Editor’s Note: Jon and Candy are in Denver, at NAREE, and they are hearing a LOT about Instant Offer, Open Door, and other institutional iBuyer platforms. Homevestors, for example, told them they won’t sell a house to someone who has not physically seen it. Full deets next week!
By Alex Doubet
CEO and Founder of DOOR
There is a cottage industry in the world of real state agents of generating an uproar over the continued march of innovation. This cottage industry complains about innovation in general, and the effects of the internet on the brokerage space, specifically. The recent announcement of Zillow Instant Offers (ZIO) moved that cottage industry into full-tilt hysteria.
ZIO is nothing more than a slightly different iteration of the business model pioneered by home buying companies such as HomeVestors (of “We Buy Ugly Houses” fame). Opendoor is another recent entry into that same space.
Zillow recently rolled out ZIO as a product to connect homeowners on their web portal with investors. Real estate agents immediately screamed about Zillow “bypassing agents” and “taking our data and profiting on it.”
First things first, listing data does not belong to agents.
Information about the home an agent is marketing belongs to the homeowner and agents are but the stewards of that information. Yes, agents pay for photos (we do that at Door, as well), but that is a small cost in the many expenses incurred in the course of selling a home. It is our job as real estate agents to compile, synthesize, interpret, and effectively market that data in order to provide the service for which we are contracted and paid (i.e. Selling the house).
Zillow–and every real estate search portal–provides homeowners and agents with an incredibly valuable service. Those search portals aggregate hundreds of buyers who look at agents’ listings every single day. Agents don’t have to do a thing and Buyers look at their listings.
Secondly, it is economically impossible for Zillow, Opendoor, or HomeVestors to offer a homeowner a top-of-market price for their home. Any such business model is reliant on a healthy spread to cover its cost of capital, carrying cost, marketing risk, employment cost, resale cost, profit, etc. Any of these models, by necessity, must build in sufficient spread between their purchase price and the ultimate resale price to make the transaction worth their while.
Based on our R&D department’s research, the spread tends to be in the neighborhood of a 10% transaction fee on an offer that is already under market (by as much as 5%). Thus, homeowners selling to ZIO, Opendoor, Homevestors, etc., are probably leaving 12-15% of their home’s value on the table. This amounts to tens of thousands of dollars for most homeowners.
Rather than complain about these new business models, I would encourage Realtors to double down on the value proposition that they bring to homeowners. ZIO, Opendoor, and Homevestors are looking for home sellers with acute financial need. Realtors are looking for home sellers who want to maximize their home sale price.
Up until the early 2000s, homebuyers were at the mercy of Realtors when it came to accessing information about for-sale homes on the MLS. Today, thanks to the internet search portals, consumers can see all the information Realtors can but for a few exceptions such as disclosure documents, commission offered, and showing instructions.
For all the lip service paid to protecting the interest of consumers, real estate agents are vocally against internet search portals. In reality, Zillow, Trulia, Realtor.com, and the hundreds of other search portals have been the single most pro-consumer innovation in the history of real estate. Consumers now have the power to quickly—for free—access a wealth of information so that they may make a more well-informed decision about where they are going to purchase a home.
Last year, according to the National Association of Realtors, 51% of homebuyers bought a house that they found on the internet. That is, a majority of homebuyers found a house without a real estate agent.
This. Is. Not. Going. To. Change. In fact, I think that is the lowest that number will ever be. The cat is out of the bag. Information wants to be free. Real estate listing information is–and from here on out will be–free for the public to consume and explore.
Real estate agents should stop complaining and look to the future.
To the agents who are complaining: no one cares. To the agent I recently saw post that he and his office were “discussing unchecking the Zillow box in the MLS” so that the listing won’t appear on the most-trafficked real estate website in the country: do it. See how your client reacts when s/he sees you drastically limit the marketing of their listing and exclude the majority of the home buying public.
It’s a brave new world, and it’s here to stay.
Alex Doubet is the founder and CEO of Dallas-based tech-enabled real estate brokerage Door. We’d love to hear what you think!