Carvana disrupted how automobiles are bought and sold, Uber changed the way we get around, and Airbnb brought a new twist to where and how we stay when traveling.
It was only a matter of time before technology entrepreneurs would take a shot at making the home buying and selling process more efficient.
Within the past three years, startups like Opendoor, Offerpad and Knock — dubbed iBuyers — launched platforms to simplify the buying and selling process as much as possible using technology. The platforms mean a reduced role for real estate agents, but doesn’t eliminate them.
San Francisco-based Knock made the Atlanta area its first market in 2016 with the hope of getting traction before the others arrived. Opendoor and Offerpad followed soon after coming into Atlanta last year.
How they work
These startups use complex algorithms combined with a set of criteria – lot size, age of home, condition of the home, location – to determine the market value of homes and subsequently the buying and selling prices. They focus on homes in the $100,000 to $500,000 range, the sweet spot for the market because homes in that range turnover more frequently.
Opendoor and Offerpad have similar offerings. Both will buy a seller’s home, do the necessary repairs, and then sell the house at a higher price.
David Zanaty, Opendoor’s regional general manager for the East region, said Opendoor has a team focused on cultivating relationships with real estate agents so they can be armed with an offer from the company when they talk to a seller about a listing. That gives the seller a choice of doing it the traditional way or sell to Opendoor right away.
“We are trying to provide certainty and control for our customers,” Zanaty said.
Offerpad doesn’t have a proactive program for building relationships with agents, but Cortney Read, Offerpad’s director of communications, says it is in the “process of developing different tools to allow Offerpad and agents to work together with less friction.”
Part of the conversation Opendoor and Offerpad has with the seller involves trade-offs. The seller may not want to pay for repairs needed to prepare the home for selling. They also may not want to spend the next two months keeping the house clean and ready for a showing, then having to leave at a moment’s notice.
“Most people don’t want to spend money on their house when they are ready to move,” said Read.
But the tradeoff may mean a lower price for the home than the seller originally wanted. “When you break it down, they may get close to what they would have gotten,” she said, however.
Brian Benninghoff, an agent with Atlanta Fine Homes Sotheby’s International Realty, isn’t convinced that the Opendoor or Offerpad approach is what’s best for sellers. “The tried and true method of selling will always get the best price for sellers,” Bennighoff said.
When it comes to commissions and fees, Opendoor doesn’t interfere with a listing agreement if one exists. According to Sam Westelman, who handles agent relations for Opendoor’s east region, the company adjusts the service fee it charges the seller when a listing agreement is in place. If the seller goes directly to Opendoor, the service fee is 5 percent to 6 percent.
Offerpad gives agents who bring a seller a 1 percent referral fee. Sellers pay a service fee of 7 percent to 10 percent.
If there’s a listing agreement in place, Offerpad doesn’t pay the referral fee. She said many times the seller’s agent agrees to reduce their commission since there is no co-broker commission to be paid.
Knock has an entirely different approach. Knock buys the new house for the seller, does whatever repairs are needed on that house and then moves them in. Repairs are made to the previous house and put on the market. When it sells, Knock transfers the new house to the homeowner and repair costs are worked into the mortgage.
This approach is a change from Knock’s original business model of guaranteeing to buy someone’s home if it didn’t sell six weeks after the company listed it. The goal was more convenience, certainty and cost-efficiency to the home seller.
“While the list guarantee model was great for certainty, it didn’t do very much for the other two,” Sean Black, Knock’s CEO and co-founder.
Knock found that the greatest challenge for sellers had to do more with the purchase of a new home than anything else – contingencies, timing the sales and associated costs.
“By buying their next home on their behalf first, we effectively remove their mortgage contingency, helping them win bidding wars and often getting them a 3 percent to 5 percent discount on the new home,” Black said. “Plus, they don’t have to worry about the timing of the sale of their previous home or living through the listing process.”
In this process, Knock takes the place of the listing agent in selling a home. But Black said, “Other agents can still show their buyers any of our homes with 100 percent confidence that they will receive a full buyer agent commission should their buyer purchase one of our homes.”
Only time will tell how disruptive Opendoor, Offerpad and Knock will be to the Atlanta home sales market. But they have traction. Each has hundreds of homes listed for sale among the more than 20,000 listings the Georgia MLS reports for the Atlanta metro area.