In April, real estate information company Zillow announced it would begin testing the direct purchase and sale of homes. The move is a new feature of Zillow’s Instant Offers program, which helps connect homeowners with real estate investors willing to purchase their property with cash and skip the process of preparing a home for the market and listing with an agent.
Starting in the Phoenix and Las Vegas markets, the first venture into the direct purchase and sale of real estate expands Zillow’s reach when it comes to being a part of the transaction process ( Orlando, Florida, is also testing Instant Offers, but not direct purchase). Now, not only can Zillow help market a property and help people find a real estate agent, but the company is also connecting sellers with buyers directly and even becoming a player in the transaction.
But Zillow isn’t the only real estate site getting into the direct purchase and sale of houses. National brokerage Redfin has also been dipping its toes into the role of real estate investor with Redfin Now, currently purchasing homes in the San Diego and Inland Empire markets in Southern California. And other online real estate companies like OfferPad have built their businesses around the model of direct purchase from the buyer.
[Read: Why You Should Sell Your Home in 2018.]
For Redfin and Zillow, the relationship with homebuyers and sellers is changing. They’re no longer serving only as a source of information or as your agent; they’re now becoming the individual on the opposite side of the deal as well. And with the goal of investing in a home for profit in mind, a deal directly with a major real estate site can be a risk for both sides, like any investor transaction.
“Real estate companies have rarely smoked their own dope — it’s one thing to say we have an algorithm to tell you how much your home is worth. It’s another thing to buy the home based on that algorithm,” says Glenn Kelman, CEO of Redfin.
Before you opt for an expedited home sale, however, it’s important to understand when it is and isn’t in your best interest.
Sitting at the Other Side of the Table
Kelman says a major concern of delving into real estate investment is the potential to change the relationship between the company and consumer. “We’re being careful because we want to make sure we’re always on the consumer’s side,” he says.
To avoid appearing as competition in the eyes of consumers looking to gain from the sale of their home, both Zillow and Redfin seem to be treading carefully with their purchases, trying not to scam sellers while also avoiding bad investments for themselves.
To do this, the Redfin Now program connects interested homeowners with a Redfin agent at the same time the company appraises the property. Similarly, Zillow Instant Offers connects inquiring homeowners with local real estate agents to determine the difference in sale price should they choose to list with an agent instead of the fast-track sale option. Homeowners can inquire about the program, or they may be contacted if they’ve expressed interest in selling and their home appears to fall in the midlevel value range. At that point, Redfin will send a professional to appraise the property and put together a report. Additionally, a Redfin agent will weigh in on the possible profits from a market sale so the homeowner can compare the two options for selling.
“That choice and that transparency has been really appealing to a lot of consumers,” says Jeremy Wacksman, chief marketing officer for Zillow.
For Mark Stark, CEO of Berkshire Hathaway HomeServices for Arizona, California and Nevada properties, providing multiple options for the homeowner is a key part of moving toward the best possible transaction for both sides. Berkshire Hathaway HomeServices is part of the Zillow experiment, with some experienced sales executives providing their insight and services should the homeowner find listing the property a better scenario.
“When people focus solely on discounts for the consumer, they’re basically trying to speak for the consumer instead of asking the question of what’s most important to you,” Stark says.
[See: The 25 Best Places to Live in the U.S. in 2018.]
When the Market’s Right
The relationship between real estate sites and the consumer isn’t the only factor to consider, but you must also take into account if the market allows for both parties to see a solid profit at the same time. In tight seller’s markets — currently the case for many parts of the U.S. — real estate investors don’t see as much of a profit because they have to purchase the property for more to begin with.
“We’re trying to buy these homes as close to market value as possible,” Wacksman says. “It’s really about if you don’t want to go through the prep work and the process yourself.”
Because there’s often little room for error to profit, both Wacksman and Kelman note direct purchase is still in the testing phase, with Zillow and Redfin trying to determine if they are able to provide the option of a quick cash sale to consumers and still profit.
“Is every city in America open to this model? We’re not sure, because … we’ve discovered that higher-price coastal cities are pricing houses above where institutional purchase makes sense,” Kelman says.
Stark expects platforms like Zillow Instant Offers to be able to take on the cyclical nature of real estate markets, both on a local and national level. “Once they get down the process, they can take that process virtually anywhere, and it can get a colder, warmer, medium scenario based on the market they’re in,” he says. Zillow’s direct purchase of property is only part of the Instant Offers program, which is in itself a smaller part of the overall Zillow platform. As a result, Zillow can afford to make an offer only when it appears to be a solid investment, and such investments may be more lucrative in different parts of the country at different times due to the cyclical nature of real estate.
[Read: The Homebuying Strategy You Haven’t Heard Of: Going Off-Market.]
You can never go wrong exploring all your options for selling your home, including investor offers — whether that’s from a local company or a major real estate site. Here are four scenarios when you may want to consider selling your home to an investor directly without marketing it first.
You’re in a time crunch. You may be relocating to another part of the country or across the globe, or debts may have piled up. If your ability to relax financially hinges on selling your current home and being able to move on, the slight decrease in sale price may be worth selling to an investor.
You can’t buy a new house until you sell. When the market is particularly tight and homes on the market are few and far between, offloading your current house first can make buying a little less stressful. When you’ve already liquidated your biggest asset, you can make an offer faster and with fewer contingencies, which can help beat out competing buyers for your next house.
You can’t make updates to your house. Especially if you’ve lived in your house for a long time — we’re talking decades — there’s a good chance some updating is in order to get the maximum price when you sell. But that’s not always possible when that updating includes gutting the kitchen and landscaping the yard. If the difference between an investor’s offer and the price an agent plans to list the house for doesn’t bother you, there’s no need to for the extra stress.
Your market’s low on buyers. If you live in a part of the country where the seller’s market seems to have passed, selling to an investor may be the best option for you. Especially if your home fits in your market’s mid-to-low price range, an investor’s purchase may be worth more than the higher price you’ll get only after your house sits on the market for six months. Always factor in what your time and effort is worth compared to the difference in prices.
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Do You Want a Real Estate Website to Buy Your House? originally appeared on usnews.com
