Monday, August 12, 2019 / by Juan Grimaldo
Home sellers who choose to sell directly to an often end up paying higher fees than if they sold the traditional way with a real estate agent, according to a new study by Collateral Analytics, a real estate analytics firm.
provide instant cash offers and quick closings, perks that are hard for sellers to ignore. Transactions involving have been growing at a clip of more than 25% annually in recent years. But how profitable is it for sellers who choose this expedited route to a sale? The answer hasn't been clear since first surfaced in 2014 with the launch of Opendoor.
Collateral Analytics, in a white paper, looks to quantify the costs to sellers of working with versus taking the traditional route of working with a real estate professional. Researchers estimate that sellers end up paying between 13% to 15% more when working with . The percentage reflects differences in traditional real estate agency fees, as well as an allowance often request for repairs and an additional 3% to 5% to cover the liquidity risks and carrying costs. “Most will inspect the home, assess a generous home repair allowance, and negotiate (an additional) credit to handle such repairs,” the Collateral Analytics report notes.
However, some take on other costs that most traditional buyers wouldn’t. For example, companies such as offer to pay the costs of a seller's move up to 50 miles away. may also allow a grace period after closing for the seller to vacate the property.
The chart below from Collateral Analytics shows quarterly median purchase prices on a per-square-foot basis for single-family homes in Phoenix bought by and traditional buyers. The lion's share of transactions nationwide occur in Phoenix.
(Image: Collateral Analytics)
The report also notes that the model could make properties vulnerable to several financial risks, such as the use of automated valuation models that could inflate property values. Also, properties remain empty while in the possession of , which could make the homes vulnerable to theft and other criminal activity.
Wall Street has been betting big on in recent years. has reportedly raised at least $1.3 billion and purchased more than 10,000 homes in 2018—three times that of its closest competitor, . More real estate brokerages are launching their own iBuying models, including Keller Williams, Coldwell Banker, and Redfin. “For some sellers needing to move or requiring quick extraction of equity, this is certainly worthwhile,” according to the research paper. “But what percentage of the market will want this service remains to be seen.”
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