Selling a house can be a huge hassle.
First you have to fix the place up, taking care of all those little things that didn’t bother you but potential buyers will most certainly focus on. Then you must keep the place clean at all times so it can be shown at a moment’s notice. Maybe you’ll even if to leave the place to strangers for several hours on a few weekends while your agent holds an open house. And of course, all of this is compounded if you have little kids or pets.
But there are ways around these and possibly other headaches. Many realty firms and agents offer what are known as “buy-in” programs that will be happy to take your current property off your hands – but at a discount.
Then there are what some call “bottom feeders” that will buy your house at an even greater discount, something like 50 to 60 percent of actual market values. Outfits such as Home Vestors of “We Buy Ugly Houses” fame and Home Buyers of America purchase largely from folks who have inherited houses they don’t want or whose houses are in terrible condition. They buy from anybody who wants to sell quickly no matter the cost.
Now, though, a movement is afoot to institutionalize buy-in programs so the rules are the same nationally for everyone. With them is the promise that sellers who work with these new buy-in companies will net more than they otherwise would if they went with any of the above possibilities. All at no stress, no mess.
Opendoor: Buy-in and builders unite
One of these buy-in companies is Opendoor, which hopes to be in 50 markets by 2020. Another is Offerpad, a privately held firm now operating in 10 metro areas. Redfin, the technology-based realty firm, is experimenting with a similar buy-in program.
Opendoor recently took in its second round of investment funding, bringing the total to $645 million from companies such as Lennar, the country’s largest home builder, and Invitation Homes, a public firm which buys up single-family homes and turns them into rentals.
For Lennar, it is the Miami-based builder’s second major investment in Opendoor. On average, according to Jon Jaffe, the company’s president and chief operating officer, some 20 Lennar buyers a month are selling their houses to the company. “We have seen that their valuation model works,” Jaffee said. “What they do for the customer really is frictionless.”
Lennar Executive Chairman Stuart Miller is so impressed with Opendoor that he spent most of his most recent earnings call with investors touting the company. “Just like selling a used car used to strike fear in potential new car buyers, selling a used home causes procrastination in the potential move-up purchaser,” he said. “Opendoor is there to help.”
Miller said Lennar, “believed in the concept, underwrote the capability of management and concluded that together, Lennar and Opendoor could make serious changes to our industry as well as to our customer and drive cost as well as friction out of the way that people buy and sell houses.”
Besides Lennar, Opendoor works directly with 19 of the nation’s 25 largest builders, including companies such as Taylor Morrison, Meritage and Pulte.
Offerpad and Opendoor: Instant valuation estimates
Offerpad was started in 2014 by two Scottsdale, Ariz., realty pros. It now is operational in 10 major markets. Besides Phoenix, it buys houses in Atlanta, Orlando, Tampa. Las Vegas, Charlotte, Los Angeles, Salt Lake City, Nashville, and Dallas. Opendoor is also in many of those same markets plus San Antonio, Raleigh, Tampa and Minneapolis-St. Paul.
The two buy-in programs work very much the same way. Take five minutes to complete Offerpad’s on-line form – include pictures, if you like – and you’ll receive an offer within 24 hours or so. It uses automated valuation algorithms and artificial intelligence to determine its offer, which it says are “competitive.”
Similarly, tell Opendoor about your home’s details and receive an offer within a few clicks. Add unique details for a more precise offer. If you accept, the company will send out an inspector to confirm what you said. Then, if everything checks out, you can close within a few days.
Opendoor’s “Valuation Estimate” is calculated using publicly-available data and a proprietary valuation model that takes into account hundreds of data sets, including such local factors as how fast houses are selling and appreciating. It’s not an appraisal, though. Rather it is an “invitation to request an offer,” which is the price the company is willing to pay.
To date, Opendoor has done more than 20,000 transactions, a little more than half with so-called “iSellers,” according to Julie DeWahl, head of customer experience for the San Francisco-based company. In April, Opendoor bought enough houses to facilitate $40 million of new home purchases. It has purchased $3 billion of homes over the past year, equating to approximately 1,000 homes per month.
Redfin: More to come
So far, Redfin has limited its pilot buy-in program to San Diego and parts of Southern California. Now, it will add two more unspecified markets by the end of the year and a few more in 2019.
“After more than a decade of selling homes through a combination of local service and technology, Redfin has become one of the best in the business at getting a high home price for a low fee,” Kelman said on the conference call.
“Most institutional buyers don’t have the online audience we do, and pure web sites don’t have as much operational expertise. All of this should let us give home owners more money, and buy and sell more homes. As more and more home owners look to choose between an immediate sale and a brokered sale, offering both choices ourselves is how we can be the first company home owners call when considering a move.”
While several iBuyer services say they offer sellers top money, don’t expect a price war, at least not from Redfin. “Rather than take more risk on a property and offer a price that we’re not sure we can beat...we would just have to step back and let someone else have that sale and take that risk,” Kelman said.
It promises to make its “top offer” within 48 hours of viewing your house, says Senior Communications Manager Rachel Musiker. However, the offer is only good for seven days. If you don’t accept within that time frame, the offer could change. But once you accept, you can close as quickly as seven days or as far out as 60 days.
The seller, “typically nets less than she would by hiring a Redfin agent,” according to Musiker. “But gets this money sooner with more certainty and less hassle,” She added. “In this competitive market, we’ve found Redfin Now to be a helpful tool for move-up buyers, allowing them to quickly free-up cash from their first home so they can write a more competitive offer on their next one.”
So what are consumers getting?
Both Opendoor and Offerpad say what they pay sellers is fair, depending on the home’s condition and the state of the local market. Both companies charge service fees, “similar to what a traditional real estate agent would charge,” says DeWahl. The fee is intended to cover the costs incurred in buying and reselling your house.
For that, DeWahl says, “we get rid of all the uncertainty” of not knowing how much a house will end up selling for and when it will sell.
The service fee averages 6 percent with both companies. It can be lower or higher – lower if the house is pristine and in a hot market, says Offerpad’s Director of Communications and Outreach, Cortney Read, and higher if it requires bunches of work.
Read says her firm pays “as close as possible” to what sellers think their places are worth. The company does not disclose exact figures, but it averages $140 million a month in buy-and-sell transactions, for an annual run-rate of more than $2 billion.
According to Read, Offerpad, “evaluates every house individually” and its offers are “competitive.” Once an offer is accepted, the seller can pick his own closing date to align with his own time-line. If the new house won’t be ready for, say, nine months, you can select a closing date 270 days out.
Once you close, the company will allow you to stay up to three days extra before actually moving out. As an added bonus, if your move is within a 50-mile radius, it will pay for a professional mover to take your goods where they need to go.
Lastly, Redfin charges a 6 percent convenience fee plus a 1 percent to 3 percent risk fee based on how long it thinks it will take to sell your house. But it covers all the cost associated with holding your house, including taxes, utilities, maintenance, association fees and “the risk the market could change directions” without notice.