Hat tip to Eddie89 for sending in this article on the prospects of Zillow’s ibuyer program, which looked a little sketchy to me too until it was divulged that these ibuyers are primarily in it to make the fee income, and if they can make a profit by selling the houses for more it will be icing on the cake:
Steve Eisman, an investor known for his correct bet against subprime mortgages a decade ago, told Bloomberg News that he’s taken a position against Zillow Group Inc. ZG, -7.08% calling its new venture into selling houses “a terrible business.”
That Zillow venture, then called “Instant Offers,” was announced in April, to mixed analyst reviews. “We are big fans of this pivot,” said Stephens’ John Campbell at the time. A few weeks later, RBC Capital downgraded the stock, saying the shift into what is now called Zillow Offers set the company up for a “transition year” even as the stock remained overvalued.
In response to a request for comment on Eisman’s remarks, a Zillow spokeswoman emailed, “we think Zillow Offers is an attractive service for sellers in all types of housing markets. In a slower market, our offer might seem even more attractive to a seller.” Zillow shares, which had been up more than 50% for the year to date, tumbled nearly 7% after Eisman’s appearance.
If Steve wants another reason, he should consider how realtors react to change in the market. Yesterday, I saw an agent in a private realtor Facebook group ask for alternatives to the Zillow advertising he has been doing, which is exceedingly expensive. Historically, the minute the market turns, realtors stop spending money, and I think that time is here.
The discussion about affiliating with Compass included trying to predict the future of the market, and realtors in general.
Historically, there has been a lack of widespread advertising because the realtor business was mostly mom-and-pop operations. But now that big money is here, the advertising has grown. Zillow has nailed it with their heart-felt messaging, which is appreciated by all.
But Purplebricks is running ads like this, and I think they are starting to have a negative impact on the industry in general:
Unfortunately we don’t have a truth meter or quality checker in this country, so people can say whatever they want, no matter how harmful to the consumer.
The problems with this series of commercials – they try to make you think:
All realtors are the same.
All houses sell for the same price, regardless of agent.
You should shop for an agent based on cost.
These lies have been around for years, but this is the first time we’ve seen millions of dollars spent on TV ads to spread them.
I doubt they are going to make many consumers go to Purplebricks and pay up front for service (which is not mentioned in ad), but the damage to the consumer’s subconscious mind is being done.
The truth:
Realtors, and the services they provide, are all different.
The sales price of a house depends on who is selling it.
Consumers should investigate what they are getting for the money.
I’m hoping that Compass will assist us with spreading the truth about selling homes. Klinge Realty having a bigger corporate presence is a start, but some institutional advertising to re-affirm the truth would be helpful too. I haven’t seen any Compass TV ads yet, but an educational advertising campaign would be very helpful for us, and the industry.
When I first started selling homes, most brokerages were mom & pop offices on the local corner. Man, how times have changed.
Now, venture capital is flooding the industry, and some outsiders flush with cash are trying to convince you that cheaper is better – without describing the services provided, other than to call it ‘full service’, making it sound sufficient.
Consumers deserve a legitimate full-service option.
They deserve the option to choose a company who hires full-service agents and then supports them with modern, high-tech resources to deliver an unparalleled consumer experience.
Compass is committed to full-service realtors – and is working with $800 million in venture capital to build the team, and provide the high-tech support.
Starting today, we are affiliating with Compass to improve our services and build our presence using their agent resources.
I did not sell my company to Compass; instead we are a branch office with our same address, phone numbers, blog, etc.
The reasons:
The Compass resources will help us expand and better define our services.
Having a luxury brand name will help me attract new clients who are unfamiliar with us.
We want to grow as a team, and being affiliated with Compass will help us attract better people.
With Kayla moving to NYC, I’m hoping that the marketing support from Compass will help bridge the gap.
I want plenty of distance between me and the discounters – not sure I’ll get that without a bigger and better corporate presence backed with VC.
Compass is backed by Goldman Sachs, SoftBank and others, and is hiring full-service realtors and brokerages throughout the country. The goal is to have 20% market share in the top 20 cities by 2020.
My ultimate goal has always been to create a full-service brokerage that the kids can take over. Teaming up with Compass looks like the best way to improve our brand and build a practice for the future!
Here are examples of some of the wacky stuff that happens in this business, and why it’s important to get good help:
We represented the buyers of House B, whose sellers were buying their listing agent’s personal residence (House A).
They had included in their listing agreement that the sale of House B would be contingent upon the successful purchasing of House A – but the listing agent forgot to include the contingency form in our documents. As a result, the sellers were locked into selling their House B to my buyers.
When the discussions of repairs and termite work of House A got testy, it was revealed that the contingency form had been omitted from our House B deal. The client called their listing-agent/owner, ‘unprofessional’, which set her off and she refused to do any repairs to her house. The clients backed out of the purchase – but she was still their listing agent on our sale of House B, and the sellers only had two weeks left to get out of their house.
The listing agent went quiet, so the seller of House B called me directly for help. Sorry, but my buyers wanted the house, and wanted to close on time. He offered us $20,000 to cancel, but because the house and timing was such a good fit, we declined.
But I came up with a package deal. We would give him a rentback for up to 60 days at market rate plus deposit, if he gave us a credit for $7,000 for repairs on House B. He took the deal.
2. When I’m the listing agent, I always meet the appraiser – no exceptions. If you don’t, you’re just asking for trouble. Another one where I had the buyers for a listing agent selling her own primary residence, and she doesn’t show up for the appraisal of the house she lives in! The appraisal came in $12,000 under the sales price.
3. We are experienced at handling difficult situations, many of which are regarding repairs. As the market slows down, the buyers will be more demanding about the condition of the home, and want things done their way (or the way their agent wants them done).
We sold a tenant-occupied condo that had a regular attic – how often does a tenant go into the attic? In this case, the answer was ‘never’, and even if he had, he might not have noticed that lint was building up because the dryer vent did not extend through to the exterior.
The buyer had a logical concern about it being a fire hazard, and because we were happy with the price he was paying, Donna went to work on getting it resolved. We needed HOA approval to go through the roof, and they insisted on having a longer warranty. Our roofer gives extended warranties because he has pride in his work, and the HOA was impressed. Our roofer will be getting more work there! The buyer’s agent appreciated the effort, and said most listing agents would offer a credit or shrug it off, which isn’t smart with fire hazards.
4. I was holding open house and a couple arrived who had been sent by their agent. I had received a phone from the agent that her buyers would be attending, and would I mind showing them around? As always, I said I wouldn’t mind at all, as long as you don’t mind if I talk them into buying the house! Not only did they buy it, they also told me that it was the first time in the five years they had been looking for a home that they thought they got real help.
5. I represented the sellers of a home that had undergone extensive foundation repairs. The buyer had concerns which were understandable, and he arranged for thorough inspections. Then we had the contractor who did the work come out for an on-site explanation, and discuss the one-year warranty. At the end, the buyer’s father came over to me and stuck his finger in my face and said, “What do you think?” Most agents can’t handle confrontations, and think their job is to dodge liability and be responsible for nothing. Not me, and not when the sale is probably riding on me delivering a solid response. I told the father that I had several previous experiences with the engineer and foundation contractor, and found them reliable and trustworthy. I also said that because the house had been extensively remodeled, the overall package was a good deal. They closed escrow (with 95% financing).
6. The first day on the MLS, a buyer’s agent asked what it would take to purchase a new listing of mine. Most agents would be satisfied with full price, and hurry off to their next deal. I told her $50,000 over list – and her buyer paid it.
7. Our seller moved out, and the buyer came to complete their final walk-through the day before closing. They discovered a water leak, and a dis-functional garage-door opener. We handled all of the above on behalf of the seller for less than $500, and closed as expected the next day – with no inconvenience to the seller, who kept their focus on their new home. While the event seemed minor, it was only because we were readily available and jumped right on it that no momentum was lost.
Every sale has hitches – some are smaller, and others can kill the sale. Your agent’s commitment to full service makes the difference on which is which!
The idea of disrupting realtors has been around for years, but now several companies, backed with mega-millions in VC money, are making a dent. They may not be taking a lot of the business away (yet), but they are being noticed.
It appears some of the big brokerages might be starting to feel it:
KW isn’t going anywhere – they have 180,000 agents.
But there is an underlying threat, real or imagined, that the entire real estate industry will be upended by technology that could change everything.
From the link above:
Zillow spent $320 million in 2017 on Technology and Development. In 2016, they spent $255 million on Technology. Over the past five years, from 2013 to 2017, Zillow spent a total of $893 million on Technology and Development with significantly more than 200 people who touch code.
The mom and pop brokerages are getting smashed by this tech steamroller.
Combine the tech advances with higher home prices and fewer sales, and we have a toxic blend for the old-fashioned veteran agents. Many are getting out of the business, and others are left wondering what happened.
Realtors who plan to get out of the business in the next couple of years will just ride it out. But those in for the long haul need to buck up.
People question how big of a problem it is that listing agents withhold their listings and sell them before inputting them onto the MLS – which denies their own sellers the benefit of open-market exposure, and potentially a better offer.
Above is a sample from today’s MLS hotsheet.
There were a total of 51 properties that were marked either pending or sold, and of those, eight were sold prior to MLS input.
Sellers don’t get open-market exposure.
Buyers get robbed of a chance to purchase the home that might be the perfect fit, AND then wonder why their current buyer’s agent isn’t getting those deals for them.
Other agents are denied the opportunity to earn a living.
But the listing agents get to double-end the commission, so it’s allowed – at least by broker management, NAR, CAR, and the MLS itself; the entities who could do something about it – but who look the other way instead.
The State of California doesn’t have a Code of Ethics…..
This article is Part Two of a series arguing for the reinstatement of the Department of Real Estate (DRE)’s code of ethics. If you haven’t already, take a look at Part One, which provides context for the current vacuum in California ethical standards.
Why a code of ethics?
Every public-facing industry, especially one as complex as the real estate industry, is in need of common standards of practice. Presently, the code providing those standards for California real estate agents is far from an ideal set of rules governing an agent’s conduct in service of the public.
The code in question is a generic product of the National Association of Realtors® (NAR), which NAR’s state-level manifestation, the California Association of Realtors® (CAR), has commandeered as its own.
Real estate practice is rooted in state codes, cases and regulations aimed at protecting residents of that state, and as a result, this national code of ethics is frequently ill-fit to the unique marketplace of California. NAR has next to nothing to do with California, where principals might have little to no personal knowledge of the agent representing them (especially in urban population centers), and have no choice but to operate under a general set of expectations for licensee conduct.
Further, the Department of Real Estate (DRE) has continuously pushed the NAR code as an acceptable standard for those California licensees who also happen to be Realtors®. As we discussed recently, the state nixed the DRE’s code of ethics in 1996, and California has consequently been left without a California code of ethics for the real estate industry — a situation the DRE could rectify.
But before we can argue for the reinstatement of the DRE code of ethics, we need to understand what’s in it. What are we arguing for? And maybe more critically, what are we arguing against?
The way to sell houses is turning into a jumbo bowl of jambalaya now, and this version toes the fiduciary-duty line by gathering investor offers, instead of making cash offers themselves.
Reprinted with permission from the author Mike:
A Keller Williams team in Phoenix recently launched OfferDepot, an instant offer play, to “help with all the confusion with cash offers vs bringing your home to market.”
Why it matters: This is the first move from a traditional real estate company into the instant offers space.
The idea that traditional real estate incumbents would enter into the iBuyer’s instant offers party isn’t new. Back in February, I wrote:
“…the more successful Opendoor becomes, the more of a threat they become to industry incumbents, which forces them to respond. The most logical response from a major player such as Realogy or Keller Williams would be to launch their own iBuyer program.”
This isn’t a top-down corporate initiative on the part of Keller Williams. Rather, this is a local team reacting to the rising interest in iBuyers and pushing to stay relevant. The Keller Williams team isn’t buying houses directly. It is collecting inbound leads from potential sellers, gathering information on the home, receiving instant offers on their behalf, and presenting everything back to the home owner (including an option to list the home on the open market) in a comparative analysis.
We can speculate as to the reasons this Keller Williams team decoded to jump in to the fray:
It doesn’t want to miss the boat. Whether it’s Opendoor raising another $325 million or Zillow jumping in with both feet, interest in the space has never been stronger. Traditional real estate agents — and Keller Williams — are in the business of selling homes. Why would they let this new model pass them by? Doing nothing is not an option.
A one-stop-shop. It’s relatively easy for traditional agents to bolt on an instant offer service, thereby turning them into a one-stop-shop for home sellers (and negating the need to contact an iBuyer like Opendoor or Offerpad).
Seller leads are super valuable. This is another form of lead generation for traditional agents, with each request representing a likely customer.
Implications for iBuyers
In my previous analysis, I summed up the major implications of incumbents entering the instant offer space. The first deals with the user experience:
“Make no mistake, the offer and the experience from the incumbent is going to be bad. They’re simply not set up to provide the same quality of service as Opendoor.”
The online experience isn’t great. In a design reminiscent of the mid- to late-90’s, users must struggle through a form to submit their home’s information. It’s a far cry from the premium experience Opendoor strives to offer its customers through the entire process.
But it works. It does what it needs to and collects leads. And it is this dilutive effect that is the biggest implication to dedicated iBuyers like Opendoor. As I wrote in that same analysis:
The proposition from the incumbents will be poor, but it will be enough to soak up a portion of the demand in the market and take momentum away from Opendoor and other iBuyers.”
It’s simple economics. If we assume the demand remains constant, the addition of supply will dilute the amount of business any one iBuyer receives.
There will also be more customer confusion as incumbents get into the game. When Opendoor was the only option in town, it was simple. But now there are a variety of choices: multiple dedicated iBuyers (Opendoor, Offerpad), a popular web portal (Zillow), a tech-enabled brokerage (Redfin Now), and a traditional real estate agent (OfferDepot). What’s the difference? Who do I trust? It’s difficult to explain the various propositions to consumers.
At the end of the day, that’s good for traditional brokers and agents (as they can soak up additional demand), and bad for dedicated iBuyers (because of the dilutive effect and customer confusion).
This is just the start! Expect a lot more activity in this space by the incumbents. It’s only a matter of time before a big incumbent launches a well-funded, well-designed initiative. And it may not stop at just presenting offers on an iBuyer’s behalf…
The thing that got me fired up was Glenn insisting that portals include a mandatory HTML link back to the listing agent (in fact, Redfin authored the new verbiage to be approved by N.A.R.).
The current rule is that the listing agent has to be mentioned, and Redfin includes the requirement in fine print at the bottom of each listing. On the right, they pitch you hard to tour the home with them, which I’ll live with. It’s their website, and if I don’t like it, I can always build my own.
Why does Glenn want the listing agents to get more exposure?
He says that if there is a link back to the listing agents, they will be more likely to input more listings onto the MLS, instead of ‘pocketing’ them.
He doesn’t supply any evidence to support such an idea, and it is unlikely that the listing agents who want to double-dip the commission will give it up easily. This idea only makes sense as an alternative if we are going to eliminate pocket listings, Coming-Soons, and Sold-Before-Processings.
But nobody is suggesting an end to those techniques.
Since Zillow legitimized the Coming-Soon in 2014, major real estate brokerages and even some MLS companies have followed suit and offer their listings on their website prior to MLS exposure to the open market. The Coming-Soon genie is out of the bottle, and adding a link back to the listing agent isn’t going to change it.
Is Glenn just an out-of-touch CEO hoping to befriend the industry? No, he’s not, and we’ve seen previously that he has the killer instinct. He said this HERE:
“I think he had no idea what kind of savage beast master he was dealing with,” Kelman said. He continued: “We are wild, freaking animals. You can’t sell more houses for less money any other way. You’ve got to fight and claw for it.”
He owns one of the major portals. If he thinks putting an HTML link back to the listing agent is a good idea, then he should do it himself on Redfin’s website to demonstrate his commitment, and see how it goes.
But he hasn’t done that, which makes you think he is up to something else. Just like everyone else in the industry, he wants to double-dip more of his own listings, so he can finally put that nickel in his investors’ pocket.
In the video below, a Las Vegas realtor compares an actual offer from Opendoor to what happened when he put the home on the open market.
But it’s the deceit that is note-worthy.
The first number supplied by Opendoor was the average market time, which they said was 75 days for the zip code. But the actual MLS data showed 22 days, and then the agent sold this house the first day on the market.
Opendoor also packed an extra 2% in costs for seller concessions when selling with a realtor, which is untrue. Buyers don’t ask for concessions in our pricer market, let alone in Las Vegas when houses are selling over list price.
No surprise that flippers use the lowest comps they can find – that’s expected. But they also stack enough other false evidence that, in the end, is what sways the seller to go that route.
Opendoor’s final estimate twisted the numbers to show that the seller would make $11,000 more money by selling to Opendoor, rather than listing with an agent. But the client actually cleared $15,416 more with a realtor!
Flippers have no obligation to tell you the truth – they say whatever they want. Get a second opinion! If timing is an issue (quick closings are one of the big benefits they push) – then I will give you a quote today, and get you into escrow as fast as you need.
