In a previous post, we talked about Millennials in the home-buying process, and how to best position yourself for success in today’s market. So now that you’re ready to dive in, what does today’s house-buying process look like? How is it changing? What’s the story on these new options to buy and sell directly from companies like Redfin and Opendoor?
The Roots of Today’s Housing Market
An interesting article on Curbed.com outlines the history of the US housing markets following World War II and details how much more expensive it is for the typical homeowner to buy a house today. While many Millennials express a desire to own a home, it is clearly not the same landscape their parents and grandparents faced when they were first entering the housing market. This creates challenges for today’s buyers.
Nevertheless, for Millennials who are on the precipice of home ownership in 2019, the general consensus seems to be that there’s no time like the present. Why? Because interest rates are expected to climb this year, which means that nothing will be as affordable as it is at the moment. Prices have dipped some since the beginning of 2018, too. Individual markets vary of course, but if you are considering homeownership, this is a good time to dive in.
What Today’s Buyers Look For
Like many aspects of today’s society, real estate trends have begun to shift in light of the sheer number of Millennials entering the market. Though many industry analysts have pointed to Millennials as a generation of renters, the numbers support the idea that this demographic does, in fact, want to own a home. And when Millennials go house-hunting, they are generally looking for smaller starter homes in need of very little—if any—renovations.
The largest portion of Millennials will turn 29 in 2019. Since homeownership and other life milestones like marriage and children usually coincide, all signs point to 2019 being a big year for Millennial home buyers. And next year, as this group turns 30, the trend will likely continue. The rate at which Millennials become homeowners may heavily depend on the interest rates.
New Buyers, Same Process?
The home-buying process has changed very little over the years. Generally-speaking, sellers find a real estate agent who evaluates the current value based on its condition and what comparable homes are selling for. The agent adds the home to the MLS (Multiple Listings Service) so buyers and agents can find it. Buyers have their own agent, though these days most people use online resources like Zillow and Realtor.com to do their browsing.
When it’s time to make an offer, the two parties’ Realtors handle the legwork and ensure everything is in order for a smooth sale. It sounds simple, but anyone who has been through the process can tell you there’s a lot more to it than that. On the selling end, you have to factor in what it takes to get your home ready to be sold—from simple decluttering to major repairs in some cases. Then there are Open Houses, showings, last-minute schedule changes and so on. Sellers are also on the hook for the Realtors’ commissions, which need to be factored into the bottom line. Buyers also go through a long process, from getting pre-qualified to putting in offers and going through the home inspection process before finally getting those keys. And don’t forget about all that paperwork, on both sides of the equation. Realtors play an important role throughout the process. There are many moving parts and emotions can run high. Details can be missed without an untrained eye making sure everything is in place.
Online Buying and Selling Platforms
In the last few years, the real estate industry has begun to shift. Companies like Opendoor, Perch, and Offerpad are offering online platforms that are changing how real estate is sold. Instead of working with a listing agent to market their home through traditional channels, sellers now have the option to get a fast quote on what their home is worth. The company will make an offer to purchase the home, and then turn around and list it for sale on the real estate market. These companies generally do not charge potential customers to request an offer, and there is no commitment from the seller until he or she agrees to the purchase price.
The benefits for the sellers include:
- Quick sales process
- Cash offer, with fast closing
- No repairs or upgrades needed ahead of closing
- No Open Houses or showings
However, there are some drawbacks to consider as well:
- Not all homes will qualify
- Online platforms not operating in every market
- Cash offer may or may not be comparable to market values
All of the companies using this business model are looking to expand, but currently, most are only available in larger metropolitan areas. They all have their own criteria regarding the type and value of homes they are interested in purchasing.
Unlike “house flippers” who buy distressed houses in need of a lot of work, these companies are generally looking for homes in good condition. They may be willing to make some upgrades and minor improvements, depending on the local housing market. Offerpad has a graphic that breaks down the financials of going with their system as opposed to a traditional real estate sales channel. However, it is important to read all fine print and keep in mind that every case will be different.
Role of the Real Estate Agent
Real estate agents are not cut out from the process entirely, though these types of companies certainly change the game to some extent. Sellers who are working with an agent can still have their agent work with an online platform. However, sellers who do not yet have an agent can also handle this part on their own. These platforms also usually contract with a local agent to have a point of contact in the specific markets. Buyers who want to purchase a home that is being listed by one of these companies can still have their agent submit their offer and handle negotiations as they would with a traditional listing.
What these Changes Mean for Today’s Buyers and Sellers
If there is one thing we can all agree on, it’s that simplifying the real estate process is a good thing. Time will tell how these online platforms grow and evolve. But from the buyer and seller perspective, streamlining the process is appealing, and these companies are growing exponentially right now. Millennials have long been thought of as the Internet generation, and innovative ideas like these are what keep the progress going. In fact, Opendoor’s co-founder JD Ross was featured on Forbes’s list of 30 Under 30 in 2018. At the time, Ross, just 28 years old, had already closed a $210 million round of funding. Currently, Opendoor is valued at $2 billion. Real estate has always been big business, and there are a lot of opportunities for out-of-the-box ideas to thrive.