Of you don't want to use a broker and agent then don't. If you want to use a discount agent, it's easy. In most states you can sell your own property.
I bought my last property using a broker & agent. The agent managed the inspections, mortgage processes (along with my great mortgage agent), VA assessment and repair contractors (roof, sidings, and fence). They were also wily enough to get the best price from the bank, with several concessions.
Well bought is well sold.
3
An agency company also wants a chance to make a first offer. What could go wrong?
The company can control the advice it gives to other buyers. I have a collectable house, one built by a famous developer, which is sold for a premium over other houses in the area. The automated valuation systems price these houses as if they were standard houses.
People with these houses use only a two or three specialist real estate brokers or else they receive far less than they should.
3
The problem for the consumer with this practice is that listing aggregators like Zillow and Trulia who have set themselves up as "valuation experts" have an insurmountable conflict of interest when they start buying up real estate.
At least with the current system, homebuyers and sellers have a reasonable shot at an arm's length transaction based on readily available comparable data. Zillow and its subsidiary Trulia will no doubt manipulate data to serve their own profit motives. It will be years before federal regulation catches up to this potential fraud scheme and based upon Zillow's less-than-ethical business practices to date, I predict a colossal risk to the buyers and sellers of residential real estate and the admonition "Caveat Emptor" should be kept in mind.
24
The real estate industry embraces Tech as much or more than any other industry. Selling homes is not like selling a car or a fridge. There are no 2 homes exactly alike, not even in a condo building. Agents use of CRM's, video, publishing, printing, networking and information sharing is better than any other business I can think of. If tech was able to disrupt the real estate industry they would already have done so because there is a lot more money to be made there than in the taxi business. The fact is they have tried and failed time and again because the industry adopts the change and innovation. Compass is a a prime example of a can't beat 'em join 'em business. They tried to make huge changes but failed. They pivoted to be a traditional brokerage because the VC money is hard to return.
6
I see this as a step in the right direction.
But what I'd like to see even more is the ability to buy my car online, everything customizable and transparent. Car dealerships have got to go.
24
If they can ever get rid of the title insurance rip-off that will be a big benefit; Titling /Selling a house should be as easy as titling a car.
17
Want to sell your own home? Use the publicly available records to see what homes are selling for in your area. Develop your “comparable” list. Spend a few hundred for an unbiased home inspection. Take some decent photos both inside and outside. Clean the house up and declutter. Now - you can hire an agent at a reduced fee to chaperone clients or do it yourself. Have a lawyer standing by to prepare the bill of sale. That’s it.
12
This is for sure a sign of a debt bubble with too much cheap money sloshing around -- Zillow isn't really taking the risk, the funders of the capital are. If Zillow goes bankrupt (which they will if the next downturn is severe enough), the debtholders will be left holding the bag.
Also, I believe that residential housing is just too NOT a commodity to apply algorithms to it. Maybe in Phoenix or Las Vegas it might work for some neighborhoods, but in many other places there is just too much variation from house to house to apply an algorithm.
This too will pass after it's crashed and burned.
13
I sold my home myself by listing it on Zillow. The buyer found my listing on Zillow. Neither of us used a Realtor. We split the 6% commission, each pocketing a 3% savings. The local title company handled the closing and answered our questions. The entire process painless and easy.
The hard part is getting the house ready to sell - cleaning, making repairs, staging, etc. The easy part is creating the listing, showing it, and negotiating.
I will probably never use a Realtor again.
23
Algorithms appear to be improving. My house on Zillow: 836K, Redfin 733K, Trulia (Coldwell) 823K. This is where cookie cutter algorithms break down. My market value is about 900K (because of upgrades, condition, location, other recent sales), so I'm not sure that I'd really trust the ibuying services at this time. Seller beware. An experienced agent knows the individual market better than any algorithm. And what's up with Redfin's estimates anyway (I can tell you - they include in my area's algorithm a zip code on the other side of a river from where I live - a big difference in the size and quality of housing stock and neighborhood on other side).
9
Here is a quick search result on antitrust violations that real estate professionals should pay heed to.
https://www.theantitrustattorney.com/five-antitrust-concerns-real-estate-professionals/
Just on the surface these companies like Opendoor and Offerpad are already violating antitrust laws. They are setting and suggesting a standard sales commission on their websites, which the authors of this article are repeating and perpetuating.
4
@Aristotle Gluteus Maximus The Market will determine if this business model is successful, not the Courts. Uber, Lyft, AirBnB operated in violation of local laws and the Courts didn’t step in until they became entrenched in the city. If Zillow or Opendoor become the Uber of RE, I have a hard time seeing courts ending this business. Especially since Zillow/Opendoor will have attys to jam up the courts while the model gets validated in the market.
@Local Labrat
If someone actually complains the Justice Dept and others will be obligated to investigate the complaints. They will contact the offenders and they can just change the words and claims on their website. Problem solved.
There is no reason they, a big corporation with many lawyers, should be able to get away with antitrust violations when Realtors have to watch themselves for such violations every time they speak to a client.
@Aristotle Gluteus Maximus "obligated to investigate"....we see lately that's changed....
7
Once we buy all the homes, we can bundle them and sell them on Wall Street. They can't be thinking that can they?
6
Based on these comments, it seems virtually anyone can sell their home at a price they want more quickly and efficiently without a broker. Yet, outside of the comments, in the real world, 90% of people use a broker. Why? Because the a priori theorists here confuse simple and easy. Brokerage is very simple (know the market, know the process), but not easy (just ask the vast majority who fail). It's like playing professional baseball - very simple (throw a baseball 100mph) but not easy.
Why can't the armchair experts cut brokers out of the transaction? Because no amount of expertise gleaned from the internet will replace experience. But go ahead - save a penny on the commission and lose a pound on the sale price.
8
Has anyone really compared Zillow's estimate vs. the real value of his home? Take a look at Zillow's fine print as it acknowledges that their estimate can be off by double digits depending on the areas. And for those who had gone through the selling/buying process, there are lots of nuances in both legal (contract, disclosures,...) and practical (inspections, repairs,...) senses where the seller/buyer will need a Realtor's hand holding. Any missteps on the disclosures may turn into a lawsuit.
If any company or individual that has a voluminous inventory of homes in an area, imagine the sway it has for that neighborhood? It can really sink the entire neighborhood if it decides to unload its inventory. Run Zillow investors, run!
8
As a banker, I’m not overly concerned with the quick buying/selling of homes (though, why?), my concern is that this is a purely financial transaction: the only business justification is to sell mortgages. Where have we seen this before?
10
What happens if the companies try to corner the market in real estate and drive up prices? This has happened with other commodities, and given the cheap money floating around, it wouldn't be too hard to do. The average Joe could end up paying a lot more in smaller towns/cities where supply is constrained.
5
Buyer's agents are the main problem.
We do all the research on Zillow, Trulia, ... and approach a buyer's agent only to see the houses we're already really interested in.
They will however happily take their half of the cut i.e. 2-3% (or 12,000$) for a few house visits and acting as unnecessary in-between.
The system is set up in such a way to favor this approach: the buyer has no incentive not to use a buyer's agent as it's the seller who pays the full commission anyway. The buyer therefore may as well use the services an agent offers.
In many European countries there is just one agent: the seller's.
Commissions when I lived there were typically 3-4%, lower than in the US.
More people sell houses there by themselves, as there is more protection by the law in place against hidden problems and fraud which increases self confidence of going at it alone.
8
@Anne
Trulia is owned by Zillow, both media companies with no legal obligation to be truthful in their advertising data.
Over 90% of home buyers already shop for the homes over the internet. Real estate professionals have known this for over a decade.
The commission cut is negotiated by the person selling the house with the agent he hires to help him sell the house. That commission cut is set before you or the buyer's agent even knows the house is for sale.
If you approach the agent hired by the seller of the property you should know that the agent is acting for the best interests of the seller of the property, not you, the buyer.
In the USA there are more protections built into the laws for both the buyer and the seller if you use an agent. For example, a seller who does not use an agent is free to discriminate any way he sees fit when choosing who he sells his house to. If he doesn't want to sell to a black family he dosen't have to. That's the law.
3
@Aristotle Gluteus Maximus "Trulia is owned by Zillow, both media companies with no legal obligation to be truthful in their advertising data."
This is false, which I say as a lawyer with a specialty in consumer law - and, frankly, it should be stating the obvious that false advertising in general is broadly illegal.
Zillow could readily be sued on multiple grounds - under both federal and state law - if it knowingly misrepresented information regarding either the properties it sells or how its own internal operations function. Even if its agent didn't know about a given problem, Zillow would still have legal exposure on negligence grounds, considering one of the main *points* of having a buyer's agent is for purposes of discovering a home's potential defects.
"If he doesn't want to sell to a black family he dosen't have to. That's the law."
This isn't merely false; it's patently ridiculous. It's been categorically illegal under federal law for over 50 years to engage in any form of redlining (discrimination on the basis of race) with regards to housing -- and this is just as true for sellers as it is for realtors. Granted, sellers can (and often do) devise phony excuses for refusing to sell to persons they deem "undesirable" for whatever reason, but it certainly isn't allowable under "the law" under any circumstances.
5
@Jeff
Ha Ha! You're a lawyer with a specialty in consumer law but you don't know real estate law. Just google "Zillow estimates" You will see many sources,
See here:
https://money.cnn.com/2014/07/28/real_estate/zillow-buys-trulia-for-3-5-billion/index.html
https://journal.firsttuesday.us/zillows-impact-on-the-real-estate-industry/62280/
https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview#_Who_Is_Protected?
Notice the words on that page that say;
"The Fair Housing Act covers most housing. In very limited circumstances, the Act exempts owner-occupied buildings with no more than four units, single-family houses sold or rented by the owner without the use of an agent, and housing operated by religious organizations and private clubs that limit occupancy to members."
Consider yourself enlightened. That will be a $100 for continuing education credits.
3
Reading all of the comments on this article by realtors and defending realtors is hilarious. Talk about having the blinders on! News flash realtors -- most people don't think anything you do is worth anywhere near the commission you earn, and we're all sick and tired of the monopoly you've maintained on housing far past it's expiry date.
The vast majority of people welcome a service like what Zillow is offering. Time to wake up and smell the coffee Realtor(R), most of you are going to need to find a new career.
37
@Mike. Well put, Mike. Even though this particular concept may not play out, there is no reason to hand over 6% of one's decades-earned equity to realtors. Perhaps a transaction fee of 1.5% is OK, and maybe they can be paid by the hour to advise in decisions - like any other consulting function. And meet with clients in a coffee shop, not extensive storefronts, to sort out details.
Nothing against realtors; but their historical function is overpriced and unnecessary.
30
@Mike - Zillow and these other companies are factoring in the money the seller will save by not using an agent and reducing that amount from the price they are willing to pay. In the end there is really no savings. For a seller the cost paid to a realtor is very often well worth it. And while a buyer's agent will most always have the easiest job in the transaction, their services can be worth a huge amount due to their negotiation skills and ability to ensure that all the necessary due diligence has been done on the property being purchased. I'm not saying realtors are the smartest people in every room they are in, but to say they don't have any value is ignorant.
5
@Mike
You must be addressing me. I already found another career. I was wasting my time running around town meeting prospective home buyers who didn't have the money or financing to buy their dream home, or giving free advice to home sellers who were shopping to an agent who would be sure to sell their house to the "right" people (no blacks). Or putting up with those who think I was rich and making easy money and were looking for any opportunity to stick it to me by getting my trained and licensed services for nothing.
Zillow is a scam. You just haven't discovered it yet.
1
I believe this article frames the subject in a peculiar manner.
I quote: "The question no one can yet answer is what will happen to iBuyers — and iBuying — when the housing market inevitably cools, leaving companies holding thousands of homes that are worth less than they thought."
What I see happening here is a preimptive move to control real estate prices in the future. These corporations don't have money in a vault. Their venture capital is numbers on a screen (it doesn't exist and it is unlimited.) They can buy these properties, leave them empty, or rent them. All they have to do is hold onto them and wait. I cannot think of a simpler way to control the markets through, and after the inevitable crash that is coming. It's quite brilliant. And here it is framed in the same way as everything else in America- Oh, it will make your burden of consumerism that much more quick, cheap and painless.
One more quote from the article: "Mr. Kelman said a micro version of that situation played out late last year when rising interest rates led to a slowdown that iBuyers’ algorithms didn’t anticipate. Redfin sold homes at a loss; others held on, hoping for a rebound. The optimists proved right, and the market quickly rebounded. But Mr. Kelman said the experience was a warning sign.
'If rates had continued going up and the housing market had continued going down, it would have been a squeeze,' he said."
5
Get offer from Zillow to buy my house, supprisely, they offer didn't exclude the fees, which yet, you guess were right, it cost more than you can imaging, But questioned Zillow why estimate my house so high if they give me an offer 25% low their own estimate, and another 25% to the fee they are going to charge me for the cash. I must been very eager to get cash to sell my house to Zillow.
2
I look forward to this being scaled up. I'd rather take a little less money for my house and get rid of it with far less hassle than the antiquated system we have today.
7
There's no law stating one has to use a realtor and fork over up to 6% when their house sells. When it comes time to sell, I'm doing it myself. I'm a bureaucrat (education) and 6% is a lot of coin that I'm not going to waste on a realtor who won't sell my house any faster or better than I can. Someone here stated realtors are a holdover from another era. I agree. Like land lines and taxis, realtors will be obsolete for the most part in the coming years.
14
@misterdangerpants
Would you hire a realtor for 2% or 4%? You can. All you need do is ask. Or you can do it yourself. It's entirely up to you.
2
Full disclosure: my wife is a real estate agent. Contrary to many of the glib comments about agents among commenters, my wife and the agents I know are highly educated professionals who have succeeded in other careers but chose real estate because it provides a way to support a family while providing a valuable service to families undergoing stressful transitions.
Real estate transactions almost always happen at the most stressful life transitions: relocations, divorces, promotions or job loss, families outgrowing a home or downsizing - all factors beyond any algorithm. Successful agents compete hard and win their business via the human element: by listening and understanding a families fears, hopes and dream outcomes. Hand-holding, providing accurate, fact-based answers to questions based on years of knowledge and experience, skillfully and aggressively negotiating offers in light of a clients needs...all factors that are hard to quantify via algorithms, but which are valuable in producing desired results for families on both sides of a transaction.
A good agent facilitates efficiency all along the way (“Don’t spend money to replace that carpet right now - how do you know the next owner will like that color? etc.) This article does a great job of laying out the evolving role of iBuying for some clients. Still, it seems likely that high-end competitive luxury markets like SF, LA and NYC, will require skilled humans talking to each other for the foreseeable future.
10
Seems to me I recall this same thing, a company buys your home outright, happening 25 years ago?
In the big times before the crash? Looking up NY investigations showed that delinquent mortgages are not being offered for sale. NYT showed large cities are seeing their inner areas sold to whites.
Not sure what is happening. University, medical and tech jobs are big city locations. Young people buying in and avoiding car cost and travel time? Are suburban homes in foreclosure but being lived in? What agencies are financing home buying? Is this Air B&B ?
1
Real estate brokers are reminiscent of the stock brokers of the '70 where a commission to trade stock cost $100 or more. Now $5 is the norm and the industry didn't collapse even with a 95% reduction in costs.
When you have to pay 4 people (selling agent, selling agent's broker, buying agent and buying agent's broker) to make a sale, it causes price distortions. Maybe needed in the 1970's before the internet but not now.
Realtors maintain their pricing grip due to political influence and questionable blackballing of property owners who use a service that only places their property on MLS.
The high tech company that offers lower commissions and a single stop for all closing service for both buyers and sellers will create a winning business model and become a unicorn.
2
@JP
When you sell your house using the services of a real estate agent you only pay one person, the agent you hired to help you sell your house. He, or she is the one you pay the commission to. All the others take their share from that same commission you negotiated with the agent.
7
Could work...for foreign buyers who want to park their money in real estate. They're not planning on living in it so they don't need much information.
Really, what normal person impulse-buys a house? Somehow this kind of nonsense will mess up the market big-time. The question is when and how many millions will be affected. Hey, can we get some laws here?
@EE It's not "normal people" buying these houses, it's corporations via a computer program that reads algorithms and can predict the future. This is the easiest way to control the real estate market. You control supply and demand. Money doesn't matter to these corporations. Their "money" isn't sitting in a vault. It's numbers on a screen. This is going to upset things, but maybe not for a little while, and probably not in the way you might predict.
Alarm bells are ringing...
3
This is a long-overdue development in the housing market. The fact that Realtors have been able to hold their fees at 6% is evidence of a market that is, shall we say? rigged. Also due for disruption: the various "insurance" and "title searches" other fees that are applied at closing--a hundred here, a hundred there and soon you're talking real money.
Quick purchases online will actually grease the resale market, making it easier to upgrade one's housing (or escape to a suburb) without going through the pain (and suspense) of selling one's current abode. And no Open Houses--bless Zillow!
12
@richard cheverton
The no open houses alone is worth any discount on the price you might otherwise get, especially if you have kids and pets!
@richard cheverton
They haven't been able to hold their fees at 6%. Those days are long gone, by decades. This article is just perpetuating misinformation. it's fake news.
1
@Aristotle Gluteus Maximus - just sold my house for a loss due to relocation. My realtor, that I was forced to use under the relocation contract, got 6%....plus 3% from the relocation company. So yeah, it's just plain stealing from people. Sorry.
2
A real estate transaction is different from the purchase and sale of almost anything else.
For one thing, no contract to sell real estate is valid until it is signed by all parties, whereas a "deal" can be closed on a say-so and a handshake for most other kinds of sales.
A savvy buyer or seller would be wise to ask for offers from every iRealtor, and then get additional offers from "conventional" buyers or sellers. All the iRealtor is doing is setting a minimum selling price, or a maximum purchase price (for one of possibly several similar homes).
3
@Joe From Boston
I can assure you that if Zillow, Redfin, Trulia, et. al., haven't already thought of showing comparisons, that someone else will have that idea and is most likely already figuring out how to make it happen.
Trashing real estate agents is a popular sport. I used to do it myself. But ultimately I have to rely on my own experience. In late 2013 I purchased a vacant income property in a popular area. This well-located property unburdened by rent control stakeholders attracted many interested would-be buyers. My agent managed to jawbone the selling agent sufficiently to determine what were the concerns of the seller, allowing me to present myself and craft my offer accordingly and buy the property even though I was not an all-cash buyer. Several months later the same agent did a fine job of presenting my old single family residence for sale in what was still a jittery recovering market for SFRs. She earned every penny of her healthy commissions on those deals.
6
Zillow is a media company, it is listed as such in it's corporate regulatory filing. If they are now in the brokerage business they will have to start obeying federal and state brokerage regulations, like fair housing laws, and advertising laws. They won't be able, legally, to have maps of neighborhoods showing racial makeup of the residents, for example, even if they get it from US census data.. They won't be able to, legally, fix the price of a commission on the sale of a property, which some companies seem to do on their websites, like Opendoor.
I might scan these websites and report those apparent violations to the feds. I can do that. They will pay attention to my complaints. They have to. It's their job. They invite citizen complaints on unethical or illegal real estate practices.
4
@Aristotle Gluteus Maximus "They won't be able to, legally, fix the price of a commission on the sale of a property, which some companies seem to do on their websites, like Opendoor.
Of course they can. 6% is like MSRP, at least in CA. My realtor (major brokerage) negotiated the fee with me before listing - including that for the buyer's agent.
@KCPhillips
You are confusing setting a price before the fact, in advertising, by prearranged agreement in the industry, price fixing, with actually negotiating a commission on a specific sale. See my comment above with a link to an article on such things.
Do not buy a home without actually setting in foot in it. The marketing online is totally distorted and houses look very different in person. Don't be fooled by wide angle photography, lights turned way up and big flashes. Workmanship has to be seen with the naked eye.
8
Nothing persoanl against realtors but It is more than time to disrupt the home buying and selling process. Paying a realtors 6% ($24,000.00) on a 400k home is absurd. All of the information one needs; taxes, title search, detailed pictures of the home, information on other homes in the neighborhood is easily available online. I can let people in to look at the home with a lockbox app and insure against theft with my online security system AND I can market it just as well as anyone else. Why do I need a realtor?
21
Just reading these comments shows how the misinformed authors of this article are perpetuating the myth that a real estate sales commission is fixed at a standard 6%. Ask any law abiding conscientious properly trained real estate agent what the standard commission is and they will say it is negotiable. They should, by law, avoid stating any specific percentage. They can be penalized and potentially lose their license if they give the impression that a commission is anything other than entirely negotiable on every single, distinct property sale.
6
This introduces more volatility into home values. That's a bad idea.
3
This is fascinating... and I think it will work. We Americans like things "easy" and clearly, Zillow makes it quite easy. I don't know what their fees are, but to have a reasonably priced offer to buy your home, with no contingencies, no repairs required, no "seller pays escrow costs", is nothing to dismiss.
Of course, selling a home is easy in a booming market. The real test will be when the market slows down.
2
There is NO justification for a 6% realtor fee. NONE. What we're seeing in Silicon Valley, for example, is a parasitic feeding frenzy, as the "big guys" (Google, FB, Apple, et al), have boosted the "value" of homes, in an "inventory starved" market. Home owners have built equity over years, and "flippers" are just trying to squeeze money out of any transaction they can get themselves involved in.
I've always been amazed at how cities ALLOWED Uber to destroy the regulated taxi business, first by LYING their way in, selling themselves as "ride sharing", when that was just a scam.
This current real estate move also reflects the massive influx of foreign money, much of it from China, further driving up prices. Australia bars non-citizens from owning real estate.
Imagine if we seriously considered that here.
7
"She uploaded some photos and got back an offer: $382,000, minus a fee for Zillow."
Important data missing: what is Zillow's fee?
13
@nowadays
Does it really matter? The agent she talked to said she could get between 375k and 399k, if she updated. Zillow offered her 382k as-is. Shopping for, selling, and buying a home are exhausting. Most people just want a fair price and to be done with it, which is exactly what these services are trying to offer. It's not like you have to take their price if you don't agree with it. I for one can't wait to sell my house using this type of service. I have three kids and two dogs, and ZERO desire to deal with open houses and showings.
5
@Mike
You don't have to deal with open houses and showings. Just tell your agent, if you hire one. Most open houses are non productive anyway. There have been studies. They function to allow other agents to see what is on the market, what features are in each house so they can better match them with buyer's needs. If you sell to Zillow you are just selling at a reduced price to a house flipper.
4
@Mike There's a value to have a buyer's and a seller's agent stand between the buyer and the seller - professionals who have the experience to negotiate a successful negotiation, which is multi-faceted and time consuming. Buyers and sellers have egos that causes problems with all aspects of buying/selling and, more importantly, closing a sale. As a buyer/seller myself, there are too many opportunities to get hung up on some petty little detail. Agents solve problems.
1
"Should Selling a Home Be as Easy as Hailing an Uber?"
Sure, if you don't mind getting ripped off by a low-balling tech company like Opendoor.
They're not doing this to innovate, but just to make fast bucks by profiteering big-time from "convenience."
Seller beware!
10
They tried that with cars during the last tech bubble and failed because the dealership interest was so entrenched. Good luck to Zillow and others though. It'll be a huge boon to efficiency if they can whittle down 6% commision to 2% flip margin. But I wouldn't bet on it. All those algorithms and models are prone to failure in real life and can cause havoc. LTCM for example had to be bailed out to the tune of trillions. And zestimate is known to be often wildly off from the true market price set by the negotiation between parties.
3
I don't see iBuying or whatever you want to call it stepping up to take the place of the realtor. More likely, an expansion of the role that property management plays in the process will do the job better. The biggest gap in the house selling process is showing the house and the general management of the final processes once a buyer has decided to put in an offer.
I recently sold two houses using only a title company and a property management company and no "reelators". That's all you need. I am sure that there are circumstances that might require an attorney but normally they are just an expense. The documents that were provided by the buyer's attorney in one of my two recent sales were not worth the money, over xeroxed with hand crossouts and deletions.
1
@J.I.M. True, but negotiation doesn't end with an accepted offer. Someone has to negotiate the findings of various inspections.
I have bought and sold houses and condos in various other countries. The U.S. had the highest real estate commissions (usually 6%). Canada, Colombia, New Zealand, Australia, etc., cost me typically 3% (or less) to sell through a conventional broker. They did the same marketing job as a broker in the U.S. Brokers in the U.S. have a stranglehold on the business of selling real estate. It's time U.S. brokers stop gouging sellers. My last U.S. home sold to the first party to walk through the house. 6% commission. The market is ripe for a concept to bring down sales commissions.
13
We used Opendoor to sell our home three years ago and were really happy with them. We got a tentative offer quickly and within 2 weeks had the inspection done and a solid offer on the table. We chose our own closing date, packed up, and moved out. No painting any of the six rooms that didn't have beige paint, no putting in new carpet because the dog and kids were rough on the old stuff, no paying a landscaper to make the outside look perfect, and definitely no strangers traipsing through our home while we still lived there.
The offer we received and the fees we paid were more than fair and we would absolutely do it again. It was easy, convenient, fair, and we never felt pressure or stress. We *never* felt pressure or stress about the sale of our home! Of course there are downsides for some people, but when you're going through something as monumentally important as a home sale less stress is worth a lot.
12
This article describes basically how stock specialists traditionally operated on exchanges --- often keeping a small inventory on hand as they match buyers and sellers, thus maintaining the liquidity of the market. Of course it involves risks for the companies getting involved; but I see little downside for the average consumer. No one is being forced to sell to Zillow; and on the other end, Zillow is subject to the same market as every other seller. If they can do it efficiently enough, maybe they can even undercut the 6% broker fee while providing faster transactions for sellers.
3
One problem for sellers is that the cost of the fix-ups and staging recommended by the selling agent can end up worth little to the actual buyer. The agent takes no risk and gets 6% of the actual added value, if any. If they are wrong, the seller takes a bath. To respect their supposed fiduciary duty to the seller, agents should at least separate those costs from the sales price and take a reduced commission on that amount.
7
@Greg Harper
Yes, well said. By the time you get done "fixing-up" your home to sell, and/or staging it, you're often out tens of thousands of dollars. Then if you're lucky enough to sell for a price you want, there goes another 6%. Often times that combined amount can easily and quickly exceed $50k. That's $50k out of YOUR pocket.
Realtors have seen their day. This is the beginning of the end for them and their ridiculous commissions for doing nothing.
3
“You should be able to sell a home within a handful of clicks,” said Eric Wu, Opendoor’s chief executive.
This is just computerized flipping. What could go wrong?
10
Anything that disrupts the realtors’ cartel, with their i flated commissions and costly advice (paint everything beige! no white! can you remove this wall?) is welcome by me.
15
@mike - you do realize that iBuyers charge more than traditional brokers right? Opendoor's stated "fee" is 7-13%. This is on top of a price that is below an openly marketed sales price - effectively the "sell it now" price. Most brokers charge 2.5-6% depending on the conditions of the sale. So sellers utilizing iBuyers will get less for their house and pay 3x the fees.
6
@Pookie
Except that with Opendoor, Zillow, etc., you don't have to spend any money "fixing up" your house to sell and look pretty, you don't have to pay for a professional photographer to take pictures, and you don't have to pay for staging. So yes, up front their fee might be more, but by the time you add it all up in black and white, you're coming out ahead with the iBuyer process, and it's a guaranteed, all-cash sale.
No open houses, no random showings, no having to keep the house spotless, no inconveniences. In a world where the only thing that truly matters is TIME, the iBuying services will do well. Indeed they will.
2
Well, let's see. Zillow's zestimate currently rates my house at a value of under 300,000. If I put it on the market tomorrow for 600,000 I would have a bidding war. A few years ago I bought a bank repo for thirty percent under value because the bank was using an out of town broker who just crunched numbers and never actually visited the property, not realizing that properties on one side of the street were much more valuable. They may eventually get the algorithms right, but real estate is very local at a micro level, and who wants to be a part of that particular beta test?
10
@runaway - you're absolutely right. real estate is not a commodity. Every parcel is unique. Right now iBuyers are offering discounted offer prices and high fees. This is already changing. There are more iBuyers in the market bidding up the offer prices and now agents are partnering with investors to offer the same idea. A marketed price (with commissions) and a cash offer price with lower fees than the iBuyers can do. Real estate markets are pretty capital efficient on the investment side. The margins are going to get squeezed very quickly. To a point where the return to the capital will not justify the risk and the iBuyer craze will end.
This is baloney. Zillow isn’t “instant buying”. What Zillow does is pull the veil out from over the MLS and allow anyone and everyone access to the realty market listings without having to commit to a realtor just to see what’s on the market or get prices of what has previously sold. It adds full transparency to what was a very non-transparent market controlled by a small cadre of realtors. And by the way, if your interested in a property, Zillow links you to a realtor.
7
@KJ Zillow poaches the data from MLS and sells the leads it receives back to local realtors, who area *already* paying substantial fees to be a part of the MLS system.
@KJ
That link to a Realtor costs the Realtor a fee. They pay Zillow to have their name appear next to a listing.
As for the veil over the MLS, it is Zillow who is adding to the confusion and profit making. You can get the very same unadulterated information on Realtor. com and it will be more accurate, and free.
1
@Teutonic Pretty amazing to defend the MLS (which is a non-transparent market) yet degrade an online listing service that is free to the public. The MLS was nothing more than a veil to protect 5% commissions to realtors. Glad to see it (and someday them) go.
6
"Now they are coming straight for the real estate transaction itself through “instant buying,” in which companies buy homes, perform some light maintenance and put them back on the market."
This is called "house flipping".
5
Aren't you glad that we fixed that little housing problem that caused a little problem in 2008?
This is capitalism, people: it's profit first, always. Externalities? Who cares? Money, money, money.
The good news is that if we don't commit species or civilizational suicide, our grandkids can look forward to a wonderful future in which they hang on meathooks and purchase things on screens via eye-movements--or even brain implants.
Can you imagine the convenience? Why move around under your own power when you can hang on a meat hook? Why do anything but consume nonstop? I mean, there'll be no work for non robots anymore.
Where will the income come from for the purchases? Don't be so naive!
"No, really: where will effective demand come from in a post-work world?"
"You are clearly a Russian agent. I'm done."
And so on.
3
Buying or selling real estate is a fools errand for which one does not need an agent or a lawyer, but for which there should be stringent regulations. There aren't any of those regulations so people feel the need to protect themselves with agents and lawyers, middlemen who nothing other than drive up costs.
4
@matty Nope. Agents pre-approve potential buyers, but maybe you enjoy letting strangers walk all over your house to case it. And if there is a hidden issue the buyer is stuck with, lawyers will become a necessity quickly.
3
@matty
There are plenty of regulations, Try to buy a house in Haiti if you think the USA has no regulations. Buying a house in the USA is easy.
If this comes to fruition, sellers and buyers must insist on no more payment to app than 1500 dollars.
Last Sunday, my sister and I went to an “open house.” It turned out to be an Opendoor property. After repeated attempts (and a lot of cussing) to gain access, we gave up. The app just kept asking for my email, phone number, and address. No doubt I’ m now on some list. Not a good business model.
4
@Kb
What? Do you mean to say there was no one at the house to let you in the door? Why would a property owner allow strangers to enter their house unsupervised or unidentified?
4
This is basically going to turn flipping and speculation over to an algorithm. What could possibly go wrong?
4
Its an arduous enough task just to speak to a human in order to correct billing error from my mobile phone carrier. Why on earth would anyone buy a house through an App? Come on 28-40 year olds are you that afraid to talk to somebody?!
15
Not sure what area of employment the divorcees and empty nester moms in my neighborhood will gravitate to if this catches on.
6
Have we completely forgotten how well all this "streamlining" worked for Your Home Direct/Foxtons?
3
aah, those new Silicon values making America great for yet another oligarchy. Streamlining - that’s the thing! Let’s use Uber doctors and dentists, Uber lawyers, Uber accountants, Uber pilots, Uber insurance brokers...iSell, iWin, i i i. So catchy, so personalized, so easy. Good for America?
6
First the came for your data. Now they come for your house.
6
The process of selling or buying a house is complicated because the pre-internet world could not verify or obtain basic information in order to create what a court would deem a "fair contract."
Those days are gone. Real estate agents should be gone too.
12
@Sequel
I have bought many, many houses over my lifetime, and I bought from an owner if I could.
I always sold every house by myself without any problems. I made money on each house.
Too many folks are afraid to sell their own houses, they think it is too complicated, not true. (I am not a trained real estate sales person) It is easy to do.
The mortgage companies are expensive for no reason than they want to make a quick buck. Middlemen/women are what always costs more.
3
The real estate industry is based on a near monoply on the MLS,and a strict adherence to protecting and maintaining the present commission structure.
Once a house goes under contract, both buyer’s and seller’s agents pressure their clents to get past the contractural deadlines so that backing out of a sale is discouraged and the process can enter escrow. This applies to both a seller’s and a buyer’s market: in a seller’s market the opportunity for the clent to find another buyer is very good, but a sure commission is delayed. So, buyers are asked to waive important due diligence opportunities. In a buyer’s market, buyers are pressured to keep the deal alive by capitulating to unreasonable concessions also motivated by the the possibility of losing the bloated commission that arrives at closing.
This may be the “free market” at woek in it’s purest form, except for the fact that fat commissions await both realtors in a realitively short time frame with unpublicized but tacit cooperation in moving clients to the finish line against their best interest.
Its time for the opaque analogue real estate model be disrupted and dismantled.
17
@tim s.
You are just misinformed. i was a Realtor.
Commissions are the wages that pay a real estate agent's bills and feeds their kids. Federal tax law mandates that 90% of a real estate agent's compensation be in the form of commissions. Of course they want to preserve the sale and prevent it from failing. The commission for the sale of a house is negotiated and set between the seller and the seller's agent before the house in put on the market and listed in the MLS. Buyer's agents, the agents who represent a home buyer, share the commission with the other agent representing the seller. The commission is already set before the buyer even sees that a property is for sale.
2
@Aristotle Gluteus Maximus,
Any realtor would try to protect their own interests first and foremost. They do their sales fast and furious, without appearing so.
It is all about getting the american dollar, always. And the Real estate industry spends billions on the control of the laws by lobbying for changes to help them, not customers. Think, Used Car Sales person.
5
@M. Henry
You're just repeating the same ole anti-realtor mythology with little basis in fact or are basing your opinion on a few bad operators. By law, it is actually articulated in state's real estate law, the real estate agent must first look after the interests of their clients.
3
I think the bulk of these comments are naïve. I work in a business closely associated to the r/e industry and yes, there are flakes in every field, but the bulk of agents in NYC work 60+ hours a week, live from sale to sale hoping the next one comes sooner rather than later and if you think that all of them, even in NY, make $200k+ a year you are sadly mistaken. Bear in mind that a 700 square foot apartment in Manhattan costs $4000/month to rent so that kind of income is barely covering expenses, especially when the buyers expect to be taken for lunch, driven around in a cab or Uber etc. Everyone thinks that selling their own home is easy. Bottom line, you're wrong. It is long and exhaustive work for these agents, you just don't see it. They work with no benefits, no paid vacation, no insurance. They only get paid when the sale closes. How many of the folks who have made some fairly uneducated comments feel about those working conditions? Could the industry do with some change? Yes, likely so, but to assume that being an agent is some how a cushy job, think again, these folks are some of the hardest working people I know. And if you don't know any agents like this, keep looking. There are great agents in every market. And when you choose your coworker's best friend's aunt's cousin to be the agent without doing any homework, you get what you pay for.
16
@Allan
The NAR (National Association of Realtors) studies this kind of stuff frequently. They determined that the vast number, a majority, of real estate agents in the country work for what amounts to less than minimum wage. I don't remember the exact percentage. It's like 80-90 percent.
1
Everyone’s job is arduous and underpaid. But only Real Estate agents get to Bill a percentage of your assets instead of a hourly fee.
5
@Allan
It's not a cushy job, but it's also not a job that delivers much value to the buyers or sellers. Brokers are essentially middlemen who collect $60K on a $1MM sale in NYC for showing the apartment at a few open houses and maybe giving advice about the price. The hourly rate on that work is astronomical. Brokers are incentivized to close sales and much of their work goes into finding and closing the next transaction.
In my experience, the lawyers really run the show and are empowered to intercede on real problems. Meanwhile, the brokers show the apartment and rush to the next one.
6
Only the well financed will be able to buy a house online and their buying transactions are usually completed quickly anyway. Getting financing is the major factor that causes home sales to fall through.
You can bet a million dollars that Zillow is using a separate very secret set of data to feed their algorithms for buying properties. They are universally known for inflating the prices of properties on their websites. They are, after all, a media company. They take real estate data and repackage it with tricks and appealing gimmicks and turn around and sell it to Realtors to help them market their client's homes. This is just one more gimmick to make them more money.
6
Did anyone see mention of the homes being inspected before the sale? They mentioned the woman in the article uploading a few pictures and getting the offer.
So, Silicon Valley's going to be looking to "disrupt" another market. How long will it take for people with the hidden defects to find out they can dump their home quickly and leave it to these new buying machines to deal with the repair?
6
@b Fagan
They did mention that price offers are contingent on a home inspection.
4
To be completely honest, I have not met a real estate agent or had one work on my behalf for the past 30 years that added any value other than negative value. Confusion, power games, "going to a conference" right after listing. The sooner these folks find other types of work, the better. It would help reduce the cost of housing enormously. Come on, you know it's true.
19
@Dennis - I had a great experience with mine. I've bought just once, and she'd done research after listening to what I was looking for. Of course, it might be easier here in Chicago since they build enough homes to go around.
California seems to go on the concept of musical chairs - don't build enough homes, so people have to fight over what's available. You might want to consider that prices often are affected by drastic imbalance between supply and demand. Not enough homes (or too many Californians).
1
Zillow is encouraging sellers to sell their houses in a manner, without exposure or competition, that neither Zillow nor any intelligent owner/investor would sell a property; homeowners need education, not to be taken advantage of.
7
This will enable speculators with deep pockets to go in and vacuum up homes quickly and easily in a hot market and then flip them for short cycle returns.
Seriously... the real estate industry needs reforms to bring it out of the stone age ... but this will simply replace local realtors with either Banks, or LLCs composed of wealthy investors, that are effectively land barons looking to churn the market for profit. Yes.. that is what realtors do as well.. but making it push-button turn-key is just turbo charging the abuse of the markets. And cross coupling between the iBuying/iSelling services and mortgage companies will become more intertwined then it is today between realtors, escrow companies, insurance companies, and mortgage lenders.
And if they run this on debt in the background... we could see 2008 all over again if it proliferates widely and uncontrolled.
The whole scheme will pull home ownership further away from the average home buyer.
6
Hasn't the real estate industry been heading this way anyway? Like everything "new" I'm sure it will take time to work out the bugs. Where I live there must be over 1000 "real estate agents" in a 10 mile radios, all running after the same piece of the pie. Some are good, some are bad .. The newest money maker seems to be "staging homes" everyone wants their homes to look like lifestyles of the rich and famous .. So there is a huge new group doing just that... It's all a scam.
2
@Aaron
You are just out of touch. They have been staging homes for more than a decade in my market.
2
@Aristotle Gluteus Maximus
Not on the commercial industrial scale it is now. Now Amazon is involved and Wayfarer .. Everyone and their Aunt wants to stage homes.
@Aaron
It's another marketing scam to make money for whoever is willing or can be tricked into paying it. The real estate industry, or rather residential real estate, is rife with schemes to make money from everyone possible, including the realtors who are convinced they have to use this or that selling tactic. They pay hundreds of dollars to motivational speakers that guarantee their sales will increase if they follow the latest method.
1
There's a huge risk. To the career of real estate agent. Of course the high end homes will still use realtors, but the job market will be smaller.
1
@mons Good. Get rid of realtors. They are useless.
2
These apps are driving up market prices and manipulating the housing market in other ways.
4
Just an FYI from a former real estate broker of 25 plus years. The commission is not ever set in stone. Don't let anyone tell you so. Negotiate this fee- as most real estate agents, and their bosses, (the Broker) are agreeable to negotiation. If they are not, simply move on.
13
There is no way these companies are going to be profitable when market goes south. They are Buying overpriced homes now at market value. With a downturn, they could easily lose 60K to 100K on every single transaction. Its not going to be pretty and they are going to crash market by dumping these properties at fire sale when they go bankrupt. Hey, Thanks at least for renovating them
3
@Dixieland Do you really think these are "renovations"?
3
Realtors individually perform a reasonable service, but collectively their interests are best served by rising housing prices. They, as much as banks, are responsible for housing bubbles. Fewer realtors will mean better, more responsible pricing.
3
Now if someone can only break the monopoly of local realtors. From what I can see, they are all in cahoots together via their "multi-list" services, and they all charge the same percentage as a fee.
3
The house buying and selling process is undoubtedly archaic and designed to pay a lot of money to lawyers, banks, municipalities, and realtors for very little if any value added activities in the transaction
As an angel investor, I’m looking for the start-up that disrupts the process.
The companies you describe are merely trying to create the groupon of real estate. Ain’t going to work given this is the biggest purchase people make
1
Oh, I don't think so. I'm risking a couple of hundred dollars on this? No, no, no.
3
I'm open to new ideas. Who thought rent-a-scooters would actually prove useful when first introduced? At the same time, digitizing housing transactions seems like a really bad idea.
There's the obvious concern of too much housing stock getting consolidated under one business. They could easily find themselves deep underwater with we don't know what consequences.
The practice of flipping is a scam in general. The housing market wasn't intended for rapid inventory turnover. That's not how the laws and consumer protections were written. You're not supposed to turn a profit on owning a house for 90 days or less. At best, you're inflating housing prices with superficial repairs and unwarranted transaction costs.
The thing that gets me though is the "razor-thin margin" line. I don't buy it. Not in perpetuity. If you're going around buying up housing in hurry, eventually you're going end with an inventory worth speculating on. Maybe not everywhere but somewhere.
You might end up buying up aging inventory but decide the property is worth more than the housing built on it. That's the nature of real estate. Valuable land doesn't depreciate. Are you really just going to flip the property in 90 days? I doubt it.
You do what most property owners do. You rent the building until the unit is fully depreciated, tear it down, and build a brand new unit to either rent or sell at the new appreciated value. Depending on the area, this process can take decades. Look at New York.
6
I have never--I say again, never--had a transaction with a realtor where they put my interests over their own. Sure, there are rare exceptions, but in my experiences in two states every one of the more than half-dozen realtors with whom I dealt didn't push on [x] detail I wanted looked into or did a shoddy job of it; or low-balled [y] repair cost to make the selling price look more attractive to me; or they didn't do a particular task, so that I had to take time away from my job to do it; or cleverly misrepresented or flat-out lied about a material aspect of the transaction--such as whether an upgrade was feasible under the code, whether the house could be used as advertised, certain environmental restrictions might limit use of the property in a way that was central to my vision of how I wanted to develop it, etc. Realtors are interested in the quickest sale they can generate with the least amount of time invested--and to the devil with their clients' interests. And like the worst lawyers, they see ethical constraints as fence lines with foot-bridges built into the top rail, and devote more thought to how efficiently they can tread that line than to how to serve their clients. I say, 'good riddance to the lot of them,' and look forward to an industry run by highly trained, comprehensive inspectors who are paid an hourly wage and must address a mandatory list of concerns at peril of losing their licenses.
38
@J Young It is not your realtor's job to get bids on work you want done or to research whether upgrades you are considering meet city/county/environmental codes. The inspection report tells you what needs work, then it is up to you to bring in the electricians, plumbers, carpenters, and so on for their bids. I just sold my home and the buyers used the two-week due diligence period to get a handle on how much their upgrades would cost and if they met code. A realtor's job is to match buyers and sellers. CAREER agents (not housewives who dabble in for fun money) have an extensive contact list of other agents, past clients, and more. They leverage that network to shake out prospects for you. I have been very happy with the realtors I have used over the years.
6
Of course, parasitic real estate agents will be against this step into the modern age. Most do very little to earn their commissions. I’m sure there will still be a way for buyers and sellers that prefer or require the services and expertise of an agent to continue to do so. But the vast majority of real estate transactions can be made more efficient and less costly through this change.
9
Oh, good luck with that. Millennials can do a lot of things with apps and data because they have no stakes or savings or really anything of value yet. Once you have some bad experiences under your belt, savings you wish to protect and a family to keep safe, trusting apps and data become far more uncomfortable.
13
You do realize some millennials are approaching 40? I'm smack dab in middle of the millennial generation, am married, have two kids, and own two homes. Millennials are definitely old enough to have things of value and have had bad experiences. You're thinking of gen z who are currently ~24-25 at the oldest.
1
Ms. Cagnetto sold to Zillow and essentially paid them a buyers agent commission of about 3%. In her case, if the market valuation from the realtor was accurate, it was a good move.
I buy and sell homes in my local area using a flat fee MLS listing service. For 1k at closing, I get access to my local MLS service and I offer BUYERS agents 2.5% to bring the buyer. Have fun with this. Take your own photos, build your own copy for the MLS ad and have the agents call you directly with questions. If you are unsure of value, hire an appraiser for $400 to provide a current market valuation, then add 5%- 10% depending on your local market. Remember, appraisals work well with data from the past. In a competitive increasing market, appraisals don’t forecast value nearly as well, they only illustrate past value. Pick a local Title Company that you like and run your transactions through them. Works like a charm.
12
I recently had occasion to sell 2 homes in NY metro area. I notice that many commenters mentioned the six percent commission as if it is written in stone. In fact, neither transaction had a 6% broker fee. No prospective broker even asked for 6%. Is that number now obsolete in the NY metro area?
3
There goes the neighborhood. To think that Zillow, or any other big-tech, is altruistic and will act in the best interest of either buyers or sellers is preposterous. Real estate agents are trained professionals who provide client advocacy and real market data, not just ease and algorithmically ginned-up numbers. Imagine trusting Facebook to buy or sell you a home. Class-action lawyers are salivating.
22
Client advocacy?!?! You’re kidding, right?
3
Some buyers can benefit from using a realtor. The first house I bought was in a city I didn't know. I had a brand new baby with me. The realtor drove me in her car while baby and I rode in the back, me exhausted and crying, the baby nursing cheerfully. She asked what our priorities were. She drove us around the city, she talked about school districts, showed us where to shop for groceries and go out to eat. Then she took us to the house in the neighborhood she thought would be best for us, and she was right. After seeing many more houses that was the one I chose. My family and I were very happy there for many years. I couldn't have done it without her. She earned her 6%.
84
@Bet
Bret, she would be splitting the 6% with the selling agent (btw, my home sale in CA was a 5% commission-which seems pretty standard).
I agree with your point though that you really should get out and "kick the tires" when making a home purchase. There's only so much you can learn looking at photo galleries and doing on-line research. I made several flights with to the puget sound area for house hunting with an agent and it was worth the effort in the end.
A good selling agent can also be invaluable and earn their commissions. I had an older home to sell and the selling team effectively project managed--with a team of contractors they had dealt with for years--repairs that I never could have accomplished. It made the home sell quickly for a better price and I believe made disclosures on the home's condition more accurate--which I think helped protect me.
16
@Bet As the buyer, you didn’t pay her 6 percent. You didn’t pay her a dime. The seller did. It was their money not yours.
8
@Cali Life
Sort of...but the seller the tacked that cost onto the final price so really she did contribute.
5
Forget instant flipping, what we really need is a universal, online directory of homes for sale accessible to everyone selling and buying a home to replace the Multilist monopoly.
The whole process of paying realtors (who largely do nothing), and then title companies is out dated and unnecessary.
I don't know why there isn't a suitable DIY option for nominal fees.
52
@Gofry
Amen, brother (or sister). If ever there were an industry that needs disruption, it's the residential real estate cabal. It continues to exist only because of the antiquated MLS system, which monopolizes information and enables unnecessary middlemen who add little to no value to rake off a healthy slice of homeowner equity in every transaction for doing little but dress up and drive buyers around in the back of their Mercedes.
Liberate the listing information, let buyers review all prospective properties in detail on line, then allow facilitators to show buyers homes of interest for a set, reasonable fee. Buyer and seller can negotiate price directly online, and title, escrow and closing can easily be moved online as well. If either party needs hand holding, again, a facilitator can assist for a reasonable fee. Amazon, where are you when we need you.
8
@Gofry Perhaps you have made very poor choices in Realtors? I have been a Realtor for over 30 years and I earn every penny. I take my career very seriously and care for my Buyers/Sellers every need in this regard.
Review the the process of this IBuying and Selling....they are more expensive than just a 6% commission.
Don't be naive.
12
@Gofry
there is a DYI option - look at all those "for sale by owner" signs that you see and you see getting older and older as the owner doesn't sell his house.
5
Does anybody actually believe that these companies are doing this to make the home buying process more efficient? Well, they are not. Just like every other tech company that claims to be saving the earth, these companies are doing this to make money. With venture funding, these companies will be able to operate at huge losses, which will allow them to buy up all the homes they want, even if they are overpriced, and then sell them at even more inflated prices. Another housing bubble? Nah, only if the venture funding dries up.
51
@Mateo To be clear, these companies absolutely acknowledge they expect to make money -- that's certainly the pitch they're making to their investors. They argue they will be able to make money by making the process more efficient, and therefore it will be a "win-win" for everyone. Whether you believe them, of course, is up to you.
12
@Benjamin Casselman A company would never pitch investors with a promise to never make money. A founder might pitch investors with a promise to make money, but they know deep down that founders still become billionaires with their money losing companies IPO. Although they will never admit it, that is their ultimate goal. Unfortunately these "real estate" companies have the power to make homes even more unaffordable than they already are. How's that for changing the world?
6
@Mateo I agree with you, but let's take it a step further. "Venture Capital" is just numbers on a screen baby. This will only last as long as the US Dollar does, or however long our computers stay on. Tick tock.
"The question no one can yet answer is what will happen to iBuyers — and iBuying — when the housing market inevitably cools, leaving companies holding thousands of homes that are worth less than they thought."
I can answer this. The answer is - the government will step in and make all the iBuyers whole at taxpayer expense. Zillow is too big to fail.
19
@Richard
Paying cash as it sounds Zillow does, likely won’t provide government backup. Cash is not the same as a Freddie Mac or Fannie Mae loan.
1
@Richard I'm glad at least one other person in the comments sees through this smoke screen to the real issue here. Thanks for posting.
remember, Uber is a middle man that takes a 30% or more cut of a service provided by one person to another. Sure it provides some service, but it far, far from a tech platform that allows people to connect with other people.
Now these tech folks want to create a ownership middle man for real estate, and I am sure that they are going to be much more expensive that a real estate agent connecting two principals in a home sale. The internet, far from killing middlemen (remember those promises?) is being used to keep buyers and seller apart and force them to use high tech intermediary middlemen. This move into real estate should be blocked.
12
@John
Zillow in this case is not a middleman--it's buying the homes for its own account. Zillow is becoming a principal--not an agent.
3
This barrier to buying and selling real estate is ready to be broken!
...not only because of the outdated commission structure but because the two real estate agents involved (buyer’s and seller’s) are obstacles to the free flow of information just as often as they facilitate— because they have their own set of incentives that do not align with their clients’ interests: the buyer-agent commission being higher if the buyer pays more (when the buyer wants to pay less) and concern for their reputation among fellow agents (when a client wants to negotiate aggressively).
Like buying a new car, buying or selling a house always leaves you feeling taken advantage of.
28
@Holly Gardner
Agree. The commission for both the buyer's agent and the seller's agent come out of the home seller's hide. The agents don't really represent either party. They represent the transaction and the close, upon which they are paid.
10
A fun experience with the Zillow algorithm: We were looking for a new house in our town and using Zillow to just get a rough idea of prices and such. There is a Frank Lloyd Wright house nearby. It's not for sale, but I was curious to see what Zillow had it priced at. "1.5 baths, 1950 square feet, built in 1955." $285,000. Yeah, I'd buy a Frank Lloyd Wright house for that. I know that an algorithm doesn't factor in historical or architectural significance like this rare case, but I did find it to be amusing.
31
@Mr. SeaMonkey This is a fun example of something that's definitely a real challenge for these companies. The value of real estate is about more than square footage -- it's also about aesthetics, history, emotion. Algorithms will get better at capturing some of that, but it will be a long while before the process is totally automated.
12
@Mr. SeaMonkey
Zactly. Zillow is a tool, sometimes a blunt tool. Do your own research from a variety of sources. Well done.
3
Capitalism - that’s how it works. If enough folks are willing to do this, it’ll happen. Oh the unintended consequences to come. Popcorn time.
9
It is about time that Technology shakes up the RE industry. I have never understood why RE agents charge a 6% commission on a $250,000 home and they want the same exact commission on a $500,000 or a $1 ,000,000 home. It takes the same amount of effort, so why charge more. A flat fee makes better sense.
102
@Rod Totally agree and another benefit would be that the real estate agent would not pressure the buyer into purchasing the most expensive house available!
8
@Rod
How many times does a realtor have to go out to a house with a client? How many open houses? How many hours? Let's have a few facts.
3
@Rod
Try being a Realtor for one month....you'll be singing a different tune.
4
Will there be risk with the first "digital home sales"? Of course there will be. There will be kinks to work out.
But should you train to be a real estate broker next month? NO NO NO NO. That profession is soon to take a dive.
Remember taxis? The reason Uber was so successful in replacing them was that there were cities like New York where the price of a "taxi medallion," which gives you the right to pick up a street fare, had risen to more than $1 Million. These Medallions were owned by doctors, lawyers, and other investors and money people who exerted pressure on politicians to keep the supply low.
Donald Trump and Michael Cohen were both medallion owners. The market was ripe for disruption.
Enter Uber -- and the price of a medallion is now insolvent. People borrowed to buy them, sometimes dozens of them, and the Medallions are now all under water.
The same fate will befell Real Estate Brokers. They once charged 6% of the cost of sale, which made sense when homes cost $100,000 and real estate brokers made $6,000 for a week's work. But homes in NY and California can run $1 Million or more. And there is no way the broker is doing ten times as much work to earn a $60K commission.
These electronic markets will come quickly and brokers will once again earn a salary commensurate with a modestly trained sales person.
And if you are selling a home, you will once again be offering about $6,000 to close the deal -- a reasonable fee.
23
@Ben Have you given any thought to why the Taxi Lobby allowed Uber and Lyft to be pushed through? It effectively killed the industry. I wonder what happened to these debts?
If it can be done, it will be done. Real estate with its absurd 6% commission will be disrupted by tech. Next on the list: the overpriced and bloated Higher Education industry.
36
A horrible idea. Scammers flipping houses on the internet sounds like a recipe to make the Republican crash of 2008 look like a minor blip.
15
@John
The crash of 2008 was not the fault of Republicans. It was the Federal Reserve's drastic lowering of interest rates in the early 2000's that set the stage for the crash. Paul Krugman, hardly a Republican, spent the early 2000's denying the cancerous housing bubble. Without Dr. Krugman's cheerleading of the Fed perhaps fiscal conservatives like Ron Paul might have been heard and the ensuing disaster may well have been avoided.
7
@Rachael
Blame the banks and mortgage industry (and people's greed). You know it was not Paul Krugman's fault. If he had that much power we would be free of the mistake in the White House.
3
@RachaeInteresting pretzel logic. Banking deregulation essentially caused the Great Recession. No one person, ie Krugman, had any sway over the outcome. Kool Aid anyone?
2
Good - I'd prefer not to pay someone 6% to effectively unlock the front door for me and hand off the key.
Most real estate agents I've known do it as a job to stay busy after retiring or making their money elsewhere early-on.
Easy cash for not a lot of work. They're literally just looking at the same online listing sites as I do at home.
Not sure why that entitles them to 6%
80
@Nick
The 6% dates back to the days before the Internet, when it included marketing (picture in their window, potential buyers, ...).
Now everyone uses Zillow, Trulia, ... but commissions have stayed the same.
37
@Anne Zillow and Trulia are third party sites that pull their info from realtors listings on MLS. We pay for MLS and and we provide the listing information and pay for the pictures. We do not get 6%. The seller pays 6% and we split that between the buyers agent. So we get 3% commission. Then we split the 3% with our broker. When we help buyers they pay $0 for our services and sometimes we spend months driving them around showing them properties. Occasionally the deal falls through and we make nothing after all for the time spent helping the client. Other times we can be cut out of the deal bc of companies like REX. We have families and bills as well, should we work for free? I live in a city where several people move here from out of state and have no idea about the different areas of town. I not only educate them on the neighborhoods, but I negotiate the price for them based on comps I pull so that they don’t over pay. I’ve saved clients thousands helping them. And again, my services for buyers are 100% free to use. When helping sellers we market, negotiate repairs, and get their home sold as quickly as possible so it doesn’t cost the seller even more while it sits on the market. Then when the seller is ready to buy their next home, they pay nothing for our services.
13
@Steph
LOL. Almost everything you say you offer for free can be done online and/or by the individual seller for free, themselves. Face it, the racket of 6% commissions is coming to an end. This is the beginning of that end. Might want to start looking into another career before it's too late.
I would LOVE to sell my house to Zillow or Redfin rather than dealing with a realtor.
11
This is long overdue.
The transaction cost of buying and selling a house is so high that making up for the cost of a realtor in appreciation is difficult.
With smart locks and an App that makes sure visitors are legit, a lot of the work can be done by ourselves.
All the experts (legal, home inspection, ..) could be tied into the App’s flow too.
27
Anyone who has bought or sold a house knows that the whole process—where the buyer and seller are financial roadkill and the realtors and title companies (which are often owned by the realtors) and mortgage companies and so called “house inspectors” and others are the crows stripping fees and charges and commissions and percentages and title insurance and other sums from the poor buyer and seller. Let’s hope an Uber/Lyft model does away with the current one.
23
@ehillesum
You're right about Title Companies. Their fees are exorbitant, related to their costs -- title searches have become so much simpler to do -- and their risks -- how many payouts do they suffer due to bad titles?
7
As long as these companies follow the rules and adequate laws protecting individual consumers are enforced and written, there should be no legal justification to stop this. Hey, it’s a free country. Now if we could only get states like Texas to allow companies like Tesla to sell directly without car dealers, instead of imposing their antiquated laws upon consumers. I do appreciate the risk of job loss in the pressure on real estate agents and car dealers, but protectionism won’t solve that. Society does need to do more to help people develop alternate career paths and protect the wages of the jobs that we do need to maintain.
1
Here is the future being put in motion: Between the internet, a home inspector, and an attorney, I'm already 90% of the way there. I've found the property, I know what it's worth. What I need is a real estate agent in the form of a buyers advocate, who, for a price more reasonable than what the attorney will charge me, can coordinate all the details. Also worth noting is that even though attorneys are waived from having to take the real estate license exam, when they do, many of them don't pass it. Good to have a knowledgeable real estate agent on board, but nowhere in this do I see a role for a salesperson taking 6%.
The future is paying a fee to an agent who is trying to protect you and get you a lower price, not rewarding a salesperson who is trying to negotiate the highest price possible.
7
@Peter
What most of these comments allude to, is the one person is receiving a 6% commission. This is incorrect. The listing agent gets at best 3% and the Buyer's Agent most always earns 3%. You may think all real estate agents are equal, but a good one is invaluable.
16
Keep in mind that there is often more than one agent from the listing agency working on a sale. When I bought my present home, two agents worked for the listing agency and two worked on my behalf to sell my previous home and make an offer on the new house. So the commission was split several ways. It's not one person earning $30k on the sale of a $500,000 house. It's an agency, or maybe two, splitting up the commissions.
That said, it is probably time to update the old real estate model, in particular things like title insurance. Why we repeatedly have to pay for title searches when previous searches of a given property have all proven clean titles is a mystery to me. That could be accomplished by the seller simply by searchjng an online data base, a task that would take maybe an hour.
And some states had regulations on the books that no competitive offers could be entertained for up to 72 hours while a seller was considering an offer. That is just plain ridiculous.
3
@C Piecoup
Also expenses for their marketing, rent, advertising and other expenses are deducted from the fee
1
I bought my current home directly from the seller. In California, the process is fairly standardized and not that hard if you know what you are doing. In my opinion, real estate agents still perform a valuable service however they should be paid on a fee and not a commission basis. It take no more effort to sell a $500K home than it does a $1M home yet an agent would make 2x the commission. This makes absolutely no sense. Sellers are becoming more savvy and will continue to do so in the future.
18
@Dersh. Yes and no. You are going to have a smaller list of potential buyers with a million dollar home than half a million. The house will, usually, be on the market longer and, if you have a good agent, require more hustling on their part
2
A good agent will (mostly) earn their commission. Same with a lender. And I'm not just talking about price, but negotiated intangibles, like a free month of rent buyback or the lender calling the seller to reassure them about your loan. You'll get more, but pay more.
Is an algorithm or a distant person in a cubicle better than a bad agent, or a bad lender? Probably. You'll get less, but pay less.
3
@Joshua. The biggest problem is that there is often no relationship between what the home seller or buyer receives and what they must pay.
4
It has long been my belief that the inflation in housing costs is driven in large part by realtors.
Sell a home, and see the 6% (or more) commission be added to the "value" of the home when next it sells. After all, the buyer paid X thousand dollars for the house, right? And when he turns around and sells, that is his cost basis (which includes the commission that was taken out of that price when he bough) and he has to add at least 6% to that to pay his realtor. Doesn't take too many flips to see that 20-30% of the price (or more) is nothing but realtor commissions on past sales - with no value added to the home.
Typical marketing ploy: add no real value, but increase the cost to the consumer.
28
There are, apparently, people who buy cars that are delivered to their door, so why not a house?
Well, maybe because a house isn’t quite the same kind of commodity as a car. We have a 63 year old house and a second home that’s 119. It’s the details that matter, when I repair things, hire someone, or if we were selling. I know what the houses need and whether I can do it or if it needs professional help. These both demand knowledge.
Zillow can not possibly do the detailed look that most houses really need, so buyers are incredibly vulnerable. In most houses, there are invariably things that show up a year or so after the papers are passed. So the buyer still winds up on the hook—unless they are only staying a year or three.
Where this Zillow model can work —maybe— is with condos in relatively new buildings. Those are more like commodities (or slightly used cars). They are vanilla and more or less interchangeable with adjoining units. Ditto for the boring cookie-cutter houses in countless developments: not much different than getting an off-lease Camry. And the buyer won’t be there long, anyway.
A reduced-pain transaction is a good thing for buyers, and a streamlined way to buy and sell property has its appeal. But the market for it, and the value, is a few years off, and will always be limited.
8
Pretty soon, we'll have one-click elections as well, one-click marriages and divorces. But kids - that cannot be one-click.
4
Real estate is a cartel ripe for disrupting. I watched a network doc about how they colluded with corrupt state legislators to pass laws against new entrants undercutting their ridiculous percentage takes. I don’t recall my plumber charging me for work based on the value of my home. Their business model is based on exclusive access to the MBR. That’s what allows they to charge tens of thousands of dollars for work everyone else bills by the hour.
17
The problem with real estate agents is that their incentives are only partially aligned with those of the seller. The agent traditionally gets full commission for selling a house at the market price, or even below the market price. And they get a percentage of every dollar the seller spends, if that spending caused the selling price to be higher.
I suggest using Zillow Offers to establish a baseline price for the property. Then find a good agent, and make a deal: their commission will be 1% for every dollar of the eventual sales price up to the baseline price, but the commission will escalate for every marginal dollar above that baseline. And if the agent recommends, say, $20,000 in repairs before listing the property, add that to the baseline price.
This escalating commission scheme attempts to address that problem.
2
@TMB
Zillow is not a realtor. They buy the home.
It’s about time. 5 and 6 pct. commissions are redic. That agents have been able to retain this structure,this long. speaks well to their skills in sales and marketing. Until buyers are comfortable shopping on line without an agents support, the game will play on.
16
Most of the big real estate companies already have gone digital. The absolutely hardest part of selling a home (which I did recently) is preparing it to be shown. This is back-breaking work and we found that having a "stager" was invaluable in both disposing of years of accumulated items and arranging the rooms to look their best. After that, of course, you really need an agent, a person who will show your home to its best effect. A good realtor, as we found out by not having one the first time we listed our home, is essential. Digital may bring in interested buyers, but the agent must make the sale.
9
@Paul Wortman but there's no reason to charge the ridiculous fees. In the UK we paid about 1.5% which is fairly standard and always has been. I could not believe the % that we got charged in the US
6
@Paul Wortman That's the beauty of I-buying: you skip the "back-breaking work" of staging and keeping it spotless for short-notice walkthroughs, and sell it as-is. In my area houses stay on the market an average of 74 days, and that's a long time for someone with kids and dogs to keep things spotless. Like Ms. Cagnetto, I'd gladly forego 1% of the sale price to skip the staging and prepping and sell quickly.
2
@Paul Wortman
I agree with Sandy Beach. I staged my first home beautifully but it was weeks of back-breaking work and arranging care for a 1 and 4 year old to keep them out. Plus storage unit fees and moving over weeks. I don’t want to do it again.
1
With all that I have witnessed over the past decade, the collapse of our economy, the disappearance of job security, the storms and natural disasters destroying homes on a more regular basis than ever, I cannot imagine ever buying a house. I’m sure I’m not alone. Home ownership has got to be in a long term decline.
5
You need a great lawyer to protect your interests and a great engineer to inspect the property. The real estate seller is supposed to negotiate on your behalf but is usually just trying to close the deal so they can get paid...if
You take a little less and the buyer gives a little, then they win- but rarely do they really represent you.
Their fees are diluted between both sides and the corporations that own them...a lot of money for very little service
37
Actually the Real Estate Agent has a fiduciary responsibility to the seller, not the buyer. (At least in my state).
Having bought and sold houses this past year, and at one time owned rentals in Phoenix, I see this as one of those "What could possibly go wrong" situations. Zillow, et. al., may do well for a time in areas like Phoenix, with housing to the horizon broken up every eight blocks by a strip mall. However, a light maintenance regimen (Think: bling hiding serious defects) with a quick turn only works if demand is high. This, as noted, is a strategy with the objective of selling financing. Imagine you have just closed your i-deal, moved in, and then the toilet collapses because of the dry rot under it. And then the mortgage bills start showing up. Every. Month.
13
If done well, it can be a lot of relief for minorities navigating housing discrimination. For all of Uber’s serious warts, one good thing it did for me as a black man was allowed me to request a taxi without the shame and rage from experiencing discrimination. I’d love to have the same experience when buying a home.
145
This is just one more warning sign that we are at the top of an overheated real estate market. Artificially low interest rates have caused real estate prices to skyrocket.
When real estate markets overheat, and homes sell in days if not hours, there is always a wave of new fangled realtor replacement ideas. As soon as the bubble bursts, however, you never hear of them again.
17
Can Zillow introduce me to my new neighbors, or tell me which supermarket has better produce, or get me a plumber when I'm 1,500 miles away? Can Zillow explain the labyrinthine homeowners association rules, or sit with my dog, or take me to lunch? No? Then I'll stick with my agent if it's all the same to you.
33
@Tom
I would say Zillow could indeed tell you:
A good plumber
List nearby supermarkets
Itemized home owners association rules
If you think having them take you out for 4.99 coffee is worth 6% of the purchase price, have fun with all that.
I'd prefer to cut them out and keep my money.
11
Not particularly a fan of Amazon, but you can book a plumber, cleaner, ... from 1,500mi away right now with their Amazon Key smart lock. They can let themselves in.
@Tom
You can literally do all of that online with a few clicks, outside of potentially meeting your new neighbors. However, in all of my experience, I've never had a realtor introduce me to my new future neighbors, nor did my parents with all the moving around we did, so not sure where you think that is commonplace, because its not.
4
No thanks. I'd rather humans be involved with the biggest financial transactions I'll ever make in my life. There's just too much at stake and a bad purchase can literally ruin you.
45
The Zillow offer is reasonable.
It's the "fee" for repairs, holding the property, etc. that are inflated -- as much as 10-11%. Subtracted from the offer.
Stick with a real estate agent.
12
The tech-nerds won’t be happy until all humans are unemployed because robots and computers are running everything. No thanks.
51
@Eugene Debs actually, the first thing i though was "the tech nerds will be happy". Haha. As an IT employee, I see many people develop strong resistance to going outside for any reason. Personally, I try to analog many points of my life, because I feel the lack of non-IT humans in my work. But, yeah, some people will be happy.
4
@Eugene Debs "No thanks". But it isn't a choice. You can't say "No thanks" to something that is inevitable.
At least the realtor maybe lived in the neighborhood you’re buying in. They will not only know the neighborhood but also know all the listings in the area. There won’t be anyone working just on your side as a buyer agent.
Sounds like you are buying from a very well-funded & well-staffed business whose motivations aren’t to get you the best price for your current home but to sell you the mortgage for your next one.
Location Location Location: If I were a seller with a good location I’d be looking for the best realtor in the area with the most listings on my type of home. If my home needs paint - a cheap fix - I may go for the higher price tag the realtor would hang on the house. I’d consider a Zillow or Offerpad type of service if the house needed a lot of upgrades.
When I first heard of these companies I thought they were buying up good locations only. After reading this article as a buyer I’d look suspiciously at a good location listing offered by any of these companies. These houses may just be a pig with lipstick with Zillow or Offerpad supplying the lipstick. Otherwise why wouldn’t the seller seek a higher price? Relo? Illness? Divorce? Bad neighbors? Too much disrepair?
8
In my experience, Zillow's data are *terrible*. Its figures are generated algorithmically, with no accounting for local conditions--and often are wildly wrong. Even their non-predictive information is unreliable. My house, for example, was built roughly 40 years after Zillow says it was.
88
@J
I'm sorry, I disagree. Zillow is Quite accurate. Remember, to do you're own homework. Finding local comps is easy and you don't have to accept the offer
2
I’ve lived in a few states and no real estate transactions are more complicated than in New York. At my last house closing I signed my name literally dozens of times. For protection? Please, nobody knows what all those forms truly mean except that they will (a) absolve anyone else from accountability if something goes wrong; and (b) pay something to the state, the county, the city and every other government unit with jurisdiction over your little clod of earth (or brick). No doubt its so bad in New York that some owners probably stay in their homes because they can’t afford the transactional cost of moving. That’s the definition of a broken process. So, while houses aren’t nearly fungible enough to successfully establish a transparent and liquid trading platform, any pressure designed to make the transaction faster and less complicated is welcomed and long overdue.
41
Fabulous... if it doesn’t lead to monopolistic market price manipulation by a few dominant companies buying vast numbers of houses.
For people like me it can be a godsend. I’ll be leaving my present location in the near future and I’d like to get up an go in short order when the time comes. Not having to roll the dice as to whether my house will be on the market 2 days, 2 weeks, 2 months or 2 years is a huge hurdle removed by this proposal.
Time = money for a lot of us and if I can sell my house “instantly” to get on with my life, I am willing (and able) to take a lower price to have done with it and be on my way, no strings attached!
As I said though, the big worry is future monopoly and all that does to markets!
44
The country is awash in "multi-million dollar" houses whose mortgages are continuously recycled from "owner" to "owner" without ever being paid off.
Making them easier to buy and sell will only speed up the epic disaster that is already knocking at our door.
61
It's just a thing. I should be able to buy it with my pretty face and a double-click ;-).
If you have not figured it out yet, tech's job is to take away your job. Efficiency means less people.
35
I'm all for cutting out real estate agents (mostly just unnecessary salespeople that serve no purpose but to distort the market), but I'm afraid that a lot of the complicated, time-consuming stuff is actually necessary. Most of our housing stock is essentially custom projects, each with a unique history. Very difficult to commoditize.
68
@John Agreed that it's necessary. Disagreed that one needs an agent to navigate the process, much of which can be done for far less money through an attorney who specializes in consumer real estate (along with a qualified title agency). The majority of the paperwork involved in a standard home sale is boilerplate and doesn't require any unusual treatment. The biggest "pressure point" I can think of is a home inspection that produces unexpected -- and hugely expensive to fix -- problems with a given home.
4
As information about house prices proliferate on sites like Zilliow, will housing prices be set by the actual market or by the all-knowing algorithm?
You could easily envision a scenario where Zilliow or another similar company buys a house for one price and then tweaks the house value price on their website in their favor and then they pocket the difference.
23
When all other jobs fail. become a realtor. Have you ever noticed that realtors always seem to have overpaid for their own homes in not thew best part of town but suggest you step up the plate. 6%. That is absurd. "you will just love the closet space". 6%, how about give me the keys and stop talking, heres $75 for your time.
70
A few years ago I would have said this kind of transaction was impossible, or if not impossible incredibly risky. Now it looks not only feasible but desirable.
In any case I’d very much like to avoid the signature marathon at a closing. I bought a new home last year. I may have declared war on Denmark or volunteered for a one way mission to Neptune
35
Real estate salespersons are a holdover from another era - anyone shopping for a home goes straight to the Internet. Technology is driven by its promise of being able to cut out the middle man, and deliver all the profits straight to the top. Even minus the role of companies like Zillow buying things up, one way or another, real estate agents are a thing of the past.
69
@Peter I couldn't disagree more, particularly in earlier settled areas of the country, where homes are older and each plot is unique. This will work for cookie-cutter housing developments and condos in high rises, but for the rest, actually it won't work very well at all.
26
@PWD
What? It’s already a reality here. I bought my 1929 home two years ago and the realtor being there was nothing more than a formality...they assisted with nothing.
51
@Peter, I agree. In the age of internet, why do we need real estate agents at a 5% or more fee? Selling a home today is like selling anything else on the internet, you need a real estate agency only for their google-accessible presence on the internet. Beyond that a flat fee to help with the details of selling is reasonable.
22
Great, some competition to bring down broker fees.
146
Actually the premise of the iBuyer is to drive UP fees to sell your house by offering more convenience (no showings, quick close, all cash, etc)