Shaking Up Real Estate

Tech firms aim to change the way we buy and sell homes — but take precaution

Back Article Oct 7, 2019 By Ryan Lundquist

The internet has revolutionized the way we live our lives and do business, and it’s starting to change some of the possibilities for the real estate industry. Just as we no longer go to Blockbuster to rent videos or use the Thomas Guide on a road trip, big tech companies are trying to change how we buy and sell homes.

Opendoor and Amazon have entered the real estate market in Sacramento, and Zillow will expand here soon too, so it’s important to know how these companies work.

Zillow and Opendoor buy homes directly from sellers, do repairs if needed and then list them for sale as quickly as possible. They are in the home-flipping business, and they’ll likely focus on homes that appeal to the masses rather than oddball properties or high-end estates that are more difficult to sell.

Amazon, on the other hand, has partnered with Realogy Holdings, which owns many big brands such as Coldwell Banker, Century 21 and Sotheby’s International Realty. Amazon is not flipping homes, but it’s creating a platform to connect people with real estate agents and charging a fee for the service. Amazon is also trying to sweeten the pot by offering free Ring security systems and Amazon Echos, among other products.

REX Real Estate Exchange takes a different approach. The startup tech company, which does most of its advertising on Facebook,  charges a 2 percent commission to the seller, while expecting the commission for the buyer’s agent to be paid by the buyer. This sounds straightforward, but it’s not customary for buyers to pay a 2-3 percent commission, and many buyers don’t have the cash for this additional expense. Also, REX doesn’t list homes for sale on the local multiple listing service, which means many buyers might not know the homes are for sale unless they visit REX’s website.  

These companies and others have entered the market claiming to make real estate transactions faster and smoother — and sometimes less expensive, at least in theory. There’s this notion that real estate transactions should be instantaneous because of technological advances, but time is actually a safeguard; if someone is buying or selling the largest investment of his or her life, it’s important to have time for necessary inspections, negotiation based on those inspections and a contingency period so buyers and sellers are sure about their decision. Let’s not rush the appraiser either,  because speed can reduce the quality of the work.

Just 10 years ago, it took about 90 days to sell a home in this region. Now it’s about 30 days. How much faster do we really need to be?

Tech companies talk about real estate like it’s as easy as the click of a button, but it’s complicated because humans are involved. There are real people trying to negotiate, advocate for their interests and navigate the complexities of the housing market. Can things be less stressful? I sure hope so. But are real estate transactions innately stressful because of all the moving parts? Yes.

Closing Advice

1. Read the fine print: Some of these tech companies are telling us real estate transactions are as easy as the click of a button, but the irony is that it can actually end up being more expensive to sell to a company compared with the traditional model. My advice is to consider how much you will net with a sale to a tech company.

Companies such as Opendoor or Zillow might offer to buy your home at a price that looks reasonable, but the fine print makes all the difference. These companies are allowed to claim they don’t charge real estate commissions, but they have a 7 percent “service fee,” basically in lieu of a commission. That 7 percent fee is competitive with the traditional real estate model that usually costs a seller 5-7 percent, but there’s more to consider since these companies often try to buy homes at a discount and often ask sellers to give credits within the purchase price so repairs can be made after the home sells.

While it’s tempting to say, “John down the street got $435,000 from Opendoor,” it’s important to find out how much John had to credit Opendoor for repairs, which makes all the difference in whether John got a good deal or not. 

2. Look past the marketing: Tech firms insist they will make life easier for everyone, but let’s not forget their main goal. Like the rest of the industry, they are here to make money, and that’s the bottom line.

On the positive side, some tech platforms are trying to help make real estate transactions more convenient for sellers, and that’s going to appeal to a segment of the market that doesn’t want to deal with buyers walking through a house. Ultimately, the market will decide how popular these services become.

The way we do real estate transactions could be very different in the future, though for now tech companies are barely making a ripple in Sacramento’s housing market. Will they eventually make a splash? We’ll see.

Have you used one of these tech companies to buy or sell a house? Send a tweet to @comstocksmag with your experience. 

Comments

David (not verified)October 7, 2019 - 9:12am

traditional buyers also seek credit for repairs, and could be more difficult to negotiate against, since some could be more emotional and/or lack experience to know how much "credit" is reasonable.

Ryan Lundquist (not verified)October 10, 2019 - 11:03am

Thanks David. You're right. Requests for repairs come up in traditional escrows. This isn't just unique to an iBuyer situation. Though credits don't always show up in real estate transactions. Part of it depends on what the market is doing. In a blazing hot market we tend to see less requests for repairs, credits to the buyer, concessions... But when a market slows buyers simply have more power and sellers often have to concede more to buyers to get deals done. But you have a valid point. Credits are normal for the most part and it's not always easy to negotiate with buyers. In this case I would still say it's a bit different because the iBuyer model is already buying at a discount and then the property is then being further discounted due to repairs that are said to be needed. This is something we'll have to watch in coming time to know how it is really going to shake out. One other consideration is that negotiation with iBuyer platforms isn't going to be what it is with the traditional model. They make an offer and it can either be accepted or not. There may be some wiggle room to negotiate (hopefully), but some of the language I've read on various iBuyer platform websites is pretty definitive about offers being final and such. Anyway, let's keep watching. We'll know more soon...

Alberto Marinas (not verified)October 9, 2019 - 12:36pm

Ryan,

Although an early-stage startup, PadBlock is building a Real Estate platform seeking to synchronize the transaction by removing at least one Real Estate Agent. We are the marketplace and we are homebuyers ourselves.

Our MVP to the public should be going live soon.

Cheers,
Alberto
Founder & CEO
PadBlock.io

Ryan Lundquist (not verified)October 10, 2019 - 10:52am

Interesting. Thanks for the heads-up. Why remove one agent? Are you representing yourself? Or is one agent the dual agent? Dual agency can be a dangerous scenario.

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