Sunday, June 16, 2019

Buying And Selling A Home Should Be A Very Big Deal

A Home May Be The Largest Purchase You Make
Because it is most likely the largest purchase most consumers will ever undertake, buying a home should be a big deal. As homes in the US have become increasingly unaffordable many of those who can afford to buy have pointed to what they view as insanely high commissions paid to agents and brokers as a big problem. These fees can amount to 6% of the sales price. The U.S. residential real estate industry has long faced criticism that it stifles competition among brokerages, protecting agent commissions. This is viewed as the main reason these commissions remain higher than those paid by sellers in many other countries. In 2008, the Justice Department reached a settlement with the National Association of Realtors designed to lower commissions paid by consumers by opening the industry to internet-based brokers.

The growth in the internet and consumers seeking easy and fast answers has resulted in the growth of several online concerns such as 'iBuyers,'  Open Door, and Zillow. My most recent research into the changing face of American home-ownership has left me feeling nothing has really changed much from the For Sale By Owner (FSBO) days which has been around forever. If a seller is inclined to lower their price enough they can get a fast sell but it often is not in their best interest. I have an aversion to house "flippers" that I often see as bottom feeders putting lipstick on a pig then vanishing into the night. A quick coat of paint often covers a multitude of sins but quickly fades.

Expect To Pay Much More For "Move In Ready"
It seems that one trend for the often lazy consumer that wants everything done for them is contacting a company such as iBuyer. An iBuyer is a company that uses technology to make an offer on your home instantly. iBuyers claims to offer in many cases, a simpler, more convenient alternative to a traditional home sale. How they operate varies, but the underlying idea is they estimate the value of your home and make an offer. Then, if you accept, they take on the burden of owning, marketing, and reselling the home. whether the convenience of selling a house this way is worth taking less, maybe far less, depends on the sellers situation and attitude.

As I understand it, Opendoor is a start-up out of San Francisco that will buy your home themselves, take ownership of the house, fix it and flip it. Whether you are really dealing with that company or a copycat version they send you an offer online to buy your house sight unseen based on their algorithm. The offer is only subject to an inspection of the physical condition of the house. They don’t do an appraisal but trust their algorithm to determine the value of the house. I assume Opendoor will lower their offer price if the condition of the home turns out to be below average. Since Opendoor has to make money the do charge the seller a fee. Opendoor has 3 different fees, some flat, some variable. In metro Phoenix, in total the fees are 8% to 10.5% of the price of the home.

Hiring a real estate agent to sell your house means that you are likely to pay 6% so Opendoor is more expensive by 2% to 4.5% of the home’s value but it does have several advantages. The bottom-line is that Opendoor is fast, it is certain, and super convenient. Also you do not have to worry about whether the an appraisal or the sale being contingent on the buyer being able to obtain financing. All these advantages gain a great deal of merit in certain situations such as when you inherit a house and the proceeds will be split between the heirs. Other circumstances that might justify the cost is that your time is very valuable, you have other priorities, or simply cannot cope with the stress of taking the more traditional route.

A couple tips or notes;
  • Buying a house that has been made "move in ready" often means you will be paying a hefty premium. 
  • Appraisals matter, never pay over appraised value. 
  • Don't fall in love with someones furniture, it is best to view a house when it is empty.
  • Location is important, there is a reason they say, location, location, location!
  • Try to position yourself so as not to be in a hurry.
  • Negotiation skills are important, know what is important. 
  • Remember that because someone is a realtor does not make them an expert or your best friend
  • Buying in a city that you are just moving into is extremely treacherous, learn the area before buying!
  • It is always far easier to buy than to sell.
  • Remember buying a house is a long-term investment, it seldom pays to constantly move.
  • Ask yourself, how much house do you really need? Over-sizing can be very expensive.
Any way you look at it, buying and selling real estate carries with it some cost but also in the transaction lurks the potential to add a lot of dollars to your net worth. That is why I seriously urge anyone about to start down this path to treat it as a money making proposition. This means study, study, study, and be ready to exploit the lackluster efforts or lack of knowledge others bring to the table. The willingness to roll up your sleeves and do a little work and accept a property that needs a little work not only allows you to customize it to your own unique taste but yields big financial dividends. As stated at the beginning of this article, because it is most likely the largest purchase most consumers will ever undertake, buying a home should be a big deal. Sadly many spoiled self-centered Americans have lowered the true economic impact purchasing a home plays in their life because easy financing is often available.

1 comment:

  1. I don't know about that buying being easier than selling. Have you seen some of the overpriced garbage that is out there, especially in New Jersey? I've been looking for a year and have found nothing that I even wanted to put an offer on.