2019_disruptors_consumer_bookle

CAUTION

SMOKE & MIRRORS AHEAD! Why The Flurry of New “Market Disruptors” May Not Be In Your Best Interest

Question the Source & Know the Facts

To be clear, we love disruptors. In fact, our founder, Emmaline Norman, was the very first disruptor for the Atlanta residential real estate market almost ninety years ago. She realized that the consumer deserved professional, honest, and respectful representation at a time when those qualities were not readily available. We have carried on her tradition of striving to be one step ahead of our client’s needs and wants by changing with the times. However, we do not believe that change solely for the sake of change is beneficial to our clients. In fact, it is often highly detrimental to ensuring a successful closing with favorable terms.

Most of the current residential real estate disruptors fall into one or more of four categories: discounters; technology over expertise; “free” resources; buy low-sell high. Each involves a unique risk to sellers and buyers.

DISCOUNTERS Discounters are not new to the residential real estate industry.

Their selling proposition is to either list the property for a low rate, offer some level of rebate to buyers, or a combination of both. The premise is that sellers and buyers do not need all of the services of traditional real estate brokerage and will, therefore, be willing to either forego those services or handle these tasks themselves in exchange for a reduced fee. While they advertise listing fees as low as 1%, they fail to disclose that does not include the commission offered to buyer’s agents (ex. 3%) which is paid by the seller.

In reality, residential real estate transactions are rather complex and involve many hurdles and pitfalls that may not be evident at first glance. Selling a house for the highest return on investment with favorable terms and in an optimal timeframe requires a lot more than placing a sign in the yard and waiting for a buyer.

Exposing the property is part art and part science, both require expertise. Purchasing a home is a lot more than finding the right house. Getting through various inspections, repairs, financing, appraisals, and title issues requires expertise.

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TECHNOLOGY COMPANIES Much has been written lately how some residential real estate brokerages have branded themselves “technology companies” who just so happen to sell real estate. The premise is that their apps, artificial intelligence, and algorithms replace the need for the local market expertise provided by a real estate professional.

In reality, residential real estate is a high-touch business. While an app may be beneficial with basic information during the buying or selling process, it will never be able to integrate the emotional connection associated with buying a home.

“FREE” RESOURCES “Free advice is worth exactly what you paid for it.” Numerous online resources are claiming to provide a wealth of free advice to consumers. The backbone of these services is listings shared by real estate brokerages across the country. Also, the free services display other forms of public data, such as tax records (which are notoriously inaccurate). In return, the user is encouraged to either register on the site to have the ability to share or store their favorites. They are also given the opportunity to contact an agent, often with the false impression that they are reaching the listing agent.

In reality, these free sites earn their income by selling advertising and user contact information to sales associates. Sales associates may buy leads who have shown an interest in a specific Zip Code whether or not the sales associate has any expertise in that particular area. Other “free” sites, such as those purporting to rank agents by market expertise, earn their income by selling the potential buyer or seller contact information in return for a portion of the commission earned when the property closes.

These services have no minimum standards for sales associates receiving the referrals, they are merely referred to whoever will pay the advertising fees. The best source of information on any particular property is the agent representing the seller.

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BUY LOW – SELL HIGH The buy low – sell high segment also referred to as iBuyers. These are online investors who make offers using Automated Valuation Models (AVMs), such as Zestimates. AVMs are used extensively throughout the industry but have an extremely high range of inaccuracy. Sellers are asked to accept offers (often significantly below market value), plus pay a variety of fees that may approach 12%, and pay for the repairs deemed necessary by the iBuyer for the convenience of not listing their home on the open market. The iBuyer then relists the property for market value and hopes for a quick sale.

This segment is not open to all property types. Typically, iBuyers are only interested in newer homes in the $200k to $350k price range. Buying low and selling high has proven to be a bit trickier for iBuyers with every company in the segment losing millions of dollars in 2018. While Offerpad and Opendoor are private and do not have to report their financials, Zillow reported that they lost $120 million and Redfin reported losses of $42 million in 2018. Effective homes sales require local market expertise!

According to Forbes magazine, “If you purchased your home for $400,000 with 20 percent down, you showed up at the closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers your $380,000 for your home – a 5 percent discount to the fair value – you will lose $20,000 on the value of your home, plus pay a 5 percent commission (an additional $19,000). [Note: Most iBuyers charge a 6% commission plus at least a 2% administrative fee, or $30,400 in this example] This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $39,000 [Note: Actually $50,400 in this example] to your original down payment of $80,000 – you will be giving up close to 50 percent [Note: 63% in this example] of your equity you put into your home partly for the convenience of a quicker sale.”

As with all other real estate brokerages, reviews are a good indicator of how well customers are being served. According to Inman, a real estate news service, over 500 Opendoor and Offerpad Yelp reviews are hidden from view due to the blistering remarks.

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CHOOSE LOCAL MARKET EXPERTISE

Much has been written about the various “disruptors” to the metro Atlanta residential real estate market. Generally, this involves some form of new technology or process. Our position is that while all consumers appreciate a smooth home selling or buying process, the human element remains critical. Having deep local market expertise is more valuable in terms of real dollars to the consumer than the latest app. The great news is that Harry Norman, REALTORS® has both the newest technology and most extensive selection of highly-trained sales professionals with local market expertise for all parts of the metro Atlanta region. There is no need to replace a trusted relationship with technology when you can have both.

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DISRUPTORS AT A GLANCE THE REALITY

Selling luxury real estate through proprietary technology.

Heavily leveraged with venture capital funding from SoftBank Vision Fund (primarily Saudi Arabia sovereign funds). Purchasing marketing share in California. Utilizes 3rd party technology. Pays massive signing bonuses to lure agents.

Compass is in a state of flux and is still defining its market offering.

Their primary focus is purchasing market share in California, not selling your home in Georgia. The company has yet to turn a profit.

Investors will soon demand a return on their investment.

Discounted rates for sellers and rebates for buyers.

Sellers who want to do-it-yourself pay for various services and handle all the other duties themselves. Buyers wishing minimal representation share on the commission paid by the seller.

Minimal representation comes with massive risks for sellers and buyers.

A virtual real estate company with no brick and mortar offices.

Operating in the cloud sounds good until something goes amiss.

With no physical offices, agents miss out on training, coaching, and one-on-one broker contact.

Allows consumers to “trade-in” their current home when they purchase their next home through Knock.

Consumers pay a series of upfront fees, repair costs, and a 6% commission on the sale of their current home.

Home values are determined by AVMs (often highly inaccurate).

Only purchase newer homes in the $200k - $350k range. Sellers give up equity for convenience.

Sell your home without the hassle.

Buyers get a rebate when purchasing directly through OfferPad.

Sellers pay approximately 9% of the purchase price (not appraised price) plus the cost of repairs to avoid showings. Buyer only gets a rebate if they use an agent willing to pay OfferPad a referral fee.

Yelp reviews hidden from view.

Home values are determined by AVMs (often highly inaccurate).

Only purchase newer homes in the $200k - $350k range. Sellers give up equity for convenience. Buyer information potentially sold for a referral fee.

Sell your home without the hassle.

Sellers pay various fees up to 12% of the purchase price (not appraised price) plus the cost of repairs to avoid showings. Yelp reviews hidden from view.

Home values are determined by AVMs (often highly inaccurate).

Only purchase newer homes in the $200k - $350k range. Sellers give up equity for convenience. Potential buyer information sold for a referral fee.

Compass

Duffy Real Estate

eXp

Knock

Offerpad

Opendoor

CONSUMER RISK

THEIR CLAIM

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Realtor.com

THEIR CLAIM

THE REALITY

CONSUMER RISK

Get free real estate information on our website.

Realtor.com is owned by News Corporation. They make money by selling advertising space and consumer information to agents.

Buyer and seller information is sold to agents with no regard for market expertise.

Discounted rates for sellers and rebates to buyers.

Redfin uses salaried employees to perform some of the tasks of a traditional real estate brokerage or refers their sellers and buyers to other agents willing to pay a significant referral fee.

Minimal representation comes with massive risks for sellers and buyers.

Sell your home without the hassle.

Sellers pay approximately 10% of the purchase price (not appraised price) plus the cost of repairs to avoid showings. Their CEO states, “Most customers who get a Redfin Now offer don’t take it.”

Home values are determined by AVMs (often highly inaccurate).

Only purchase newer homes in the $200k - $400k range. Sellers give up equity for convenience.

Get free real estate information on our website.

Trulia is owned by Zillow. They make money by selling advertising space and consumer information to agents.

Buyer and seller information is sold to agents with no regard for market expertise.

Get free real estate information on our website.

Zillow makes revenue by selling advertising space and consumer information to agents. Seventy-one percent of their income comes from selling consumer information to Premier Agents. They lost $120 million in 2018.

Buyer and seller information is sold to agents with no regard for market expertise.

Sell your home without the hassle.

Sellers pay approximately 9% of the purchase price (not appraised price) plus the cost of repairs to avoid showings.

Home values are determined by AVMs (often highly inaccurate).

Only purchase newer homes in the $200k - $400k range. Sellers give up equity for convenience.

Seller information sold to Zillow Premier Agents.

Redfin

Redfin Now

Trulia

Zillow

Zillow Instant Offers

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