In some ways, technology has transformed the process of buying and selling houses – most paperwork can be completed without picking up a pen, a majority of home shoppers will see your property online before they see it in person. Whether you’ve never purchased a house, or are considering putting your house on the market after a decade or more of ownership, you will benefit from understanding how technology is used today to buy and sell real estate.
A Majority of Home Shoppers are Online
Zillow.com is the top real estate search portal in the United States followed by Trulia.com and Realtor.com. According to this report, conducted by the National Association of Realtors, 99% of Millennials, 89% of Older Boomers and 77% of the Silent Generation searched online websites when buying a property. On average, about 43% of buyers start their property-search online.
As a buyer, these online search portals can provide you with information that was previously only available through a Real Estate Agent or by talking directly to the seller. This makes it easier to compare home prices, learn about neighborhoods, and gain a deeper understanding of the market that you are interested in buying in.
For Sellers, this means that it is more important than ever to work with a Realtor® that understands the nuances of online advertising. This type of advertising includes the presentation of your property, usually using professional photography and video, as well as a sophisticated distribution strategy so that your property is seen by qualified buyers. For example, one study showed that a property video can increase views of your property by 400%. Even if the true increase of listing-views is a fraction of that number, that would be a significant boost in exposure!
Getting to Know Your Local Market – Market Stats and Trends
In addition to property inventory, a number of websites will provide statistics and analysis of local markets. By taking a little bit of time to study the areas that you are interested in purchasing or selling real estate, you can develop realistic expectations of a given property’s value. For example, you can assess the average price you’ll likely pay or receive for a certain type of property, how the value of that property may fluctuate in the coming years, and how quickly the market typically rebounds after recessions.
The more realistic your expectations, the more likely your real estate purchase or sale will be profitable in the long run.
The Real Estate Transaction – Buying or Selling A Home Paperless
Given the large number of reports, disclosures, and documents that needs to be reviewed and signed by multiple parties, it’s no surprise that one of the first things that moved online was the actual transaction process – that is the process that starts once you enter into a contract to buy or sell a property to another party. Softwares like DocuSign will allow you to view and sign documents using a virtual signature, meaning you can sign all documents on your computer, tablet, or smartphone. For most, this provides more convenience, allowing you to complete the transaction from anywhere in the world.
iBuyers and Online Discount Brokerage Models
iBuyers are companies that will make an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. When selling to an iBuyer, the other side of the transaction is a company or an investor.
We are grouping companies like Open Listings and Purple Bricks into the online discount brokerage models. These companies promise to help you purchase a property online, without needing to work with one individual agent.
In the past few years, iBuyers like Offerpad and Opendoor have benefited from investor dollars and media attention. Some brave sellers have waded into the new waters of the iBuyer real estate transaction, selling their home quickly through online portals. While this model can speed up and simplify the process of selling one’s home, there is a cost for convenience.
Market Watch did a study of over two dozen transactions, and found that transactions involving iBuyers resulted in property sellers netting, on average, 11% less than owners who choose to sell their homes on the open market. When fees and other costs are considered this translates into tens of thousands of dollars lost.
Additionally, while offers appear to be “instant”, in truth they are often contingent on property inspections (which is common in any real estate transaction). However, the difference is that you do not have a seller’s agent protecting your interests or negotiating on your behalf. In most cases, the iBuyer will expect you to pay for all of the repairs, or to refuse, at which time they can choose to get out of the deal. In contrast, we typically see that under traditional circumstances, buyers and sellers are willing to split the costs to repair, allowing for more flexibility and assurance that your home will get sold.
Finally, when considering incentives, it is unlikely that an iBuyer will offer you the highest price – they are the ones buying your property after all. In comparison, a Realtor’s only job is to get your home sold, and through their commission, he or she is incentivized to get you the highest price.
If you do not have a strong need for this added convenience, you will likely benefit from listing your home on the market and getting multiple offers, especially in a high-demand market like Santa Cruz, CA. It is not uncommon for sellers to get multiple, competing offers. Often times, with strategic guidance from an experienced Realtor, this can result in a significantly higher sales price. With that said, iBuyers may be a good option for a unique type of seller – one who has been through and understands the process of selling a home, and would greatly benefit from a quick sale.
Online Discount Brokerage
When it comes to buying properties, online discount brokerages attempt to “Streamline” the process by allowing you to look for properties, write offers, and complete deals online. Open Listings is one of the top competitors in this space. The reviews are mixed. Our research suggests that this option is not ideal for the first time home buyer. You do not have the assurance of a local, experienced agent defending your interests throughout the deal. For example, what if the Santa Cruz City Council is considering approving a homeless campsite across the street from the home you are about to buy (this actually happened to a client of ours this year)? Services like Open Listings assign you their pool of agents and do not give you the ability to look beyond their small network. This is synonymous to tying yourself to a single Brokerage, simply because they have a slick website. What if that Brokerage has inexperienced agents, or bad reviews?
A major draw for these types of Brokerages is that they give some kind of monetary incentive – a fixed amount or a portion of the buyer’s agent commission. If you are an experienced real estate buyer, know the market well, and feel confident negotiating on your own behalf, this may be a good option for you. If not, you may end up losing significantly more than these financial incentives if your transaction does not go well.
Technology has significantly improved the real estate industry. The greatest benefit is that the availability of listing data and market trends will help buyers and sellers to make more informed decisions. It has also expedited the transaction process once in contract. For some, iBuyers and online discount brokerages may provide added convenience, but should be approached with caution.
If you would like to learn how we use new technology to help people like you buy and sell real estate in the Santa Cruz area, please don’t hesitate to contact us!