The fast pass to home selling is gaining clout in real estate, offering more homeowners a tough choice: Take an instant cash offer on their home or try to get more money and sell the home publicly on the MLS.
Real estate startups like Opendoor and Offerpad are getting the backing of Wall Street to grow their businesses, prompting real estate brokerages to take notice. Many are now piloting their own competing programs to offer extra assurance and flexibility to sellers who need it for their home sale.
Coldwell Banker, Keller Williams, Redfin, and ERA are among the brokerages that have been testing out their own versions of an iBuyer-type program. Their programs, however, set out to ensure the REALTOR® stays at the center of the transaction, no matter which selling option the homeowner takes.
In October, Coldwell Banker began piloting an iBuyer program in Dallas and Atlanta; it plans to roll out the program to Tampa, Fla., by the end of the year. They’ve teamed with cataLIST, a subsidiary of Home Partners of America, to offer homeowners who need to sell quickly instant cash offers on their home. The real estate agent will serve as the adviser in either the cash offer or the traditional selling option.
Here’s how its program works: Homeowners who list with a Coldwell Banker agent and who have a property that qualifies in the select markets can receive a cash offer—at what’s considered fair market value—from cataLIST within 24 hours of inquiry. Homeowners then have five days to decide whether to accept the offer.
If they accept, they could close on their home within 10 days (or up to a 90-day window, based on their preference). The real estate agent will represent them on the sale to cataLIST, if that’s the option they choose. Properties that cataLIST purchase are then either relisted with a Coldwell Banker agent or cataLIST may elect to do modifications to the property before reselling it publicly.
Homeowners who decline cataLIST’s cash offer will market their home traditionally through their real estate agent on the MLS. As the pilot program is set up now, homeowners cannot change their mind and accept the cash offer after they’ve declined it.
“Customers have always had the choice of choosing different REALTORS®, different marketing approaches, and now they can choose one of two very different transaction approaches, too,” says Ryan Gorman, president and CEO of NRT LLC, which oversees the Coldwell Banker brand. “We have observed certain consumer behavior lately and a subset of our REALTOR® clients have also shown a desire for this type of program. We wanted to meet the [iBuyer] trend in an immediate but protected, comfortable way by keeping our core value of keeping REALTORS® at the center of the transaction.”
The Growth of the iBuyer
The iBuying process has been grabbing headlines over the past year as more startups occupy the space. The programs tend to differ, but the general idea is mostly the same: Offer homeowners assurance of quick, hassle-free sales. These companies tout that homeowners can sell their property instantly with a fair market value offer in cash, and bypass showings or home repairs, and be able to set their closing date to their convenience so that they can quickly move on to their next home.
Opendoor, one of the largest iBuyers, is quickly expanding: At the end of September, the company announced it had raised $400 million in funding from investors, just three months after the company announced it had raised $325 million. The startup plans to use the funding to expand to 50 markets by 2020. The company has also teamed with builders to offer “trade-in” programs, where homeowners can sell their home to Opendoor and then buy a new home from builders, like Lennar and others, in one transaction.
Other iBuying companies—Offerpad, Knock, and more—have also been rapidly expanding their footprints. Brian Bair, co-founder of Offerpad and a REALTOR® for 12 years in Phoenix, says he believes companies like his will be able to generate more transactions in real estate by making it easier and less of a hassle for homeowners to move.
However, there can be a cost for convenience. As owners sell their homes directly to these firms, they could be selling themselves short by agreeing to a lower offer than what they could get by listing it publicly to a wider pool of buyers. After all, these firms are banking on that as they go to resell the homes publicly themselves.
Brokerages Give It a Try
Nevertheless, real estate brokerages are seeing that some consumers are tempted by the lower-stress iBuyer offer, so they’re carefully piloting programs to assess whether there’s enough sustainability to this approach.
Keller Williams has been privately testing out an iBuying program for more than a year in an undisclosed market. It has declined to publicly discuss further details. “We understand there is a market for iBuyer programs, providing a quick option for specific sellers,” says Darryl Frost, spokesperson for Keller Williams. “We have had conversations with Opendoor and others as we sought to discover the right model.” Frost says Keller Williams’ test program, so far, has closed nearly 100 iBuyer transactions in the past year.
Rather than announcing the program to the industry, Keller Williams spent the year learning what consumers really want and developing a program around those expectations. “With so many iBuyer options in the market, the promise of an ‘easy button sale’ by so many has actually caused increased consumer confusion about which program is best for their specific situation,” Frost says. “Through our test, we have confirmed that consumers want an agent to help navigate through all of the options available—from iBuyers/investors to a traditional sale.”
Redfin has been piloting RedfinNow, in which the brokerage will buy homes directly from customers in quick transaction time frames of one to two weeks.
Last year, ERA began piloting Express Sell in limited markets. The company will offer to buy a seller’s home at about 87 percent of the home valuation (based on two appraisals). The offers are made within 30 days of a client meeting with an ERA listing agent on properties that are deemed to qualify for the program. To qualify, sellers must also agree to buy their next home through an ERA real estate agent.
ERA has already offered a Sellers Security Plan since 1976, where the company will buy a home at 90 percent of the home’s market value if it doesn’t sell within 180 days of listing it. But the brokerage views Express Sell as more of a marketing tool to offer to homeowners who need to buy or sell a home quickly. Homeowners who take the Express Sell offer will have assurance of a home sale, which potentially could put them in a stronger negotiating power or might help in securing financing for their next home purchase. But not all homes will qualify for the program, and not all homeowners may like the price offered, ERA acknowledges.
“Agents have been successful with the program, especially when there are contingencies, a fixed timeline, or need for a guaranteed buyer,” says Dave Collins, chief operating officers at ERA Franchise Systems. In cases where ERA does end up purchasing a home directly from a homeowner, the ERA agent will then relist the home publicly.
Collins says the company started piloting ERA Express Sell in response to the evolving marketplace. “While there are many new products clamoring for the spotlight, the differentiating factor with this program is that we are not coming from the perspective of an investor,” Collins says. “Rather, the goal is to try and provide the consumer speed, flexibility, and options to get their home sold quickly, and with peace of mind.”