Zillow’s ‘Instant Offers’ Promises a Quick Sell, But at What Cost?
Selling a home is, by most accounts, a costly, complex, pain in the basement. That’s why a handful of companies, including real estate heavyweight Zillow, are trying to harness technology to make it quicker, easier and cheaper.
Zillow announced in May that it’s testing a service called Instant Offers in Las Vegas and Orlando, Fla., that allows homeowners to solicit bids from investors who can close quickly and pay in cash. Homeowners who want to sell in a hurry or without the hassle of staging and open houses can elect to receive sight-unseen offers — they just need to confirm details about the home, note any updates, and provide photos. Zillow’s agents give the homeowners a comparative market analysis, so they can see what their home might fetch in the open market, along with estimated fees for each option, so sellers can make an apples-to-apples comparison before accepting any offers. (They’re not obligated to accept any of the investor offers.)
Opendoor, which buys mid-range houses in Dallas, Phoenix, and Las Vegas, charges a 7.5% commission — even steeper than the usual 5% to 6% charged by Realtors — but offers sellers convenience and expediency: They’ll close on the house in as little as three days. Even if you don’t need to settle old gambling debts or pay a ransom to an international drug cartel, that’s pretty enticing.
Yet the main reasons these companies are trying to streamline the home sale process — the staggering cost and unwelcome complexity — are also among the biggest obstacles to doing so.
Selling your house is a Big Freaking Deal, and not something I’m ready to approach with the flippancy normally reserved for ordering cookware on Amazon.
In a press release, Zillow contends that “people today expect speed and convenience as the foundation for many of their transactions – including when buying or selling a home.” But I’d only agree with half of that sentiment. Selling your house is a Big Freaking Deal, and not something I’m ready to approach with the flippancy normally reserved for ordering cookware on Amazon.
For one thing, there’s a lot of money at stake. There’s a reason you normally hire a buyer’s agent and a real estate attorney to represent your interest in a sale of this magnitude — a lot can go wrong in even the most straightforward property transaction. Zillow, for its part, suggests working with a Realtor to complete a sale through Instant Offers, but doesn’t require it.
You don’t want to mess up the price, either. It’s hard enough to pinpoint the value of, say, a 2006 Honda Accord — even though, unlike houses, there were more than 350,000 of them produced, all of them virtually identical. But a lot depends on who owned the car, how well they took care of it, and whether it was involved in any accidents, among other things. Basically, a lot can happen in 10 years or so, which is why Kelley Blue Book tells me that Accord might cost anywhere from $3,784 to $6,134.
Now consider a home: It might be 10 times older than that Accord, and perhaps a hundred times more expensive, with more previous owners and slippery variables like radon gas or a gorgeous addition or a cracked foundation. Real estate websites do have the advantage of meticulously logged sales records, but their algorithms can’t detect whether and when a kitchen has been upgraded, or whether the bathrooms are painted blue.
A lot of times, even their most basic data is off, says Marie Presti, owner/broker at the Presti Group in Newton, Mass. “The price estimate of a home is based only on the data that Zillow has on record,” Presti says, which usually comes from your local assessor’s office. “Although sometimes the information is correct, many times it isn’t.”
Presti says that in the past year, only one of the eight properties her office listed had accurate details on Zillow. “The others had an incorrect lot size, the square footage was wrong, or there were too many, or too few bathrooms,” she says. In some cases, important amenities were missing from the description, such as a garage or a fireplace.
All in all, she says, Zillow’s ‘Zestimates’ have a median error of 6.1% in the Boston area. With the median price of a Boston-area single family touching $550,000 in May, that 6.1% could cost a seller $33,550.
And that’s, of course, assuming online investors bid the full price; it’s more likely they’ll expect at least some discount, given their risky leverage and the speed of the transaction. Opendoor, for example, typically resells the houses it buys after about 90 days, at an average of 5.5% more than it paid. It’s safe to say that’s not all market appreciation.
Granted, that might be a small price to pay if you’re in a financial pinch or otherwise need to sell quickly. And currently, Zillow’s Instant Offers trial carries no additional fees or obligation. But my hunch is, when it comes to something this important, most sellers will continue to hand the reins to a local agent and hold out for top dollar.
Would you think about selling your house —or buying one— almost completely online?