Zillow, iBuying, and the Future

The path forward is becoming more clear. Zillow is rapidly expanding their ibuying enterprise, and because they are so well-known, they have a shot at a major disruption.

In the video below, Mike describes how homeowners who used to rely on their zestimate for a home valuation are now getting a written quote from ibuyers – for free.  In Phoenix, the center of the ibuying universe, 40% of homeowners get a quote from an ibuyer before selling their home.

In effect, ibuying is the new zestimate, and more tangible because if you like the number, you could sell your house instantly.

Sure, Zillow is losing money, but their first-year volume is remarkable:

Since launching Zillow Offers in April 2018, more than 170,000 homeowners have requested an offer through the program. In the second quarter alone, there were 70,000 requests.

Zillow reported that it made $1,578 on each home it sold in the second quarter before interest expenses are calculated. After interest expenses, the company, on average, lost $2,916 per home. Barton believes that, eventually, the company will earn 400-500 basis points of return before interest expenses on homes it sells.

It’s an improvement, however, over the company’s first-quarter numbers, where it lost, on average, $3,268 per home it sold, after interest expenses.

“Over time, our unit economics should benefit more from other adjacent services, like mortgage origination, title and escrow,” Barton said in a letter to shareholders. “We expect to be able to leverage these services to support Zillow Offers and improve the consumer’s overall transaction experience, while also generating cost savings for Zillow and our customers.”

They are the only real estate company that has been willing to spend $100 million per year in advertising, and it’s what made them who they are today.  It won’t matter if they charge 7% to 13% for their service, all that matters is that they advertise it – which may not be that costly.

Because many or most homeowners have saved their home on Zillow (giving up their email address), they will get regular solicitations to sell their house to Zillow.

Look how easy it is – one click and you get a cash offer…….just like 500+ others near you:

If you have 18 minutes to spare, Mike’s presentation below is a full examination:

Mike mentions that he thinks the companies who position themselves at the start of the consumer journey will win. Stay tuned for a Compass announcement shortly!

Private Listing Clubs

I participated in the PLS webinar recently:

We’re excited to be hosting our first ever ZOOM meetup with James Harris (Million Dollar Listing Los Angeles & Founding Partner, ThePLS.com). We’ll be discussing Los Angeles real estate market trends for Q2 (and beyond) and James will be sharing his take on things.

There was a CB realtor from Santa Monica who said his market has slowed down, with many price reductions, fewer multiple offers, and longer market times.  A discussion ensued – my takeaways:

A. The market is level (at best) and sellers need to be realistic.  You can spend a million dollars on advertising, have the best photography and videos, and do open house every day, but if the price isn’t right, it still won’t sell.

B. James thought open houses are a good way to expose a property to the market, and for knowledgeable agents to impress the attendees about the value.

C. James also said that when it’s slower, it’s better to test pricing off-market first. (But wouldn’t it be natural for sellers to say, ‘let’s test the price on the open market to find out for sure.’)

D. When a home is on the open market but not selling, it’s better to lower the price in weeks, not months.

Those sum up the basic fundamentals for today’s market.

I suggested that to enhance the value of private-listing clubs, they should limit membership to the top agents only, but they didn’t want to get into it.  They did like my idea of having more webinars where agents can discuss topics and listings.

The club hasn’t made much of an impact yet in the San Diego area.  There are only 34 listings county-wide on the website, and some are older and/or already sold. Curiously, one had been on our MLS this year, but expired and is now on the PLS only as an off-market opportunity at virtually the same price.

https://thepls.com/

The other large private listing club, Top Agent Network, is limited to the top 10% of agents in a region (based on volume).  They were thinking of opening in San Diego, but I haven’t heard any updates lately:

https://www.topagentnetwork.com/

There may come a day when the private listing clubs have an impact, but it would take their leaders to constantly sell the benefits to agents – and those are people who have become wary about the benefits from the traditional MLS (if any).  If an agent wants to pursue an off-market sale, then it’s too easy for them to throw a sign in the yard and wait (if the price is right).

Amazon & Realogy

Thanks to the readers who sent in the news about Amazon and Realogy teaming up to provide a basket of goodies to customers who get their agent through their TurnKey system:

Real-estate brokerage giant Realogy Holdings Corp. launched a new partnership with Amazon.com Inc. on Tuesday, a fresh attempt at jump-starting the property firm’s flagging business and tumbling share price.

Under the new program, known as TurnKey, home buyers searching for an agent on Amazon.com will be directed to a Realogy agent in their market. These buyers get up to $5,000 of smart home devices and free home services from Amazon, from unpacking and cleaning to furniture assembly and smart home setup.

Realogy is hoping the power of the Amazon brand can energize its own amid a prolonged slide in its stock price. The company declined to comment on the agreement’s specific financial terms but said it is footing the bill for the home services from commissions earned from deals that the venture with Amazon is anticipated to generate.

There are many places that offer to provide a realtor for you:

Who pays for the service?

The agents do, and it can be a hefty referral fee – usually 25% to 40% of the commission.

However, you don’t get directed to the best agent in the area, oh no. You get directed to the best agent in the area who is willing to pay their fee.

We call this, “Buying The Business” and it’s what agents do who can’t earn the business otherwise.  Either agents can demonstrate their skill-level and abilities to consumers to earn their business, or for the agents who can’t, gimmicks or discounted commissions are used to ‘buy’ their business instead.

It’s just one more thing about the real-estate-selling business that isn’t disclosed to the public.

This gimmick is a way for Realogy to provide leads and keep more of their agent’s commission:

Will the public ever catch on to how the game is played?

The agents who are willing to pay for the leads either don’t have the skills, or can’t demonstrate them.

Going through Zillow isn’t much better. The big realtor teams get the best leads there, and pass them off to their new agents and then take a large chunk of their commission.

Bottom Line:  Agents all look the same, and the industry does nothing to help you differentiate.  You must do your own investigation to find out if your agent has the skills and ability to provide the help you need.

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Let’s say that the Amazon customers who prefer to just click a button for their every need in life plunges ahead without much care about the realtor they get – they just want their goodies.

What do they get?

The dedicated Amazon customer already owns a few of the goodies – most of the equipment listed above is into their 2nd or 3rd generation by now. Only the Ring Doorbell Pro and the Camelot Deadbolt are attached to the house. So if a buyer already owns the other gear, they can take it with them – and receiving duplicates of the Echo Spots, Shows, etc. isn’t much of a prize.

For the casual Amazon customers, do they even want/need the high-tech gear?

Because they aren’t handing you a check for $5,000 – instead, you get some household goodies that can all be bought separately for $100 to $400 each.

Or will click-a-button real estate be enough of a thrill/reward?

The End Is Near

Brokerages are finding new ways to convince sellers to do in-house deals – an excerpt:

According to Charles Williams, CEO of Buyside, “the software we supply to Metro Brokers unlocks the power of their buyer data for agents so they can win more listings, become more profitable and command greater control over their inventory.”

Buyside’s core products include Home Valuation landing pages, which combines multiple automated home valuations with visualizations of real-time buyer intent; Buyer Match™ dashboard, which intelligently pairs homebuyers and sellers within a brokerage; and Real-Time Buyside Market Analysis (BMA), which arms a brokerage’s agents with insights on buyer demand to help them close more listing presentations.

“Our affiliation with Better Homes and Gardens Real Estate provides our firm with outstanding analytics and business intelligence tools that are the cornerstone of excellence in any leading real estate firm today,” says McClelland. “We have tremendous success marketing properties for sale and leveraging the Zap platform for maturing homebuyers. Today’s homebuyers are shopping for about 240 days before closing. When securing a new listing, our agents use Buyside to explain that the likely buyer for that property has already been working with a Metro Brokers agent for months. The value proposition of our firm’s listing presentation is not how we will find buyers, but the number of homebuyers that we have looking for their home today. We don’t believe that any other brokerage in Georgia has more home buyers than Metro Brokers.”

Link to Full Article

Alternatives to the MLS

If the MLS goes away, then what?

It probably won’t go away, at least not until it runs out of dues-paying members.

Buyers, sellers, and agents will just choose other more-effective options instead.

Check out this one that provides an investment platform with several choices.  You can invest in cheaper houses in the midwest, throw money into their investment vehicle, or even sell your house:

www.roofstock.com

Who’s going to mind the ease of this purchase?

The ibuyers and other new-age alternatives could keep us at a permanently-high pricing plateau because they will tell you what it’s worth, and make you forget all about getting good help!

Class-Action Lawsuit vs. Realtors

I haven’t seen an article yet where the reporter gets the other side of the story, so I’ll address these fallacies below at green paragraphs. Hat tip to all who have sent in this story!

Why should a home seller have to pay for the buyer’s side of the transaction, especially when the buyer’s expenses include negotiating against the seller?

That apparent conflict of interest is at the heart of an escalating legal battle that pits the National Association of Realtors (NAR) against a group of law firms that filed a class-action lawsuit on behalf of home sellers against the NAR and four large national real estate brokers: Realogy, HomeServices of America, RE/MAX and Keller Williams Realty. As of May 22, the Department of Justice joined the fray when it demanded information about residential estate commissions from CoreLogic, a California-based data analysis firm.

JtR – Why? Because it is in the seller’s best interest to offer a bounty/bribe to the buyer agents.

The fight is forcing into the open many of the hidden factors that dictate how realty agents are paid and common practices that make it difficult for home sellers to effectively negotiate the commissions they pay.

It is standard for multiple listing services — data bases owned by realty agents — to require that the entire commission be paid by the home seller. Typically, the commission is 5% to 6% of the sale price of the property. Then, the commission usually is evenly split between the broker representing the seller and the broker representing the buyer.

That means that the seller directly pays for the transaction costs for the other side — even when, as is common, the other side negotiates for a better deal. The net result is that the seller is forced to pay for those working against him or her. The core of the lawsuit is that “the rules are, in effect, anti-competitive,” said Brown. “It’s a very strange way to run a market.”

JtR – The MLS does not require that the entire commission be paid by the home seller. They require that the listing broker offers compensation to the buyer’s agent, and it can be any amount.

The NAR filed to dismiss the lawsuit, partly based on the fact that it supports many types of business models for its members, said Rene Galicia, director of MLS engagement for the NAR. “The MLS doesn’t set commission rates. That’s left up to individual brokers and consumers, depending on the transaction,” he said. “Consumers should look at their level of comfort with real estate and what they want to accomplish. It’s highly competitive right now. Lay out your goals and find which broker will meet your needs.”

The actual commission structure has not been tackled head-on until now, say real estate experts.

JtR – The commission structure gets tackled every day on the street – without pads and helmets!  We should do a better job of disclosing how much commission, and why, to all parties.

The split-commission structure causes confusion when sellers try to negotiate how much they will pay, because any reduction must be negotiated with everybody involved, explained Gary Lucido, president of Lucid Realty Inc., a Chicago broker that offers rebates on commissions. For instance, if the seller’s agent agrees to take less money, the buyer’s agent might not agree to a discount.

JtR – The commission isn’t negotiated with everyone involved.  The listing agents decide how much they are willing to pay buyer-agents, and then present the commission package to the seller for approval or negotiation.  The buyer-side cut comes out of the total commission negotiated between listing agent and seller – the only choice the buyer-agent has is whether they will show the house.

Also, the baseline costs of selling are not always obvious to consumers, said Lucido, which means that home sellers often don’t have the information they need to effectively negotiate. The cost of listing a house in the MLS, which feeds national listing sites such as Trulia and Zillow, is the same regardless of the asking price. A higher-end property might require additional marketing services and associated costs, such as a drone video or a fancy broker’s open house.

But usually, said Lucido, the additional cost of marketing does not justify the richer commission on a higher-end property. That is why, he said, agents are more willing to reduce their commissions on more expensive properties than on those under $200,000: Once the fixed costs are covered, it doesn’t take that much more work to sell an expensive property than a moderately priced property.

JtR – This is the common ploy by discount agents – that it doesn’t cost that much more to sell the higher-end properties. It suggests that all agents offer the same skill set, which is the true issue that needs to be examined – and maybe in court.  Because the supply-and-demand of higher-priced homes is in the buyers’ favor, the sellers should hire agents with advanced sales skills and resources.

The class-action lawsuit and DOJ involvement might be enough to bring Americans in line with the rest of the world in terms of how real estate fees are calculated and paid for, said Timothy S. Becker, director of the Kelley A. Bergstrom Real Estate Center at the University of Florida in Gainesville. “The 6% model is ridiculous compared to how real estate is bought and sold in the rest of the world,” said Becker. “The agencies are set up to work for the transaction and for the agents’ own interests, not for consumers.” Real estate commissions around the world vary, but often are as low as 1.5%.

JtR – The media insists on quoting outsiders incessantly on this topic, but never explores further. You pay peanuts, you get monkeys.

It is significant that the class-action lawsuit is brought on behalf of property sellers, because they are the ones who pay the entire cost of the transaction. “The buyers currently don’t pay anything,” said Becker, “There should be a correlation between what you get and what you pay for.”

JtR – If buyers don’t pay anything and, as a result, can choose any agent to represent them, you’d think they would search out the very best. Why don’t they? The internet has made the homes for sale more available to consumers, but has it educated them on the nuances? No, and the industry is to blame.  This lawsuit won’t change it, either.

Link to Article

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