What are your home selling options in Arizona?
Home sellers in Arizona have gained more new selling options in the last few years than in the few decades prior. From agents offering to list homes for a flat fee, to companies like Opendoor, Offerpad – and now Zillow – buying your home directly, there’s no shortage of alternatives to the traditional real estate agent set-up in the Phoenix area.
So, how do you choose between them? Let’s do a home selling options comparison so you can decide which of these options is right for you.
If you just want “the bottom line” on how much each option will cost you, scroll down to the heading “The Bottom Line”.
The Traditional Real Estate Agent Model
Long before your momma met your daddy, real estate agents were charging hefty commissions for bringing buyers and sellers together. Even though there’s no “set” or “standard” commission rate, sellers have become accustomed to paying 3% of the sale price to seller’s agents and another 3% to buyers agents. Six percent is very big chunk of change which is why we’re starting to see lower priced alternatives in the market (and also why there’s a real estate agent or two on every block).
So let’s talk about those alternatives.
A Low Priced Alternative to Traditional Agents – Flat Fee
Technology has changed the way real estate transactions are done. It is MUCH easier today to get deals done than it was 10-15 years ago. Buyers and sellers have a lot more access to information which takes much of hassle out of the real estate agent’s job. Plus, the tech tools that Realtors use today make the transaction infinitely more efficient. Yet, somehow, the average price that real estate agents charge hasn’t come down relative to the lower amount of labor involved.
In response to this inequity in value, is the influx of “flat fee” real estate companies like Value Nation (my company) and Redefy. These discount real estate companies offer the same service as traditional brokerages but operate at such an efficient level that they can afford to charge much less. Selling and then buying with a “flat fee” real estate agent can save you tens of thousands of dollars.
Direct Buy Real Estate Companies
Now let’s talk about the newer and more mysterious players: Direct Buyers, otherwise known as iBuyers, like Opendoor and OfferPad. It’s actually a bit of a misnomer to label them “new” and “mysterious” because they are essentially doing something that has been done since before anyone can remember: they’re “flipping” homes. What makes it different is that they have so much money and such sophisticated technology that they can do it at much smaller margins than the more traditional “We Buy Ugly Houses” of the world. So, to be clear, direct home buyers like Opendoor and OfferPad are just companies who invest in homes, fix them up and sell them for a profit.
“But,” you say, “their commercials make them sound so different. Don’t they make it super easy for me to sell my home?” Yes, they do, and that’s because of the capitol and technology they have.
“But,” you say, “don’t they save me money by cutting out the real estate agent?” Well, not really. They still charge a “fee” (most of the time even higher than paying 2 agents!) for the pleasure of doing business with them. And, technically, they have in-house real estate agents so, no, you’re not skipping the agent OR saving any money.
So, what about Zillow? How do they fit into the picture?
Zillow is actually another entry into the category of Direct Buy Real Estate Companies. Much like Opendoor and OfferPad, Zillow will make you a quick offer to buy your home, they’ll charge a fee and then fix and flip it as quickly as possible. There are a few subtle differences that we’ll get into but they are very similar business models. In fact, Arik Prawer, who runs the Zillow Instant Offers program and Jerry Coleman, OfferPad’s CEO, have a common background (Invitation Homes).
Since Zillow is the newest entrant, let’s peak under their hood a little more than we did the others.
According to Forbes, if you live in one of Zillow’s test markets (Phoenix is one of them), Zillow will make an “Instant Offer” on your home, usually within 48 hours, and then confirm that offer by sending an assessor/inspector to your home a few days later. Additionally, they will have a traditional (full price) real estate agent (that they choose) provide you with a Competitive Market Analysis so that you can get an “independent” estimate of value. You then have the choice to take the Zillow “Instant Offer”, sign a contract with their preferred agent or do nothing. Much like their direct buy competitors, the timing of the sale is flexible.
Despite being relatively late to the game (Opendoor has been doing this since 2014), Zillow has a distinct advantage over its Direct Buy competitors: they “own the lead” because they’re most buyers’ first stop when they’re thinking of selling their home. In other words, Zillow has can influence potential customers (home sellers) more directly and much earlier in the buy cycle than their competition. Plus, they have an unprecedented amount of information about the prospect’s home and preferences. Another interesting point to consider: Zillow’s Zestimate has become the go-to benchmarking tool for consumers to check the value of their homes. Do you see a potential conflict of interest when the company telling you how much your home is worth is also interested in purchasing your home?
So now, let’s do a little comparison of the pros and cons of each model to see which one might be best for you when it’s time to sell your home.
The Bottom Line
Traditional “Full Price” Real Estate Agents –
- This method is tried and true.
- In most cases, you’re going to be working with a pro that has your best interests in mind.
- You’re selling on the open market so you’re likely to get the highest price for your home.
- Cost. When using traditional real estate agents to sell your home, you will most likely pay 5%-6% in total commissions.
- Compared to the Direct Buy model (ie. Opendoor), your home could sit on the market much longer while you incur costs and deal with showings and even the outdated practice of open houses.
The numbers: On a $400,000 sale, you’ll likely pay $20,000 – $24,000 in total commissions netting you $376,000-$380,000(this assumes a 5%-6% total commission).
Flat fee real estate agents:
- Savings. Rather than paying your agent a percentage of the home’s sale price, most flat fee agents charge around $3000 to list and sell your home – usually saving you around $10,000 or more.
- Many flat fee agents offer all of the services that traditional agents offer.
- Compared to Direct Buy companies like OfferPad, your home is for sale on the open market so you’ll get top value for it.
- Compared to Direct Buy companies, you’ll likely have to endure showings and everything else that comes with selling a home on the open market.
- Honestly, I can’t think of any other cons. That’s why I founded Value Nation. I really believe it’s the best option for most people.
The numbers: On a $400,000 sale, you’ll likely pay $13,000 – $15,000 in total commissions netting you $385,000-$387,000(this assumes a 2.5%-3% total commission for the buyer’s agent and a $3000 flat fee for the seller’s agent).
Direct Buy companies like OfferPad, Opendoor and Zillow –
- No need to go through the hassle of finding an agent, listing your house, dealing with showings and unstable buyers.
- Close when you want to close.
- Cost. This model is all about convenience but you pay for it big time. These companies are buying your home so they can sell it for a profit. They can only do this by getting a good deal on your home. Giving people a fair deal is fine. Giving people a good deal is bad.
- Cost. Not only are you going to get less for your home, you’ll also pay a fee that’s about the same as paying 2 full price agents (or more) – just for the pleasure of doing business with them.
The numbers: On a home worth $400,000, you can expect them to offer you AT LEAST $15,000 less than your home’s open market value (and that’s being generous to them), plus they’ll take AT LEAST 6% in fees, netting you about $361,000.
So, there you have it. In this example, you’ll lose almost $40,000 for the convenience of selling directly to Zillow, OfferPad or Opendoor. You’ll pay around $22,000 if you’re more comfortable going with the most traditional situation (full price agents). And you’ll pay about $14,000 if you’re forward thinking enough to use a flat fee broker.
There are pros and cons for each. It just depends on how much time you have and how much you’re willing to spend.