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What You Should Know About Who Sells Your Home
Dated: April 24 2019
You’ve likely heard radio commercials, or seen ads on TV & social media from a variety of new companies offering to buy your home directly, without showings, and choose your own move-out date. This is a hot topic in the real estate industry right now and it has everyone asking what kind of impact these services have on the consumer- home buyers and sellers like you. In addition to these “ibuyer” companies sprouting up everyone, some agents are offering to sell your home for a lower commission than a traditional, full-service Realtor’s rate. How do the results really comparable? And more importantly, who benefits more- you or them?
First, we compared numbers in the Multiple Listing Service, commonly called the MLS. The MLS is the database used by real estate agents to search for properties or list them for sale, but it is also a great statistical resource. We compared several “iBuyer” companies, discount brokers, and flat fee services to see how they measure up in the real world.
“iBuyers” are companies that purchase homes directly from sellers off-the-record, and then turn around and resell them for a profit on the general market. Everything the iBuyer has listed for sale is owned by them, so they’re making all of the decisions when it comes to offers. Therefore, when we look at their MLS sales data, we are not seeing the impact on the consumer. The price that the company paid to purchase the home from the previous owner won’t be on record anywhere. These companies are selling convenience, but it’s convenience at a price. They’re businesses first, so profit is their primary motivation. Unfortunately, that profit comes at the expense of the seller, who likely does not have a clear idea of their home’s market value. We requested offers from 2 of the biggest iBuyer companies in our area on a home that one of our team members owns, and then ran the numbers to determine the likely sales price on the general market. Here’s what how they compared:
As you can see, a seller’s profit is considerably higher when selling the traditional way, even if the offers are close. If you’re facing foreclosure, or unable to keep up with payments on your home, this may truly be the best option for you. If not, and you’re considering a direct sale, make sure to meet with a Realtor as well and then compare the numbers. Maybe the convenience really will be worth that much money to you. Either way, a well-educated decision is the best case scenario for everyone.
Now how about the low commission gimmicks or “buy with me and sell your home for free” companies, what’s their catch? As with the iBuyers, each company is in business to make a profit. After all, if a business is not profitable, how do their workers make a living? The profit model used by most of the discount or flat fee agencies aims to profit by selling in volume. They’re likely more driven by numbers and rankings than income with a “big box”business concept. Others are just hoping to draw in more business by lowering their price, possibly because they’re new or they’re finding it difficult to compete when it comes to skills or experience. The old adage “you get what you pay for” is sometimes criticized as a cop-out, but let’s break down the facts. In order for a business with a discount model to earn the same income as a full service business model, they’ll have to consistently sell far more homes, so they’re going to be busy. As a result, personal service and attention to detail may suffer. If you don’t want consistent communication, that’s a matter of preference, but a key part of the job is adjusting the marketing, price, etc. based on current market conditions and activity. If they’re too busy to monitor what’s going on in the market, your listing could be left behind and it’s you that suffers as a result. Failure to adjust with the market ultimately results in more time on the market and a lower sales price.
While their low price may attract more sellers, their success rates are more telling. The MLS data shows us that some popular discount agents and flat fee brokers actually sell fewer of the homes they list for sale. We compared the number of homes they sold with how many they listed for sale, and excluded those currently active on the market. Some sold as few as 47% of what they listed for sale, and the rest expired or terminated their listings! Most of the discount or flat fee agencies that we looked at averaged somewhere in the 70% range. Compare that to a full service agent though, with a list-to-sold ratio in the 90’s. There will always be situations where a seller decides to stay in their home, or their motivation changes, so a 100% sold rate is quite rate. But those situations aside, wouldn’t these ratios be helpful?
When it comes time to sell your house, what’s the best way to protect yourself? Many experts recommend to interview at least 3 real estate agents before hiring one to sell your home. If you’ve heard an ad and are considering a discount service or direct sale company, interview them and a full service agent still to compare notes, and be sure to ask questions. Ask for a break-down of ALL fees and costs, not just a lump sum of “closing costs.” This is frequently referred to as a net sheet. Also ask for documentation of ALL homes the agent has listed for sale within the last 6 months to a year, whether they’ve sold or not. If there is a high ratio of homes showing “expired” or “cancelled” compared to “sold,” that’s a red flag. If they’ve excluded the homes they failed to sell instead of having an honest discussion about it, that’s another red flag. In the end, knowledge is power. Make a fully informed choice and you’ll be confident with that decision.
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With a background in marketing and journalism, Lisa Ellard is well-equipped to offer each of her clients savvy business advice, while always keeping their lifestyle needs a priority. She is a detail-....
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