Why are real estate companies advertising to buy your home? Richard Montgomery



Dear Monty, we have no plans to sell our house yet. One of the curious observations we have is that real estate companies have started to promote the purchase of our home over the past year. The idea is that by selling real estate directly to a real estate company, we can avoid the hassle and uncertainty associated with promoting our home for sale. We reviewed an exchange program 20 years ago when we bought our last home and found it costly and one-way. What is causing this new shift?

Monty’s answer: Over the past 20 years, there have been at least two significant changes that have affected the way some companies sell real estate services today. Consumers today are used to receiving instant service. You can buy a refrigerator online today and get it tomorrow. Technology has made many of us lose patience.

Secondly, the real estate industry has recently become attractive for investment capital: large corporate or public companies. According to TechCrunch, the online newspaper for tech enthusiasts and startups, new real estate startups have raised $ 18 billion over the past decade. Their goal is to get a share of the steady stream of income generated annually in the United States when consumers buy and sell homes. Last year alone, brokerage fees totaled about $ 80 billion, not counting fees from mortgages, title insurance, and other related services and products. Some newbies, called iBuyers, rely on the ease of selling directly to them, and the seller can live their lives. Companies like Open Door, Redfin, Offerpad, and Zillow are now marketing to sellers and have big ad budgets. According to CNN News, in February 2020, Zillow “lost millions” every month due to its iBuyer initiative, but they are still expanding.

Market share protection

Real estate companies are adding this “new” service to their standard offerings. They see iBuyer as a threat to their livelihoods and resist by replicating the service locally. Ironically, the real estate industry has done an excellent job of protecting their fees. They have convinced themselves, consumers and the media that the real estate transaction is very complex. Hence the need for their services.

IBuyers Buyers Received Less Than One Percent

Typically, iBuyers shoppers add a twist to their offerings to stand out and address the pain points of consumers whose situations are not the same. Resins differ depending on who they want to attract. For example, Knock is a company focused on sellers who cannot or will not buy a new home until they sell their old one. No matter what kind of buyer iBuyer is looking for, they all claim to pay you a fair price. Redfin, a leading iBuyer company, reported on March 11, 2021, “Leading national iBuying companies acquired 3,505 homes in Q4 2020, down 48% from a year earlier.” This represents “0.3% of homes sold in 418 US metropolitan areas tracked by Redfin in the fourth quarter, up from 0.8% a year earlier, but slightly higher from 0.2% in the third quarter of 2020.”

Time will tell

This Redfin report suggests that consumers today are aware of the conflicts of interest that iBuyers represent, just as you did twenty years ago. The last few years have been in a strong seller market; it will be interesting to watch this segment when the real estate market changes.

Richard Montgomery is the author of Home Money: Insider Secrets to Save Thousands of People When Buying or Selling a Home. He advocates for industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty or DearMonty.com. Write to him on [email protected]

Photo: mikecook1 on Pixabay


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