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.

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!

Service Animals vs. Emotional Support Animals in Renting

If you live in the United States, you might be shocked to learn that more than eighty-five million families own a pet in America. That is a whopping sixty-eight percent of households, which is well over half!

While many of us got these pets to be beloved members of our family, for other people, they got their pets for an entirely different and necessary reason, and the value of their furry friend goes far beyond companionship.  What we’re referring to here is, of course, Service Animals.

According to the Americans with Disabilities Act, a service animal is “any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability. Other species of animals, whether wild or domestic, trained or untrained, are not considered service animals. The work or tasks performed by a service animal must be directly related to the individual’s disability. Examples of work or tasks include, but are not limited to: Assisting individuals who are blind or have low vision with navigation and other tasks, alerting individuals who are deaf or hard of hearing to the presence of people or sounds, providing non-violent protection or rescue work, pulling a wheelchair, assisting an individual during a seizure, alerting individuals to the presence of allergens, retrieving items such as medicine or the telephone, providing physical support and assistance with balance and stability to individuals with mobility disabilities, and helping individuals with psychiatric and neurological disabilities by preventing or interrupting impulsive or destructive behaviors. The crime deterrent effects of an animal’s presence and the provision of emotional support, well-being, comfort, or companionship are not considered work or tasks under the definition of a service animal.”

While service animals provide legitimate assistance to those with disabilities, the controversy related to emotional support animals continues to generate headlines as people take advantage of the easy access to getting your pet certified as an emotional support animal. People seek a “prescription” that includes everything from hamsters to peacocks and even pigs in order to be able to get rental properties they might not otherwise be qualified to rent because they own pets.

Where does that leave property owners who find themselves in a situation where a tenant is seeking an exception to the “no-pets” policy?

The Arizona Association of Realtors states, “Title 42 of the United States Code requires that landlords ‘make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling.’ Simply put, property owners may be required to waive a ‘no pets’ policy if the tenant meets the criteria under the Fair Housing Act.”

The U.S. Department of Housing and Urban Development issued FHEO-2013-01 which states:

Housing providers are to evaluate a request for a reasonable accommodation to possess an assistance animal in a dwelling using the general principles applicable to all reasonable accommodation requests.  After receiving such a request, the housing provider must consider the following:

  • Does the person seeking to use and live with the animal have a disability – , a physical or mental impairment that substantially limits one or more major life activities?
  • Does the person making the request have a disability-related need for an assistance animal? In other words, does the animal work, provide assistance, perform tasks or services for the benefit of a person with a disability, or provide emotional support that alleviates one or more of the identified symptoms or effects of a person’s existing disability?

If the answer to question (1) or (2) is “no” then the FHAct and Section 504 do not require a modification to a provider’s “no pets” policy, and the reasonable accommodation request may be denied.

When faced with this kind of housing request as a landlord, it’s important to know that the tenant must show their need is connected to their disability and the request is reasonable.  You are allowed to ask them to show the animal is necessary for their particular disability, but you are not allowed to deny them tenancy. According to the FHA, an accommodation is reasonable if it doesn’t impose an undue financial or administrative burden.  Making the wrong decision could violate the law and potentially require you as the landlord to have to pay damages to the disabled renter.

 

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.

 

Wage Growth Vs. Home Price Growth

Living in Prescott, or perhaps anywhere in the United States, something you may have noticed is the difference in wage growth verses the difference in home price growth.

Being a Real Estate Agency in Prescott, this is something we have definitely noticed as our market has continued to grow healthily over the last few years. With such quick growth in the housing market, it would really be hard for wage growth to keep up.

Home prices can grow at any time they want. From one month to the next, the market can change and prices can go up. Even though the difference might not be substantial, or perhaps even noticeable, there is steady growth in home prices throughout the year (depending on the housing market at that time).

Wage growth, however, tends to be much slower. If you think about it, growth in wages happens maybe once or twice a year, if that. Being an employee, you may get a raise at the end of the year, or a raise when you are promoted to a higher position, but that’s not nearly enough to keep up with the rate of growth of the current housing market.

On top of that, Prescott has been known to be a very competitive job market, meaning employers can start a position off at a lower salary knowing that someone will be eager to fill the position with hopeful raises and bonuses later on down the line. Speaking of bonuses, many companies often don’t raise your salary at all, rather you get a “Christmas bonus” at the end of the year, meaning home price growth has gone up all year round, yet salary growth has remained stagnant. It all depends on the company you work for and the industry you work in.

To further show this fact, check out this quote from the National Association of Realtors (NAR), “Based on the headlines, home prices outpace wage growth. Indeed, in the last six years home prices increased 47 percent while wages rose 16 percent.”

After reading all of that, it may feel discouraging or make one think it would be impossible to afford a home when the rise of wages isn’t keeping up with the rise of home prices. However, what NAR found is that doesn’t appear to be the case.

“Nationwide, the monthly earnings of a typical employee rose by $530 to $3,784 in the fourth quarter of 2018 from $3,256 six years earlier. In the meantime, the monthly payment increased by $354 to $1,114 in 2018 from $760 in 2012. Thus, although home prices increased nearly three times more than wages (in percentage points), homebuyers needed to spend less than their salary increase for the higher mortgage payment. Noticeably, homebuyers needed to spend nearly two thirds of their salary increase (above the 30% rule) for the higher mortgage payment.” – NAR Economist’s Outlook Blog.

This is good news! It means that even though housing prices have grown far more than wages, wages have still grown enough to keep up with the price of these higher mortgages, only costing consumers two thirds of their salary increase towards their house payments. That may still seem like a lot, but at least it isn’t equal to or more than, which means housing based on current salaries is still somewhat affordable.

The best thing to do when thinking of buying a home, and wondering what you’d be able to afford on your salary, is to connect with a local lender. This is the very first thing you should do before even beginning to look at homes. That way you don’t’ set your eyes on something you can’t afford and have your hopes dashed. They will help you determine what your price range is based on your income and get you moving towards your ultimate goal: becoming a homeowner.

Need help finding a lender? Call us today and we can help! Working in the Prescott area for over a decade, we have a lot of experience with all the local companies and can help you find the right fit for you. 928-771-1111.

Listing Feature – 3555 Friendly Meadow Road

This is our amazing listing on 3555 Friendly Meadow Road in Williamson Valley Ranch. Right away, you are taken aback by the breathtaking views of Granite Mountain and ”The Indian,” which are captured from this rambling main level living family home.

Rural living offers a sense of space around you with only a 20-30 minute drive from downtown, giving you the feeling of being away from it all, while still being close enough to downtown to enjoy all of Prescott’s festivities. A large and fabulous deck with spa gives you a glorious outdoor living space you can enjoy all year long, taking in the views and the big night sky.

Approximately 3,557 square feet, the home includes five bedrooms and four bathrooms. The master bedroom is complete with a separate exit onto the expansive deck and plenty of windows to help you take in all of your wonderful views. The master bathroom includes dual sinks, a separate shower and jetted tub, and a walk in closet.

A spacious eat-in kitchen features granite counters, an island with breakfast bar, a gas range, plenty of pantry storage space, and an adjacent seating area with Kiva fireplace. Next to the kitchen is a cozy sunken living room that offers a more intimate gathering space when entertaining guests, or a little privacy to sit aside and read a book, or whatever you like.

The lower level living is a walk-out basement complete with its own family room and a full second kitchen for multi-generational living. It includes plenty of storage space to put all of your treasured items, a separate exit to outside, three bedrooms, and a large bathroom with three sinks to accommodate all those in this living space.

Not only does this home have all the living space you need, but it also sits on three acres to accommodate any growing your family will do, including horses and farm animals! The home has a brand new well plus storage tank. The well and the storage tank holds 3,400 gallons at a time and pumps 725 gallons per day. A typical family of 4 only uses 350 gallons per day.

Interested in this home? Call our office today for a showing appointment! 928-771-1111. Interested in homes similar to this one? Still call! We’d love to help you find the right home for you!

How AZ Realtor Association Advocates For You!

Below is a video posted recently by the Arizona Realtor Association. A little cheesy and full of realtor humor, but also full of information on just how Realtors have fought for the people over the years.

“The Arizona REALTOR® Party saves you $1000’s every year by advocating for you and our 50,000 REALTORS®, your clients, and property owners.”

Enjoy!