REAL Trending Episode 57
Living With IBuyers, The Information Age, 3 Priorities
From Real Trends, the trusted source for real estate industry news, this is Real Trending episode 57. We’re breaking down trends of the week and showing how they impact brokers and agents. I’m Steve Murray, president of Real Trends. Today we’re talking about living with iBuyers; the information age, you can’t keep it secret anymore; and what are your three priorities?
Living With iBuyers
Living with iBuyers. First of all, it’s important for everyone to know that in the 70s and into the 80s, most major independent brokers had programs that said simply if we can’t sell your home, we’ll buy it. Offering a money back guarantee, if you will, is not a new theory. What is new with iBuyers is access to substantial capital, the ability to process information especially on the valuation front, and to understand your cost of buying and selling homes, and having access to information instantaneously about trends in every single market that they’re buying and selling homes in.
Most people seem to be running in fear a bit from iBuyer companies, but if you have been watching a little bit carefully, you’ll notice that companies like Offerpad and Opendoor are busy partnering with others to offer their services through brokers and agents. This smells like an opportunity where brokers can go back to the days of yesteryear, potentially, and have their own agents offer the service without the brokerage company having to invest their own capital or face any monetary risk from doing it. Interesting thought, right?
Secondly, research reports that have come out in the last month or so, two separate ones we’ve read indicate that when you look at the market prices paid by some of the iBuyer companies in two or three markets where it was studied, they found that the actual total cost to the seller when you include the discounted price from true fair market and then the cost of the service fees, that the actual cost is 12 1/2 to 15%.
We’ve interviewed a couple of key agents who are flipping this on its head, and when they’re talking to sellers, they offer one, two or three of the iBuyer company offers. If that homeowner wants to get out in a hurry and get their cash and move on, they certainly can do so. But the agent would offer, “That could cost you 12 1/2 to 15% of the value of your home. Here are the actual costs if you list it with me and I get it sold and closed in 90 days, here’s what those costs will look like.”
We have both agents and brokers now offering iBuyer type services and instructing and educating their agents how to really look at the true cost for a homeowner who’s going to list with one of your agents. When you consider commission, and carrying cost, and fix up costs, and closing costs, have you really thought about the economics that a traditional brokerage and their agents can offer to a seller that may compete very favorably with the economics of the iBuyer companies, while at the same time offering iBuyer like services if someone really needs to get out in a hurry for whatever reason that might be? I think the industry needs to take another look at this, and not worry about it and not be concerned, but rather needs to turn this into an opportunity.
I’m reminded that some brokers in years past when faced with the influence of the Zestimate and other automatic valuation tools online, what they would do to counteract those tools that were available independent of their own websites is they would put two or three of them up on their websites, so when a homeowner looked to see what’s my home worth, they would see estimates from three different companies, and of course in all likelihood they were all different. The message would then be you need to consult a realtor, a good agent to decipher this information given that all three are different.
I think with the iBuyer companies, brokers and agents need to rethink this. Stop dealing in fear and rather deal in opportunity. Really do your homework. What does it cost someone as a percent of the fair market value of their home to list and sell through you versus going with the iBuyer company, particularly with this research out that seems to indicate that the total cost of an iBuyer could be from 12 1/2 to 15% of the value of someone’s home?
The Information Age
Our next topic, the information age, you cannot keep it secret anymore. There were two recent articles in The Wall Street Journal, one about how the value of homes as developed by and delivered by automated information systems that can be used in federally underwritten mortgages. It’s under consideration to raise the price level where automated valuations can be used as opposed to in person valuations. There’s talk about raising that limit from $250,000 to $400,000. Now, of course there are those who think this will make the process faster, easier, and simpler, and lower cost for mortgage companies if they can use automated appraisal up to 400,000 as opposed to 250. That is, by the way, the great majority of all the homes in the country being bought and sold as most people would recognize.
There are those who say, “This is great. It’s faster, cheaper, and simpler,” and of course there are those who say, “Well, it’s not the same. You can’t be sure. It’ll increase risk to the marketplace.” And those are all some valid arguments. But it is interesting that we are coming to the age increasingly where actually the expert systems can do the job at least as well, if not better than on the ground appraisals can do, subject to human judgment on the valuation and the adjustments for comps, especially when you have access to millions of transactions as the automated engines do.
Secondly, a story out about how AirBNB and VRBO are cutting into the highly specialized summer rental business this past summer season in places like the Hamptons and elsewhere where brokers in those markets used to have, if you will, a monopoly on the rental of summer cottages, beach homes, mountain homes, and other. Well, when you thought you had a cozy little deal because you were in the market and you knew the market, but you then have clients who go, “Well, I’m not getting the activity I wanted,” marketing their homes on places like AirBNB and VRBO and many others, and all of a sudden you watch your business starting to melt away.
It’s another example of how we cannot contain a marketplace simply because we think we have a monopoly over the information in that marketplace. As Rich Barton, CEO of Zillow, said at the Gathering of Eagles nine years ago, you cannot keep information bottled up. It’s going to want to be free and be accessible.
These recent examples of automated appraisals and AirBNB and VRBO cutting into brokerage summer rental business, and presumably the same is true in the winter time in winter resorts. It’s another example of how the brokerage industry needs to think a little bit more clearly about how are we going to get this information out and in the hands of consumers and potential customers and clients and stop the madness of thinking that because you have it bottled up in an MLS or a local marketplace that other people won’t bash through those barriers and connect the ultimate supplier of a property as it were with those who would like to use it.
Lastly, your three priorities. In our consulting work with brokerage companies of all kinds, large and small, independent and branded, and regardless of region or business model, we are finding more and more that with so many different new types of business, the disruptors if you will, that far too many leaders, and this goes for some teams and agents as well who seem to spend more time on Facebook and news feeds reading what’s going on than actually focusing on the priorities of their business.
If you read people like Patrick Lencioni and Jim Collins and others, Darren Hardy is another good one. I mean Jim Collins puts it succinctly. If you have more than three priorities, you have no priorities at all. We have said for brokerage companies, there really are only three priorities. One, recruiting talent, both agents and staff and management talent. Two, developing talent. Increase their productivity, increase their skill levels at whatever role they have in your company. Third, to, all kidding aside, spend less money than you have coming in.
We’ve given that presentation in front of a dozen or more audiences of brokers, and often we get a chuckle initially, whereupon we have to remind them that we’re not kidding. The brokerage business is and always has been fundamentally about recruiting talent, developing talent, and spending less money than you have coming in. Now, every one of those things has tactics surrounding it, but we challenge our brokerage friends and clients and agents and teams, what are your three priorities right now? Going into the fall of 2019, every business in this industry should be focused on those top priorities, and we need to learn to say no to things that don’t apply to those.
It’s going to be an interesting fall. We just had the first uptick in existing home sales in the last 17 months, but it wasn’t much of one, .2%, but enough to say that at least the 16 month streak of downward trends in existing homes sales appears to have leveled off. How are you going to get through the fall and the winter months when housing sales cyclical decline? What are your three priorities?
Learn more about industry trends, marketing, and technology strategies, as well as listen to past Real Trending episodes on our website, www.realtrends.com/blog/. This has been Steve Murray. Until next time.