Finding Home: Corporate Buyers Let You Sell Quickly - With An App
Charlotteans like to talk about how hot the local real estate market is, and for good reason. People are moving here in large numbers - 60 a day by one estimate. That means lots of homes are being bought and sold. But individuals aren't the only buyers.
A new group of national companies backed by huge pools of money now offers sellers a quick, all-cash way out of their homes. It's a small, but growing part of the market.
Sarah and Jeremy Chambers sold their east Charlotte home in February to Zillow Offers, the home-buying division of the big online real estate listings company. For them, it was all about speed and convenience.
"We've been in the house for about 10 years and we have three children," Sarah Chambers said. "So for us to even think about … you know, having the repairs done, putting it on the market, staging it, putting stuff in storage. … It would have taken a lot of time and a lot of stress."
The deal closed in two weeks, and the Chamberses collected a check. The family is now renting while they decide whether to build or buy their next house.
Zillow Offers is the newest in a group of national companies now buying homes in North Carolina's two biggest markets - Charlotte and Raleigh.
"It's really reflecting where we all as consumers, as users of our smartphone, are going, right? We want everything Uber-ized," said Jeremy Wacksman, the executive who runs Zillow Offers.
You can order food, hail a car to the airport, or rent a place to stay using your phone. Why not real estate, too?
"We really let you skip all of the hassle - the showings, the cleaning up of your house," Wacksman said. "If you don't want to go through all that hassle and uncertainty and you just want to let us do it, we can then give you the certainty of what you'll take from your house."
OPENDOOR, OFFERPAD AND OTHERS
The largest of these national home buyers is Opendoor, which is doing a lot of advertising these days.
One Opendoor advertisement pushes the convenience: "Selling your home the traditional way can be a long process. You have to set the price, second guess the price, prep the house, paint the house … "
Opendoor has raised more than a billion dollars from investors since 2014 to buy homes nationwide.
Besides Zillow, competitors include Offerpad, Knock, and a Charlotte-based company called Ribbon.
They're sometimes known as iBuyers, because they let sellers use websites or apps to start the process. They promise instant offers - within a day or two - and quick closings.
In Charlotte, even if your house is ready to sell, the average time from listing to closing is over 100 days, according to Charlotte Regional Realtor Association. Slashing that to a week or two can be enticing to all kinds of sellers, said Carolinas manager for Opendoor Jon Enberg.
"Empty nesters that are downsizing. We have, you know, young professionals, young families, millennials, you name it," Enberg said. "It really boils down to anyone who values convenience and certainty, simplicity, control."
There are a few twists in the companies' sales pitches. Knock calls itself a "home trade-in" service: They promise to buy your new house and move you in, then sell your old one. Ribbon is similar - helping people pay cash for a new home before they put their existing home on the market. Offerpad offers free moving services. Some companies offer mortgages or insurance.
THE PRICE OF CONVENIENCE
They make money mainly through service fees - a percentage of the purchase price of your home. Fees are typically 6 to 10 percent of the purchase price, more than you'd pay a traditional agent. The companies say that's the price of a quick, no-hassle sale.
Sarah Chambers said the higher fee was worth it.
"I think that offset the time that I would have lost waiting around stressing out on who's going to buy our home," Chambers said. The price, she added, "was very fair."
Zillow paid Sarah Chambers $245,000 for her house. After a bit of paint, it's now back on the market for $253,000.
That's another way buyers make money - on appreciation when they resell. But it's usually slight - no more than a few percentage points. After repairs and paying real estate agents, iBuyers may make only a few thousand dollars on a house. So volume is the key to their success.
That sets the iBuyer business model apart from house flippers - investors who buy houses cheaply, do major renovations, then sell high. Real estate technology strategist Mike Delprete talked about the difference at a New York real estate conference in February.
"They're not giving offers that are 30 percent below market value. Much like if you trade in your car at a car dealership, you might pay a little bit more than the full Kelly Blue Book value if you sold it yourself. You're replacing uncertainty with certainty," he said.
TARGETING THE MEDIAN
Not every seller will be able to get an offer this way. Opendoor, Zillow and Offerpad say they focus on newer homes, in good repair, around the area's median sale price. In Charlotte, that's about $244,000. But recent sales data shows they're also buying homes in the 300s, and, in Zillow's case, even the 400s.
Luxury homes are out - the number of potential buyers is too small. Old homes and fixer uppers are out, too, said Trent Corbin, CEO of Redbud Group, which helps Zillow Offers set prices and do deals in Charlotte.
"Zillow is really not trying to change the quality of the home from the time it purchases to the time it sells. It's really just trying to kind of improve the convenience within the process," Corbin said.
Corbin is both a Zillow partner and a traditional real estate agent, affiliated with national broker Keller Williams. He said the relationship is good for business. Redbud has doubled in size to 50 employees since last fall because of Zillow, and most owners end up not selling to Zillow. That means business for his local agents.
For now, it's hard to tell how iBuyers are affecting the real estate market financially. Strategist Mike Delprete says they accounted for only about 15,000 home sales nationally in 2018, or 0.2 percent.
It's higher - about 5 percent - in Phoenix, where Opendoor helped start the business a few years ago.
But the companies say if they can get just a small share of that overall market, they can make big profits, through fees and add-on services. There could be challenges, though, said Delprete, as competition takes hold.
"I think the biggest question facing iBuyers going forward is are consumers going to price-compare iBuyers? Meaning if I get an offer on my home from Zillow, am I going to call up Opendoor and also get an offer?" Delprete said.
Other potential challenges: local competitors and traditional agents.
Several companies in North Carolina are trying to become the same kind of real estate middle-men as the big guys, offering to buy houses, then re-selling quickly. And national brokers like Keller Williams are investing heavily to develop their own listings services and apps, to give local agents an edge.
WFAE is taking a year-long look at Charlotte's affordable housing problem through our series, Finding Home. Every Monday in 2019, we’ll have stories that examine the problem, seek solutions, and bring you stories from neighborhoods small and large, both in and outside Charlotte. Don't miss a segment. Sign up for the Best of WFAE weekly newsletter to get the latest Finding Home along with the other most important news of the week.
Sarah Chambers' blog post, "Saying Goodbye to Our First Home"