VC-backed iBuyers, Traditional Agents, Flat Fee Agents, Cash-secured Buyer Solutions, Concierge Listings, and FSBO. These are the six trendy home selling and buying options in the United States, entering the Winter of 2019.
House-flipping, or iBuyers, is highly fragmented and is mostly unavailable as a legitimate service across the United States. Companies like Opendoor lobby for being referenced as iBuyers, but it is an exact same process offered by WeBuyUglyHouses (HomeVestors) for close to 20 years, now expanded onto nice and easy suburban homes. Today, the buy-and-flip process is highly fragmented with only about 0.003% of all homes in the United States being sold with this mega-VC-backed approach, despite Billions USD already invested into a massive real estate flipping Goliath. Such service is highly ineffective, where, for example, 99 out of 100 people who receive an Instant Offer from Zillow Group, ignore it. Due to such a low success rate, consumer’s information is often used by companies like Zillow Group and Opendoor to turn their seller requests into selling-leads-for-fees to a local agent willing to pay for consumer’s information.
Due to inherent risks and added costs, house-flipping is one of the most expensive propositions to sell a home. After the flipping difference and fees, a homeowner can expect to walk away with only 80% of the potential market sale price before any outstanding mortgage payoff. For example, Opendoor charges fees that usually work out from 6 percent to 12 percent of the sale price, while making an average of 90% of the market offers to homeowners based on analysis of past transactions. These models are so greedy because the flipping process is naturally risky and cumbersome, taking a highly involved approach to buy and resell a wide range of homes. Unlike a real estate agent, house-flippers do not have a duty to represent consumers in their best interest, their only duty is to shareholders. This distinction translates to both buyers and sellers transactions, where RESPA and States’ real estate laws that typically apply to local real estate professionals do not necessarily apply to private investors in the same way — consumers are not fairly represented by the house-flipper unless they hire an agent directly, for an additional cost and not a commission kickback paid by the flipper.
The upside of selling a home this way is that consumers are able to receive fast and easy cash, be that as it may in only 0.003% of very select cases. By selling a home to a flipper, a consumer avoids a 1–3 months process of listing a home and showings. It may be worth it to some people, but such a sale has a price — instead of dozens of people seeing a home and making potentially multiple offers for the property, house-flipping is largely a single-offer proposition. It is difficult to see how and why these services would rapidly flourish into an instant on-demand process across an aggregate of 6,000,000 homes bought and sold in the United States each year under such limited terms.
Buying and selling with traditional agents is a great option in 2019, with over 2 Million real estate agents in the United States. Unfortunately, today this option is often associated with a standard 6% commission. Among new competitive models out there, it becomes more and more difficult to justify concepts like a standard commission — the standard by whom? The other problem with this option is referral fees imposed by online middle-man brokers. Typically, these fees are incredibly high, charging 25–45% of the agent’s net commission. Such fees make it impossible for traditional agents to offer their services at competitive prices — they have to pass these fees to consumers and are less likely to negotiate for better rates. This is why HomeOpenly aims to resolve these two problems with an Open Marketplace concept that allows local agents to advertise their best rates and services subject to 0% referral fees. HomeOpenly makes the traditional listing process a lot more attractive and transparent. At HomeOpenly there are no set rates, so all agents are able to offer their best savings along with value-added propositions for their service. Unlike any other portal that depends on Realtor kickbacks, HomeOpenly operates on Privacy by Design principle and never trades consumer information with anyone other than intended recipients.
Flat Fee Agents
Flat fee listings and buyer’s refunds are rocking the real estate market and will continue to grow in 2019. HomeOpenly is now able to advertise better aggregate savings across 147,000,000 homes in the United States than does Redfin, mainly due to wide-spread adoption and deep savings offered by flat fee listings and refunds models. Redfin does not currently offer flat fee options. Being able to list a home with a quality flat fee agent provides similar savings compared to a 1% listing fee and as well as transparent and easy-to-understand pricing. Some flat fee models are also offering overall savings when using them as a dual agent, saving 2.5%-3% in buyer’s agent commissions for self-represented buyers. Many competitive buyer agents now offer 100% of their 2.5%-3% buyer’s agent commissions as a refund to buyers, minus a flat fee, returning tens of thousands back to the buyer. Buyer’s refunds are a legal incentive only in 40 States, but the US-DOJ continues to advocate for this incentive among the remaining States in consumers’ interest. HomeOpenly allows agents to advertise buyer’s refunds only where allowed by law. Flat fees are one of the best real estate innovations that happened for consumers in the last few years and 2018 saw the rise of this trend like nothing before it.
Cash-secured Buyer Solutions
2018 has been a subject to an extremely hot residential real estate market, leading to the development of several solutions able to provide cash security to buyers competing against cash offers in exchange for an added fee. There are only relatively few companies that offer this solution and the success rate is difficult to establish with such low volume. This is not a trend per-se, but it is a business model to watch entering 2019 market, as a potentially value-added option for buyers making offers in what survives as a hot seller’s market. Ribbon and Flyhomes are one of the first to begin operations in this space.
Concierge Listings is a brand new proposition, currently, a pilot tested for mass adoption by Redfin in Seattle, Washington. Redfin offers consumers a concierge-style home listing option that includes cleaning, painting, staging and landscaping for 2% listing fee. While this process is more expensive than a flat fee proposition, it includes a great variety of value-added services. Concierge Listings is a great proposition to consumers thinking about selling a home to a house-flipper because the company effectively offers to turn the home into showcase condition without any upfront costs to the seller. The seller is still able to receive multiple market offers by properly listing their home. HomeOpenly now has an option for Concierge Listing service offerings for agents, as optional when advertising their services. We hope to see more companies follow Redfin Concierge model in 2019 as a proposition.
FSBO (For Sale by Owner) trend continues to decline as one of the worst methods to sell a home. More people are using real estate agents right now than ever before. Among flat fee listing models and properly negotiated commissions, the risk and cost of trying to sell a home by the owner almost always works against all parties, including the seller, buyer and any real estate professionals involved in a transaction. The real estate process is not as easy as ordering a pizza, it is actually very involved. At HomeOpenly we advocate for prudent and competitive input from industry professionals. Comparing FSBO and flat fees options, it is difficult to make a case for FSBO as a better route. The upside here is almost non-existent fees — typical FSBO fees are only a few hundred USD.
Transition into 2019 Residential Real Estate Market
In 2018, VC mega-rounds are fanatically focused on high-expense real estate models, such as Opendoor and Compass, but at HomeOpenly we see an opportunity to fix standard 6% commission myth with a sensible Open Market approach for Realtor services, similar to that of an Airbnb for local accommodations. Removing excessive referral fees allows agents to easily make a living in a competitive environment, while consumers are able to see and evaluate their local options without hidden traps and having their information traded as a commodity. The best process in real estate for mass adoption does not necessarily require mega-funds, but it needs a sensible revenue model, UX, adaptability, scalability, security, and privacy. In 2019 HomeOpenly will continue to offer our users UX with Privacy by Design, instant LIVE local results, 100% open market rates and unbiased coverage for over 147,000,000 homes across the United States.