Friday, June 28, 2019

Instant Buyers?

The latest in real estate are these so-called "instant buyer" programs from companies like 'Open Door'. I find it fascinating how this concept is tracking beyond the 'I have to sell fast' crowd. It is important for a home owner to understand that an investor takes on a great deal of risk when they buy a house with the intent to resell at a profit. This will come at the seller's expense.

I am genuinely shocked to see a rise in this kind of business. again, they serve a purpose for someone that has to sell quickly for whatever reason, new job far away, death in the family, etc. Sellers that are simply motivated by the ease and convenience of not having people look at their home are giving up a large sum of money for that convenience. Some may feel like they are getting a better deal through the "instant buyer" programs, that is highly unlikely especially in Washington State.

When a house is sold the State of Washington collects an excise tax of 1.78% from the seller. If the buyer is planning to resell the home in the near future, which is the intent of most operators of the instant buyer concept, they assume all the market risk and will have to pay that 1.78% excise tax again. Many of these programs have a 30 day closing and during that time they often attempt to sell the contract to purchase to a third party, thus gaining a fee and no exposure to market risk or costs to resell. All of this comes at the expense of the seller.

In order for the instant buyer to work for the buyer they need to acquire the home at a price at the very least 5% under market. They typically levee a fee of 5% to the seller and then the extra 5% would cover selling expenses should they be unable to sell the original contract to a third party. Few people with the resources to pay cash for any quantity of homes would be willing to do so with such a tiny profit margin.

My experience is that they acquire the rights to buy at more like 15% under market. Why on Earth would a seller not under any duress to sell, want to do that? A traditional real estate arrangement will be much better for the seller. These instant buyer or sell guarantee offers are geared to protect the buyer, NOT the seller. The fall back guarantee price will likely be well under actual market value.

Sellers can negotiate with listing agents in Washington State. If money is tight then negotiate a lower fee. Sometimes if the property is desirable, realtors® will compete for listing and the seller could easily make $10-20 thousand MORE than these "easy" instant buyer deals. Yes, the seller will have to clean the house and allow agents to bring buyers in for a tour. Seriously though, if you own a $300,000 house it is unlikely you make enough money to turn your nose up at $20 grand for what amounts to a little bit of inconvenience!

Seller beware, these "guaranteed deals" often do not pass the sniff test.

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