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.”

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.

Is it Time to Upsize Your Home?

As we and our families grow throughout the years, unfortunately, our homes don’t tend to grow with us. A house that may have initially worked fine for a single person, a young couple’s starter home, or perhaps even a family with a newborn, can quickly become too small as your family grows. Add in pets, more children, multiple generations living under roof, and before you know it, you are all on top of one another with no space to breath.

BUYING A NEW HOME VS. ADDING ON TO YOUR HOME

For those who really love their homes (the style, the location, the layout, etc), simply remodeling and adding to their home is the best option. That way they get to remain in their beloved home while making it even more their own and making it something that suites all their needs. However, not everyone can afford this option as it can be costly, and there may also be things about your property that would prohibit such a project such as the size of your land or any HOA’s that may be in place. This is when moving to a bigger home becomes the best solution, and really only, solution.

WHERE DO YOU NEED MORE SPACE?

The first and most practical thought when considering upsizing your home is to simply consider square footage, bedrooms, and bathrooms. This seems logical right? Well, maybe it is when considering your immediate needs, but it may not be the best approach in the long run. It’s important to take a more critical approach when looking at new homes and to consider how each space will actually be used. If you have younger children (or possibly more on the way), then focusing on bedrooms and bathrooms makes sense. But if your children are closer to heading off to college or starting their own families, it may be better to prioritize group spaces like the kitchen, dining room, living room, and outdoor space. This will pay off during times when you are having big group gatherings, parties, and things of the like. It might also be a good idea to consider holidays or summer vacations, when everyone is coming to visit. If this will happen often or your family is close and you will be having to accommodate a lot of people, you may need more rooms AND bigger group spaces.

MOVING OUTWARD

If you need more space but can’t necessarily afford a more expensive home – or maybe you just don’t want one (an affordable mortgage is so nice!) – something to consider might be moving out of town. Depending on where you live, you can probably get a lot more house for your money if you move a little further from a city center. This might be hard to think about – leaving the walkability and short commutes of a dense neighborhood or condo, and the “city life” you love – but this is where knowing what you truly need comes in again. What is more important to you: living in the city with walking distance to stores and short commutes, or having a bigger home that can accommodate your family, allow you to host Holidays, and give you space to throw barbecues and birthday parties? Neither answer is wrong, it all just depends on what is most important to you and your living needs. If the latter situation has become priority, sacrificing city life and getting a more spacious home in the suburbs makes the most sense.

Whether you’re looking to possibly sell your home and move on to something bigger, want some referrals of good contractors, or just need some advice on what the best option for your family might be, give us a call at 928-771-1111. We would love to connect with you and help in any way we can!

 

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!

What to Negotiate When Buying a House

Whether you are a first-time home buyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful, and sometimes confusing on what all is up for negotiating when buying a home. That being said, however, you want to make sure that you are getting the best possible deal for your money and getting the best deal you possibly can. So, what should you negotiate when buying a home?

1. Closing costs. Your closing costs are determined by a variety of factors, but you can expect it to be between 2% to 5% of the purchase price. Ask the seller to cover some or all of the closing costs upfront or request a closing credit that can be used to make specific updates and fixes to the home.

2. Furnishings. Love how the seller has furnished and decorated the home? Buyers often negotiate keeping couches, fixtures, landscaping items, patio furniture, appliances, and more. And many sellers agree, wanting to make the home more appealing.

3. Inspection and closing timing. Buyer offers that include a quick inspection and close timeline are often more attractive to sellers who have been going through the process for far too long. Just ensure you allow yourself ample time to get your financing in place and complete proper, thorough inspections.

4. Home warranty. Sellers will often agree to pay the premium on the home warranty at closing and then hand it off to the new homeowner, who is responsible for the deductible on any future claims.

5. Repairs. Your inspection may uncover small or large repairs needed to bring the home up to standard. You can negotiate to have these items fixed before closing or ask for a price reduction to cover the costs.

These are just some of the things a buyer can negotiate during a contract and in most cases, it doesn’t hurt to ask. Consult your real estate agent if there is some negotiating you want to do. See what they think about your ideas and what they think would be okay to ask for.

What Should I Repair Before I List?

As realtors who’ve been in the business for fifteen years, we have been asked this question a lot.

When you’re getting ready to list your home, it’s of the upmost importance to ensure you are showing it in the best light. First impressions make a big impact on buyers looking to call your home their own and you don’t want something scaring them away that could have been easily fixed before you listed. Taking time to repair or spruce up some of your homes weaknesses – and in doing so, highlighting some of its strengths – can make a big difference in how fast it will sell. Here are our top five recommended repairs to make before selling your home.

Repaint walls.

Unless you’ve recently repainted, or the colors of your walls are in good shape and are colors that are trendy at the time, giving your home a fresh coat of paint is one of the most cost-effective ways to spruce up your home. It makes everything fell clean and new, and generally it can be a do-it-yourself project. Repainting helps to cover up any scratches or chips on the walls, as well as the any other kinds of normal wear and tear walls sustain due to daily living.

Repair floors.

Hardwood floors are a very desirable feature in a home, but walking into a room with scuffed and dull floors won’t make the good first impression you’re seeking. You want to ensure your floors look their best by fixing scratches or dull areas by getting the floors cleaned or buffed out. Likewise, if your carpet is worn or stained, consider paying a company to come shampoo them, or even replacing them altogether depending on how bad they are. And don’t forget the tile in your kitchen or bathrooms. Cleaning off that brown grout that didn’t start out brown, or even completely re-grouting can go a long way in making dingy tile work look brand new!

Refresh the landscaping.

We all love that amazing curb appeal don’t we? It’s the first thing you notice when you pull up to a house and the thing that has buyers saying “OH!” in either glee, or disappointment. Show buyers your home is the full package by dressing up the outside as well as the inside. Clean your walkways and driveways, plant seasonal flowers and plants, trim hedges and trees, install outdoor décor pieces, and fill in mulch and gravel. These things not only make your home look great from the outside, but they also show potential buyers that your home was well loved and taken care of.

Fix your fixtures.

Leaky faucet? Rusted drains? Loose drawer handle? Making these small and simple fixes can make a big difference to potential buyers with detailed-orientated minds. The great thing with these too is that all it takes is a little TLC and elbow grease to remedy the issues, and minimal cost on your part. Minor work for a great reward. Installing new faucets and sinks may also be worth the investment depending how dated or in disrepair they are.

Remember that you don’t need to go too crazy in getting your home ready to be listed and show well for buyers, but listen to your real estate agent who ultimately just wants to help you sell your home, and maybe take a few of the above tips into consideration.

If you have any more questions, you can call us at 928-771-111, or leave a comment below.

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.

Negotiating Tactics That Will Kill A Sale

Bargaining is a subtle art in real estate and the way you handle the back and forth that happens during contract negotiations can make or break a sale. Skilled negotiators can usually find some common ground that satisfies all parties and helps close a home smoothly, but if you’re not careful, a wrong move could cause a deal to crumble for the seller or buyer.

Here are some negotiation tactics buyers and real estate professionals should avoid:

  1. Lowball offers: Going far below market value when you make an offer damages your credibility as a buyer and can be insulting to the seller. The seller has a range in mind that they’ll accept, and if you’re not even approaching the low end of that range, they won’t even consider the offer.  This can leave a bad taste in their mouths in regards to you as a buyer and cause them to not want to accept any other offers you may make. Keep this in mind when you want to make a low ball offer and your agent advises otherwise. They have seen the downfalls of this tactic many times and are just looking out for you best interest.
  2. Incremental negotiations: Don’t continue to go back to the seller with small increases in your offer ($1,000 or less). Fighting over a small dollar amount makes you look bad and makes the seller think you will be a difficult buyer to work with. The constant back-and-forth can grow tiresome and lead the seller to consider other opportunities.
  3. “Take it or leave it”: Try not to draw a line in the sand with your initial offer. The seller can get defensive and consider other offers if you immediately show that you’re unwilling to budge. Even if it’s true, don’t make a show of it. People do not like to be given ultimatums and will not feel happy if they feel you are painting them into a corner.
  4. Nitpicking after inspection: Obviously if the inspection reveals a major issue, it should be factored into the final sale price. But insisting on a lower price for every minor repair can put negotiations in a stalemate. Buyers must understand that unless they are buying a newly built home, every house has it’s little quirks of wear and tear from years of use. Combing the house with a magnifying glass and demanding it be in perfect condition could lead to the seller refusing to do ANY repairs, therefore leaving you as the buyer to do them all yourself, or walk away from the home that you possibly really like.
  5. Asking for more, more, more: Some buyers will request that the sellers throw in add-ons like furniture or appliances that weren’t included in the listing. Try to avoid giving the seller a reason to build up resentment and think that you’re being greedy. There should be realistic give and take on both sides of the contract to help foster a good relationship during your escrow, and help make everything go smoothly.

These are just a few things you want to avoid while negotiating a contract in order to not kill the sale. Remember that if your agent advises against these tactics, they are speaking from experience and out of their best interest for you.

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.