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Are iBuyers Competition?

August 25 2019

online real estateIt's like selling a car. You have choices. You can FSBO it or you can take it to a dealer. It's common knowledge that you'll get more for the car if you sell it yourself, though.

It's also a hassle to DIY a car sale. Those who want to avoid having to clean and repair the car, be available for showings and test drives, haggling over price and dealing with all the paperwork choose the dealer option.

Basically, that is what iBuyers are – the dealerships of the real estate world. Just dump your current home and turn your attention to the new one.

That's a bit simplistic, but you get the general idea.

As with trading in a car, the big disadvantage to selling a home to an iBuyer is that the seller loses money on the deal. For many, that equity represents years, maybe decades of paying a mortgage payment faithfully, even in tough times.

To trade that money for "convenience" just doesn't make sense. Which is likely why iBuyers aren't catching on with real estate consumers.

Sure, home sellers are contacting them in droves. Out of those contacts, only about 1 percent of all requests end up in successful Zillow Offer.

If you're feeling a bit intimidated by these "algorithm-powered home flippers," as Curbed.com's Jeff Andrews refers to them, get the facts. Arm yourselves with knowledge of how they really work, not what they promise in their marketing.

"Zillow Offers buys and re-sells homes at full, fair market value"

That is but one of the lofty and (so far) untrue marketing messages on Zillow.com. Yes, the homeowner won't need to make renovations or repairs or clean the home. That, however, doesn't mean that those tasks won't need to be done before resale.

And, the cost of that will be deducted from the original offer. Depending on the home's condition, and the iBuyer's markup of costs, it could (and has) run thousands of dollars.

"They offered around $298,000, with about $20,000 in repairs and fees, so I would have only walked away with about $276,000," one would-be Zillow Offers client reports to Jaclyn Allen of TheDenverChannel.com.

Then, they'll deduct their fee, which is "around 7 percent," according to Zillow's website. But that's just Zillow. Others operating in the iBuying space may charge up to 10 percent.

Are iBuyers the enemy or the inspiration?

Hassan Riggs at Forbes.com claims that iBuyers are the inspiration, not the enemy.

"Rather than trying to beat them at their own game," he suggests that "agents must instead focus their efforts internally, on evolving their approach, strengthening their relationships and leveraging technology to better serve today's changing buyers."

It's not so much the buyers buying the iBuyer homes that seems to intimidate some agents we've spoken with, but the sellers who sell to iBuyers.

Other listing agents aren't feeling at all threatened. After all, the iBuying process appeals to a very narrow segment of the seller pool.

I have a friend who was tasked with selling her deceased mother's home. Her parents had lived in the home for more than 50 years and, sadly, Dad was a bit of a hoarder.

When my friend flew home to clean out the house she was appalled. Even worse were the results of a home inspection. The home was basically a tear-down.

It was also about three seconds away from foreclosure. After working with the bank to give her more time to sell the home, she hired an agent to sell it as-is, at a rock bottom price.

It did sell, in less than a week, to another local agent who was buying it and planned to completely gut it for her daughter.

That friend would be the ideal iBuyer client. She didn't want to clean the home, had no intention of staging it or making even one repair. She just wanted it sold, as soon as possible.

So, relax. Not many homeowners are willing to part with huge hunks of equity in exchange for a chunk of time, regardless of what these iBuyers think.

If you feel you must compete

As a listing agent, you should be working overtime populating your website, newsletters and other real estate marketing vehicles with the truth about the iBuying process. Because, right now, all potential homeowners know is the hype they read on the iBuyer websites.

Be honest but unflinching in your reviews. Give the pros as well as the cons.

Create a static page on your site about common mistakes home sellers make when agreeing to sell to an iBuyer. Here are a few ideas to get you started:

  • Not knowing their home's fair market value.
  • Not being clear on who will pay for the mandated repairs/renovations.
  • Taking the first offer. Counsel your iBuying clients to get offers from more than one company. Then, compare all aspects of each offer.
  • Signing a contract they don't fully understand.
  • Not understanding that the iBuyer will add a fee, and it will be higher than an agent's commission.
  • Failing to take the time to add up all the expenses and the fees charged by the iBuyer to determine how much they will net at closing.

It's time to change your approach

Presenting your services in a more positive light will go a long way in combatting the lure of convenience and the "hassle-free" process that iBuyers promote.

Sure, selling a home is somewhat of a hassle. Remind potential listing clients that with the right agent, it can be a smooth process and bring in top dollar, quickly, for the home.

In researching iBuyers for this piece, the one thing that stands out overall is the positive sales spiel they present. They contrast, succinctly, what they offer with what you offer: "convenience, certainty and a hassle-free process," according to Zillow.

Offerpad invites home sellers to "Skip the usual stress of home-selling," and Knock promises "a painless process," without "the hassle of repairs, listing, showings, and months of uncertainty."

Notice how easy, breezy it sounds, especially when compared to what confronts a home seller on many agents' websites.

"Selling your house can be one of the most stressful events of your life," one agent says. Reminding sellers of the nightmare that lies ahead, he warns them that they're "facing the daunting task of moving in the (hopefully near) future, and you're worried about the finances of selling your home."

Then, there's the very well-known East coast agent who wrote an entire blog post about the challenges sellers face. "When selling a home, there are many different challenges that can arise throughout the transaction and even before you've listed your home for sale," he cautions.

He then adds that some of these include "handling unrealistic home buyers [isn't that the agent's job?] and handling the emotions of selling a home."

After reading the iBuyer sites and several agent sites, I think I'd seriously consider selling to an iBuyer. Either that or age in place.

Fear is a common sales tactic, but it won't fly if you're competing against the unicorn and rainbows marketing of iBuyers.

Vow to change your tune when writing content for your website, newsletters and social media posts. Become more positive about the process.

After all, if you're truly offering amazing customer service, working with you to sell a home isn't quite as daunting as those other agents make it out to be.

Other articles of interest: AgentOffice | MLSFinder.com