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iBuyers: Is The Convenience Worth The Cost?

Forbes | Post written by Chase Marsh, Forbes Business Council

There has been a lot of hype around a newer real estate technology trend referred to as “iBuying.” In early April, Zillow announced that it was expanding its foray into the iBuyer space it originally launched in May 2017. Other companies like Opendoor, Knock, OfferPad and even Redfin are either engaged in the space or are testing services, but what does this mean for you as a homeowner thinking about selling?

As the co-founder of an NYC-based real estate platform, my inclination when evaluating real estate technology trends is simple: What does this mean for the consumer?

First, what exactly is an iBuyer? An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. If you choose to accept the price, you can close in as little as a couple of days. The iBuyers tout the selling experience as quick and easy, but when would you consider selling your home this way? A few examples are if you need to move to relocate for a job, you are a distressed seller or you have found your next home and want to act quickly.

This sounds awesome, but what’s the catch? When selling to an iBuyer, the other side of the transaction is a company or an investor. Investors like to make money, and the quick and easy experience for sellers doesn’t come cheap. The iBuyer will typically charge a full commission, plus build in a discount to fair value to compensate for the risk they take by providing you with “instant” liquidity. Those who work in finance would call that a “liquidity premium” because the buyer has to use their own money to buy an asset. The iBuyer runs the risk of being unable to resell the property quickly enough, having costs add up, or being unable to sell the property for a profitable price. While there isn’t a lot of data available yet, some (paywall) estimate that these costs can add up to more than 10% of the fair market value of a home compared to 5-6% in commissions with a traditional agent.

So what does this really mean for the homeowner’s bottom line? Most homeowners purchase their home with a mortgage. If you purchased your home for $400,000 with 20% down, you showed up to closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers you $380,000 for your home — a 5% discount to fair value — you will lose $20,000 on the value of your home, plus pay a 5% commission (an additional $19,000). This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $39,000 to your original down payment of $80,000 — you will be giving up close to 50% of the equity you put into your home partly for the convenience of a quicker sale. Does the added cost make sense for the consumer?

While iBuyers provide the convenience of selling quickly, matching expert investors against consumers isn’t always the best thing for the consumer. Zillow recently explained that 90% of sellers (paywall) who engaged its Instant Offers platform decided against the iBuyer offer and chose a traditional agent instead. If 9 out of 10 consumers pass, the pricing can’t be that compelling. Choice is good, but a home is generally your largest asset, so you may want to consult an expert before “iSelling.”

https://www.forbes.com/sites/forbesnycouncil/2018/06/05/ibuyers-is-the-convenience-worth-the-cost/#74c0446c57dc

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FSBO Worse Than Foreclosure?

13 Reasons Why For Sale By Owner (FSBO)  Can Be Worse Than Foreclosure

Even though foreclosure is one of the most catastrophic events any home owner can face, a For Sale By Owner (FSBO) can be much worse. With a foreclosure, the potential loss for a family is limited to their home or the amount owed to their lender, whereas an FSBO gone bad can leave a family in even bigger distress.

  1. The liability is often not limited to the value of the home:

In the case of false advertising, the liability is not limited to the value of the product. This is because the buyer can claim an opportunity cost associated with the purchase as well as that he or she was promised a certain return for their purchase. The liability can be as high as 300% of the purchase price. This could become a tremendous liability to someone trying to sell a home by themselves.

  1. You’re not saving money:

While it may seem like you’re pinching pennies by cutting out the Realtor from the selling process, that is not actually the case. Professional agents help in finding the best deal possible.

  1. Scams are more common:

When you are selling a home by yourself, it is hard to spot warning signs of potential scams. Realtors will be able to spot these for you.

  1. You’ll save time:

The process of selling a house takes a lot of time and energy. Hiring an agent will save you a lot of precious time and stress throughout the process.

  1. You may resort to an agent anyway:

Many For Sale By Owner situations turn into agent-seller transactions anyway. FSBO clients more than likely will inevitably realize how difficult the process is and seek out help before they are able to close a deal.

  1. You may not be aware of the details:

It makes sense that people seeking to sell their home may not be aware of all the details that go into it. It is much harder for clients to research the procedure on their own than it would be to simply to hire a trained agent.

  1. Paperwork may be troublesome:

If paperwork is not properly filled out, it may be cause for a potential lawsuit on the seller’s part. With any loopholes at all, a buyer may be able to legally target the FSBO seller.

  1. You may not be well-versed in inspections:

Inspections are an important part of selling a home, and someone trying to sell their home themselves may not be equipped to handle them. There is a lot that goes into home inspection, and only an agent can make sure it is done efficiently.

  1. There isn’t any marketing:

When hiring a Realtor, homes are able to be marketed across various real estate platforms, and thus can be sold faster. FSBO does not allow for any marketing strategies, and thus homes do not get sold as quickly as they would otherwise.

  1. There isn’t any representation.

Many people who are selling homes are drawn to big-name Realtors whom they feel they can trust. With FSBO, home buyers do not have that same security and therefore may be less willing to consider buying the home.

  1. Buyers want the best deal imaginable:

Home buyers are looking for the most affordable option when searching for a home, and chances are FSBO is not the cheapest choice. Only an agent will be able to provide a fair, affordable deal for all parties involved.

  1. Each party will benefit:

Both sellers and agents net more money when selling through a Realtor, than through FSBO. At the end of the day, it is the most obvious choice for that very reason. While it may seem like more sense to cut out the middle man, hiring a trained agent will help save time, money, and energy in the long run – all while helping you gain the best profit for your home, as well.

  1. Agents know what they’re doing:

Agents can not only save sellers time, money, and headaches, but also liability that in many areas can go beyond the property value.

Elizabeth Stone  – July 11, 2017 12:09 pm

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4 Things NOT to Do When Selling

So you’ve decided to put your home on the market. Congratulations! Hopefully, you’ve brought a rockin’ REALTOR® on board to help you list your spot, and together you’ve done your due diligence on what to ask for. As you start checking things off your to-do list, it’s also important to pay mind of what not to do. Below are a handful of things to get you started.

Don’t over-improve
As you ready your home for sale, you may realize you will get a great return on your investment if you make a couple of changes. Updating the appliances or replacing that cracked cabinet in the bathroom are all great ideas. However, it’s important not to over-improve, or make improvements that are hyper-specific to your tastes. For example, not everyone wants a pimped out finished basement equipped with a wet bar and lifted stage for their rock and roll buds to jam out on. (Okay, everyone should want that.) What if your buyers are family oriented and want a basement space for their kids to play in? That rock-and-roll room may look to them like a huge project to un-do. Make any needed fixes to your space, but don’t go above and beyond—you may lose money doing so.

Don’t over-decorate
Over-decorating is just as bad as over-improving. You may love the look of lace and lavender, but your potential buyer may enter your home and cringe. When prepping for sale, neutralize your decorating scheme so it’s more universally palatable.

Don’t hang around
Your agent calls to let you know they will be bringing buyers by this afternoon. Great! You rally your whole family, Fluffy the dog included, to be waiting at the door with fresh baked cookies and big smiles. Right? Wrong. Buyers want to imagine themselves in your space, not be confronted by you in your space. Trust, it’s awkward for them to go about judging your home while you stand in the corner smiling like a maniac. Get out of the house, take the kids with you, and if you can’t leave for whatever reason, at least go sit in the backyard. (On the other hand, if you’re buying a home and not selling, then making it personal is the way to go, especially when writing your offer letter. Pull those heart strings!)

Don’t take things personal
Real estate is a business, but buying and selling homes is very, very emotional. However, when selling your homes, try your very best not to take things personally. When a buyer lowballs you or says they will need to replace your prized 1970s vintage shag carpet with something “more modern,” try not to raise your hackles.

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Understanding Home Comps

Before you put your home up for sale, understand how the right comparable sales help you and your agent find the perfect price.

How much can you sell your home for?
Probably about as much as the neighbors got, as long as the neighbors sold their house in recent memory and their home was just like your home.  Knowing how much homes similar to yours, called comparable sales (or in real estate lingo, comps), sold for gives (more…)

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