups often bilk homeowners while others contend iBuyers are a reasonable option for their clients.

The divergent views came into sharp relief during two Inman Connect panels last month in which agents shared their experiences with iBuyers.

The report was not framed as an indictment of iBuyers. It describes the service as “a welcome alternative to traditional brokerage” for a portion of motivated homesellers. However, its most notable contribution to a nascent body of research on iBuyers involves its cost estimate of the service.

The report noted iBuyers charge sellers a convenience fee ranging from 6 percent to 9.5 percent, with some also docking the seller “for fees typically paid by buyers at closing, adding another 1 percent or more.” IBuyers tend to ask for “generous” repairs based on the results of a home inspection while some, such as Offerpad, pay for moving costs, write the authors of the study.

This all means that the total direct cost of an iBuyer “ignoring repair credits” is between 7 and 10 percent, versus the “typical 5 to 9 percent combined seller and buyer costs with a traditional broker,” according to the study. “Yet, that is not the end of the story or the comparison,” the authors write.

Due to costs and risks of holding and reselling their acquisitions, iBuyers must make “conservative” offers, according to the report.

“The more unique the home, the worse the season for selling, or the more competing inventory is present in the local market, the more conservative will be the offer price,” the study asserts.

To pinpoint the typical discount that iBuyers pay for homes, the report’s authors compared purchase prices of two unidentified iBuyers with home value estimates generated by Collateral Analytics’ automated valuation model (AVM) — a model that report claims “correlates very well with actual market values.”

The analysis used a sample of 6,000 transactions that took place across four markets — Phoenix, Atlanta, Charlotte, and Las Vegas — from January 2016 to February 2019. The report did not identify the two iBuyers, but a source familiar with the study confirmed they were Opendoor and Offerpad.

Offerpad spokeswoman Cortney Read said Offerpad’s average service fee is 7 percent and that some homes require only minor repair costs. She also added that Offerpad believes the report “does not accurately compare the mentioned fees,” focusing only on commission for real estate agents, while including other costs for iBuyers that “should be also reflected in the traditional real estate agent percentage amount.”

Opendoor didn’t immediately respond to a request for comment.

According to the study, one iBuyer bought homes at a median discount (the median discount off market value that the iBuyer purchased homes at) of 4.5 to 6.9 percent. The other iBuyer paid a median discount of 2 to 3.3 percent.

These discounts reportedly have declined modestly over the years. In 2016, for example, one iBuyer’s discount was about 7 percent, while the other’s was around 3.5 percent. By 2019, those numbers stood closer to 2 and 4.5 percent, respectively.

The authors theorized that “pressure to deploy capital” may have “reduced the spread [between how much iBuyers pay for homes and how much they’re worth] as the iBuyer market matures.” Some of that pressure has likely come from Zillow Offers and other ventures that are trying to take a bite out of the growing iBuyer market.

“Ultimately, the spread [the discount paid by iBuyers] will be at an appropriate level to compensate the iBuyers for liquidity risks and capital costs,” they said.

Thus, the study’s “preliminary empirical results” suggest that sellers are paying “not just the difference in fees of 2 to 5 percent more than with traditional” agents, and a generous repair allowance, but also an additional 3 to 5 percent more to “compensate the iBuyer for liquidity risks and carrying costs.”

Taking all of this into account, the authors conclude the typical cost of using an iBuyer ranges from 13 to 15 percent depending on the company.

This cost estimate is in line with estimates from some agents that spoke about iBuyers at Inman Connect Las Vegas, but a bit higher than an estimate published by Market Watch: 11 percent.

The cost makes sense from a business perspective, the report notes. IBuyers must cover carrying expenses and deal with a number of risks including home burglaries, price declines and “adverse selection.”

The last risk refers to the risk that sellers who know about hard-to-discover negative characteristics of their home will be more likely to sell their homes to iBuyers at prices that iBuyers would not pay were they aware of those flaws.

“Not all sellers are better informed than the iBuyers,” they write. “Still, there is some risk of informed sellers taking advantage of relatively high offers.”

AZ Real Estate Market Statistics June 2019

As we come to the end of summer and the end of the busy season for the Real Estate world, let’s look at what Scottsdale Arizona’s Multiple Listing Service (ARMLS) had to say about our market when looking back at the month of June.

“The loud explosions heard earlier this month were not coming from Independence Day celebrations. They were the 2019 year-to-date housing numbers being reported by ARMLS. The first half of 2019 began with a whimper and ended with a bang. May and June were both exceptionally strong with June having $3,265,463,755 in dollar volume, the highest total for any June in ARMLS history. As an added caveat, there was one less business day this year compared to 2018, making this year’s total that much more impressive. As we reach the halfway point for the year, 2019 ranks as the best year on record.” – Tom Ruff with ARMLS.

One of the biggest points mentioned on the services monthly breakdown of June was baby boomers vs. new home buyers:

“In a June 8 report, Freddie Mac asked the question, ‘Are Baby Boomers the Key to the Single-Family Market?’ The article states, ‘One of the most important keys to today’s single-family housing market is homeowners who were born before the first-ever episode of Star Trek aired in the 1960s. Today, more than 50 years later, Baby Boomers and other homeowners over the age of 55 control almost two-thirds of the nation’s home equity – about $8 trillion. There are also more than 67 million 55+ homeowners. Whether they decide to move from their current homes or age in place, the cumulative impact of their decisions on mortgage demand, affordable housing supplies, and the housing options available to Millennials and other aspiring homeowners will be substantial.

“63 percent of 55+ers prefer to age in place. This works out to an estimated 42 million homeowners who don’t plan to move. 27 million 55+ers would prefer to move at least one more time. Although movers are in the minority, it’s a big minority. According to the survey nearly 40 percent of all homeowners 55+ would like to move at least once more if they had complete control over it. This isn’t just about downsizing to a rental or nursing home; 19 million plan to buy a home and nearly 8 million expect to move within the next four years. What’s more, half of the 19 million likely movers expect to buy less expensive homes. These are big numbers with the potential to tighten home-buying competition in the housing market, especially for Millennials and other first-time home buyers.

“A recent Chicago Tribune article went on to say, ‘The boomers are a stick in the spokes of the homeownership cycle, which counts on older people exiting to free up houses that can be resold to first-time buyers, keeping the market moving’.”

Only time will tell how much our baby boomers will control the housing market, causing both prices and new listings to either rise, or decline.

Arizona’s Real Estate Market Statistics

In case you are curious how the current real estate market is doing in Arizona, check out these charts published by ARMLS (Arizona Regional Multiple Listing Service) in May. ARMLS is the home listing service that services the Phoenix Metro area, so these numbers may vary from Prescott’s own statistics, but our market is doing just as well as theirs, if not better.

Tom Ruff from ARMLS, whom posted the article, stated, ” After a close fact-check of homes reported sold by ARMLS, May was a record-setting month. New all-time records were established  for both sales volume and total dollar volumes, as well as the most homes sold and for the most money. Total dollar volume was $3,593,145,906. The monthly median sales price also set a record high reaching $278,000. After a slow start, 2019 is purring.”

Ruff goes on to say that with statistics like these that have continued to rise over the last several years, people inevitably begin to talk of another real estate “bubble.” However, Ruff, along with many others in the real estate industry, aren’t very worried about that. Current underwriting standards and the elimination of crazy money are two of the main reasons for this.

People aren’t worried because the differences from then to now in these two things are significant. Standards for lending are much more strict and the dollar amount on homes still has yet to reach what it was back before the burst. Due to better lending protocol alone, a huge bubble pop like last time is fairly unlikely.

Hopefully knowing that makes us all rest a little more easily and not fear that a few years after purchasing a home we’ll be looking at catastrophic amounts of foreclosures, short sales, and bankruptcies.

 

Listing Feature – 1579 Eagle Mountain Drive

Curious about what makes this home so special? Everything!

Upon the tile entry, you will be drawn into the great room featuring a high vaulted ceiling and gas fireplace with stacked-stone surround. This is the perfect space for sitting and relaxing with your family around the fireplace or as you watch TV.

The spacious kitchen features plenty of cabinet and storage space and is open to both the formal and informal dining areas. This way whomever is cooking can still be involved in the parties going on around them.

Relax in the master suite that offers a spacious room, vaulted ceiling, a separate French door exit out onto the deck, a walk-in closet, and master bath with double vanities and dressing table.

Two more large bedrooms, a full bathroom with dual sinks and linen closet, a powder room, and the laundry room are also on the main level.

The lower level has a game/family room with a wet bar, which could be perfect for multi-generational living. It also has a lot of storage space, a full bathroom, and the 4th bedroom with walls lined with windows.

The deck comes out from the living room and overlooks the lush green view of the back yard.

An oasis in itself, the yard features a pond and water feature, mature trees, turf grass areas, and paver patios that are also accessible from the lower level living.

If that weren’t enough, the home also includes a three-car garage, plus separate side parking for a small RV.

This is a house you are going to want to see in person! For a showing appointment, call our office today at 928-771-1111.

House Hunting Online

In this day in age, it’s no surprise that most buyers begin the search for the next future home online. Whether you are just browsing, or looking more seriously, there are a ton of different sites to visit in order to look at currently listed homes in your town/ the town you are moving to. For this reason, hunting for a new home online can be a really great place to start your search, however, it should not be your end all be all.

When looking at home listings online, keep in mind that good listing agents are excellent at highlighting the best features of a home, but there may also be more than meets the eye to the home you are looking at. To make the most of your time and efforts while online searching, and to also make sure you gather a well-rounded picture the homes you’re looking at online, it’s best to keep the following three things in mind.

Stay up to date. When you start your search, make sure you find a site that pulls up-to-date listings directly from the multiple listing service (MLS) where real estate agents actively post their most current homes for sale. This ensures you are getting the most accurate information you can because many other online resources update far less often or fail to remove listings that are off the market, making it more difficult to sort through the clutter. Imagine finding a home online you absolutely love only to find out it is already under contract, or even sold, contrary to what the online portal you were using said.

Pictures can be deceiving. Real estate photographers are experts at showing a home in the best possible light. Many use tools and strategies to boost appeal, such as a fish-eye lens, or wide-angle lens to make areas and rooms look larger than they actually are in real life. They also use creative editing to make colors and textures really pop, when the actual paint or flooring might be dull compared to the picture. Most of the time, listings will not contain photos of unappealing parts of the home, like small closets or outdated bathrooms. Listing agents are not trying to be deceiving, they are just doing their job in representing their seller as best they can in making sure that the home is presented in the best possible light it can be to get buyers interested and walking through the home.

See it to believe it. Once you find what appears to be your dream home online, make sure you call up your real estate agent and schedule a showing to go see the home in person. It’s important to take the opportunity to vet the home for yourself in person and explore every part of it before beginning the offer process. Your real estate agent will also be able to help you cover all your bases and answer any questions you may have. They can perhaps point out any property flaws or concerns that the pictures didn’t show. And, seeing the home in person helps you see it for what it really is and if it is truly the place you can envision your family living and as being the next place you want to call home.

These are just a few tips to consider when you’re looking at homes to buy online. When in doubt, call your real estate agent! They are there to help and find out the answers to any questions you may have. They want you to find the best home for you!

Listing Feature – 3103 Mountain Lake Drive

This is our new listing of a quaint and charming manufactured home in Mountain Lake Estates. Within walking distance to Willow Lake, this home offers great near by trails to enjoy the outdoors, along with beautiful views of Willow Lake and the surrounding dells.

The home is a single level, 1392 square foot Cavco manufactured home that offers three carpeted bedrooms, two bathrooms, an AZ room, plenty of storage space, and a separate laundry room that leads to the garage complete with its own separate storage closet. Brand new wood laminate Pergola floors are throughout the main living areas. When you first walk in the front door, you are met with an open living room and dining space, making your entertaining areas spacious and welcoming, with plenty of light.

You will be delighted with this fresh and newly remodeled kitchen! With light tones of white and grey, the kitchen is up-to-date on the latest trends. The cabinets are soft-close dovetail drawers topped with granite counter tops. A giant stainless-steel farm sink and new appliances complete this kitchen with its modern flair.

The master bedroom is extremely spacious compared to other manufactured homes. It was recently painted a soft grey, has a large closet space, and its own bathroom with dual sinks and a linen closet.

The bonus Arizona room is 120 square feet, featuring panoramic windows and views of the surrounding lake and dells. It’s the perfect place to sit and have your morning coffee or tea, or go out and read a good book.

The fenced backyard rounds out the property making it suitable for just about every buyer’s needs. A small paved area for seating and grilling, and rocks to accommodate any furry friends you may have. The home has extremely minimal landscaping in both the front and backyard.

The home also comes with a nice 2-car garage and a great front porch for enjoying Prescott’s nearly year round good weather. And did we mention how close it is to Willow Lake? In this picture, you can see it just down the road!

Interested in this property, or wanting to learn more about it? Call us today at 928-771-1111. We’d love to answer any of your questions and even show you the home!

Refinancing Myths

For many, the word “refinancing” when it comes to your home can come with a lot of fear and a lot of questions, but that doesn’t need to be the case. What does refinancing look like? Will it even really save me any money?

Well, for many homeowners, refinancing can not only lower your monthly payments and help with your monthly budget, but it can also save you thousands of dollars in the long run. That being said, here are some myths about refinancing and what the actual truth to them is:

IT’S TOO LATE.

No, it is not too late to refinance. For years now, we’ve been hearing that interest rates will be on the rise. Who wants to refinance when your interest rate will be higher than it is now, which would end up not saving you very much money at all. Although there have been some small increases, you’re still in a great position to drastically lower your interest rate if you get in at the right time. The general rule is if your mortgage interest rate is more than one percent above the current market rate, you should consider refinancing.

IT’S GOING TO BE TOO TIME CONSUMING.

No it will not. If you find yourself a good lender, they will walk your through every step and help take the headache out of the entire process. Don’t brush off refinancing just because it seems like a long and daunting process because this isn’t always the case. Once you find a good lender, it will only take a few minutes to have an informational call with them to see how rates compare and if refinancing is a good idea for you. On top of a good and knowledgeable lender, there are also some programs for streamlining the application process, which could make the time it takes to refinance seem like nothing. And besides, isn’t the amount of money you could save worth the time and effort?

ARMS CAN’T BE REFINANCED.

This is just not true! Seeing your Adjustable Rate Mortgage (ARM) increase after the introductory period can be incredibly stressful and place a squeeze on your budget. Many people assume they’re stuck, but ARMs can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 15 or 23 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing.

If you have any more questions about refinancing, please don’t hesitate to call us at 928-771-1111. We’d love to help you out, or connect you with a great lender who can help answer your questions!

What’s the Difference Between Foreclosures and Short Sales?

If you’ve been looking to buy in the Prescott area, you know that the real estate market right now is a little crazy.

For sellers, it’s good news because we are at the top of our market and you can sell your home for top market value, capitalizing on your investment.

For buyer’s, the booming market can make it difficult to afford the house you require to accommodate you and your family, and not have to sacrifice some of your living needs.

This has led to many buyer’s looking into and considering short sale purchases, or foreclosure purchases. However, this also leads to the question: What’s the difference? If you aren’t familiar with these types of sales and purchases, they can seem similar, but there’s actually a pretty big difference.

As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures aren’t just good for buyers, but also provide sellers options for moving on financially. The terms are often used interchangeably, but they’re quite different, with varying timelines and financial impact on the homeowner. Here’s a brief overview.

Short Sales:

A short sale comes into play when a homeowner needs to sell their home but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.

On the buyer side, short sales typically take three to four months to complete and many of the closing and repair costs are shifted from the seller to the lender.

Foreclosures:

On the other hand, a foreclosure occurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner. After foreclosure the bank can sell the home in a foreclosure auction.

In Sum:

Short sales are better for both seller and buyer, leaving the seller more financially sound and giving the buyer the chance to make a good deal on a home. Foreclosures, on the other hand, are usually worse for sellers and buyers than short sales. For sellers, it damages them financially and for buyers it’s a riskier purchase because homes are often bought sight unseen with no inspection or warranty.

Should You Use a Lower Down Payment?

If you have ever bought a home in the past, or have had friends and family who have bought homes, you’ve most likely heard the rule for down payments: save for a twenty percent down payment before you buy a home.

The logic behind saving twenty percent makes sense because it shows that you have the financial discipline and stability to save for a long-term goal, which in turn also helps you get favorable rates from lenders.

But there can actually be financial benefits to putting down a small down payment— some programs allow for as low as three percent—rather than parting with so much cash up front, even if you have the money available.

THE DOWNSIDE

The downsides of a small down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a twenty percent down payment, which will eliminate some homes from your search.

THE UPSIDE

The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down twenty percent or three percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for any home repairs the home may requite upfront, or perhaps even for doing some pricey upgrading right off the bat rather than waiting years and years until you have your money saved up again. These would allow you to immediately make sure your home is stable and to make the home the dream home you’ve always wanted.

THE HAPPY MEDIUM

Of course, your home payment options aren’t binary, there are many options out there for buyers now on the money needed for a down payment. Most borrowers can find some common ground between the security of a traditional twenty percent down payment and an investment-focused, small down payment. Your trusted real estate professional and local lender can provide some answers as you explore your financing options, and what the best choice is for you in your next home purchase.

Looking for more information, or some professional Real Estate Advice on this matter? Call us at 928-771-1111, we’d love to help!

Sharp Declines In Home Bidding Wars

If you have been looking to buy a home in the past few years and perhaps even put in a few offers on homes, then you know it has been a buyer eat buyer real estate world out there!

Homes would hit the market and instantly have multiple offers on them (if they didn’t already have offers on them before technically even being on the market). There were so many people looking to buy that the market had become incredibly competitive for buyers, yet also incredibly good for sellers who had their choice of highest and best offers to pick from.

You can imagine how these situations would be extremely frustrating for buyers who would be constantly outbid or their highest and best wasn’t as good as someone else’s highest and best.

Well, according to the National Association of Realtors, the amount of competition in Real Estate as we come into these Spring and Summer seasons will mostly likely be seeing a decline.  “There will likely be less competition for home buyers this spring—a widely reported index from Redfin shows a significant decrease among real estate professionals reporting bidding wars this month, compared to a year ago. Only 16 percent of offers written by Redfin agents on behalf of their customers in the first three weeks of March faced a bidding war, down from 61 percent a year ago, according to the brokerage’s index.”

This is good news for buyers because your chances of getting into a bidding war when making an offer on a home have sharply declined. This means you don’t have to come in at the very tip top of your home buying budget just to have a hope and a prayer of getting the home you have your eye on – you could possibly make a more reasonable bid and have it accepted because there isn’t another buyer breathing down your neck.

In Phoenix, the amount of offers that faced competition was at 41% in March of 2018. That number has gone down to just 14% calculated in March of 2019. Prescott is a lot different than Phoenix market wise, but agents here have noticed a decline in bidding wars as well, which means if you have been wanting to buy in Prescott, Arizona, now might be the time!

If you are looking to buy a home, or even sell a home in Prescott, you should give us a call! Working Real Estate in the community for the last fifteen years, we have a lot of experience and would love to help you in your next Real Estate transaction. 928-771-1111.