Opendoor and Zillow Instant Offers made a big splash last October when they entered the Denver market and began making “instant offers” to home sellers.
Now, 8z Real Estate, a Boulder-based brokerage firm, and Redfin, a national brokerage, have joined them in what promises to become an increasingly popular way to sell a home.
Instant offers provide owners a quick exit, sparing them from the hassle of making repairs, having strangers traipsing through their bedrooms and bypassing negotiations that can border on psychological warfare.
“We eliminate a lot of the risk out of that transaction, and we are competitive on our offers,” said Michael Welk, market manager for RedfinNow, which announced its Denver launch on Monday.
A deep-pocketed buyer or iBuyer makes an initial offer, quickly, less repair costs which are determined after an inspection. They prefer bidding on homes with minor repairs, things like new paint and carpet, and ones that won’t linger on the market for too long.
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Often the discount isn’t much larger than the 5 percent to 6 percent commission plus repairs that a seller would have to cover anyway. Sellers get a date-certain closing without any contingencies, and the iBuyer assumes the downside risk if the market softens.
So why go against much larger players that have raised billions of dollars to purchase homes and broad name recognition?
“We have more flexibility. Our buy box is bigger,” said Lane Hornung, founder of 8z Real Estate. “We have more confidence in our local market knowledge.”
Opendoor and Zillow have focused on a narrower slice of the market, Hornung said. They are skipping Boulder, Fort Collins, Colorado Springs and Greeley. Fearful of the repair surprises that can come with older homes, they don’t want anything built before 1970. And they shy away from homes that cost more than $600,000, given that their longer sales times tie up their capital.
Redfin and 8z both claim they are more flexible in the kind of homes they can make offers on because they have better market intelligence, gleaned from having agents on the ground. And they can do a better job of selling the homes that they do buy.
“The house we put on the market was built in the 1940s, but it was the right situation for the client,” said Welk of the first property that Redfin Offers is listing in Denver.
Zillow and Opendoor, by contrast, rely on outside firms and agents with expertise in managing and selling bank-owned real estate and foreclosures, Hornung said.
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Real estate brokerages also have a competitive reason for getting into the bidding game. They risk losing clients and listings if they don’t include that option on the menu. It is about customer service.
Hornung said iBuyers accounted for only 0.2 percent of sales last year, but he predicts they could represent 10 percent to 20 percent of the market in the not-so-distant future.
8z, through its Zavvie subsidiary, which is focused on developing hyper-local expertise, was already helping sellers comparison shop instant offers. It was a natural progression to offer its own option to fill in the gaps.
“We really want to give sellers all the options,” he said. “There is an idea out there that agents are anti-iBuyers — not the smart ones.”
