This week, it was announced that the real estate marketing company Zillow is piloting a program in select markets that will allow homeowners to receive offers on their homes from a group of hedge fund investors. Many of these are the same hedge funds that are buying houses at the courthouse during the foreclosure process and are usually the first offers I receive on any new listing under $300,000.
According to Inman, which reported the story first, homeowners that opt-in to the trial will receive offers, sight unseen, based on their Zillow data and will have 5 days to consider the offers before they expire. Homeowners can also elect to connect with one of Zillow’s Premier Agent (I’m a premier agent but these are the ones that are paying to be selected for the area) to receive a Market Analysis of their home (to see if the offer they received is any good) and to compare the home selling process with an agent. If homeowners elect to go the route of taking one of the hedge fund offers, they will also have to pay a 9% selling fee (i.e. commission) to that investor for the privilege of selling.
That’s not a typo – 9% – not to Zillow but to the investor; likely to recover their costs for entry into this program.
Agents Hate Zillow
Real estate agents hate Zillow – they just do. Unfortunately, NAR’s technology moves since the 90’s can be summed in this gif of a girl spilling popcorn at the movie theatre.
The National Association of Realtors sold it’s public facing website, Realtor.com to a company out of Canada called Move. While all MLS listed properties are shown on Realtor.com, if an agent wants to be the point of contact, they must pay for the privilege; and it’s expensive. Zillow (and it’s sister company Trulia) and other also-ran websites like Homes(dot)com employ the same business strategy but Zillow is the 6-letter curse word among agents (Zestimates are a sore subject).
It’s for this reason that real estate markets like Charlotte no longer send their real estate listings to Zillow en masse from the multiple listing service.
Agents always have this fear that Zillow is trying to put them out of business and become a brokerage like Redfin and Opendoor. Zillow does have an expired real estate license in Florida but has stated for years that they have no intention in getting into the real estate sales business. Zillow needs agents to pay them for marketing; money it could never earn if it were a brokerage.
That Doesn’t Matter. Agents are Angry!
Ah – social media. The pitchfork and angry mob of the 21st Century.
Yes, agents are upset and voicing their concerns publicly
This is the Pot Calling the Kettle Black
In my eyes, this is Zillow running a Guaranteed Sale Program, just on a larger scale. If you’ve ever heard on the radio or received a postcard that said “I’ll sell your home in (insert ridiculously short amount of time) or I’ll buy it,” – it’s a tactic called the Guaranteed Sale. No one is actually buying houses. I’ve attended conferences where this strategy was taught and the agents boasted how none of them purchased anything. It’s designed to make the phone ring and get an appointment for the agent making the offer. Zillow seems to be doing the same exact thing.
It would be one thing if these were offers from any buyer but they’re not – it’s from a select group of investors. These investors are buying sight unseen for the purpose of converting the property to a rental; resulting in the offer price would be based on the cap rate, not fair market value (usually lower what a buyer would pay in the open market).
Second, there’s a 9% commission or transaction fee or whatever on top of it – which agents should be giddy over. While it seems real estate agents and firms are in a steady race to lower their commission to earn a sale, this program requires the Seller to pay an absurdly high commission for absolutely no representation at all. By all accounts, this is a horrible deal, which would make even the average real estate agent look like a winner by comparison.
If you are a homeowner and are thinking that this may seem like a great option, I’ll offer this piece of advice as someone who’s worked with a number of deals from investors: Buyer (or in this case Seller) Beware. As has been the case with many of these sight-unseen offers, after the home inspection is complete, the investor either demands a hefty price reduction for repairs (some significant, most are not) or they threaten to terminate the contract like a petulant teenager being told they can’t go to the arcade on the Friday night (wait – that’s not a think any longer. I’ll think of a better analogy). Therefore, either collect a substantial due diligence fee upfront so that walking away hurts them as much as it does you or hire an agent.
And if you have no idea what I mean by that previous sentence, hire a real estate agent.