There has been recent publicity about a new model for purchasing a home that purports to save consumers money by handling the purchase of homes in a more cost effective way, and refunding the savings to their customers.
The name of the company is Open Listings and their stated mission is “to make buying a home simple and affordable”. Their website states “Open Listings minimizes the mind numbing amount of labor that comes with home buying. By saving agents time in the paperwork weeds, they allow them to concentrate on the piece where they can make a difference: getting an offer accepted.”
As real estate professionals, each with 30 years experience, we have benefitted from the introduction and application of technology to the practice of residential real estate. Consumers now have easy access to homes for sale and current as well as historical data about them. Technology has expedited the transmission of information and allowed real estate professionals the ability to be available and responsive to our clients anywhere in the world. All of this is good and has provided great benefits to both the clients and the real estate professionals who serve them.
This new model reducing the role of the real estate practitioner to one of opening doors for a fee and the writing of an offer remotely at a discount under the guise of saving the consumer money and eliminating the need for contact with the person Tech Crunch describes as the “annoying agent” completely misses the point of having a real estate professional involved with the transaction.
At the core of what a real estate professional does is to help the consumer access correct information, interpret it, point out potential red flags, apply the information and troubleshoot before a client owns the problem. We interface with inspectors, title officers, municipalities, lenders, financial advisors, insurance companies, appraisers, and attorneys, just to name a few. An effective real estate professional is aware of the interconnectedness of these various other professionals and their needs and can anticipate them and provide information and solutions that will work for all. Our value is in fact in getting involved in the “paperwork weeds”. This is often done under intense time pressure involving focus and commitment so that our clients are well-informed to make decisions that will allow them to make well-structured and winning offers.
And you ask, what is the value of that? Here are a few examples that have come up in our personal real estate practice just this year:
Misleading on-line property valuation
Zillow’s on-line valuation of a property was $2.3 million BUT did not factor in the following considerations. The location had a development restriction and a heritage tree ordinance. On this particular site a basement is not permitted and due to the location of a heritage tree with a canopy that arches over the roof of the single-story home, there are potential issues affecting an owner’s ability to add a second story. We represented the seller who was unaware of these considerations. We were able to list the property at a price point that was realistic and due to market conditions the seller was able to attract several offers with outstanding terms and a price in excess of the list – but nowhere near the Zestimate of $2.3 million!
An unsuspecting and uninformed buyer could easily overpay without guidance of a reputable and knowledgeable real estate agent. How likely is it that the “door-opening” real estate agent earning extra money during their down time as described in Tech Crunch’s article would know about these issues and point them out? For sure the Open Listings “desk agent” whose sole role in the transaction is “to handle offers and closings” would not know about them!
Encumbrances limiting development potential
Based on its size a vacant lot was listed for over $3 million. The buyer we represented was successful in purchasing it for a significantly lower price because of our familiarity with development guidelines including all of the following: flood zone, creek side considerations, daylight planes, height restrictions, unusual easements, and setbacks. We were able to inform our client of the implications of these issues on future development, and research them. Based on this carefully researched information we were able to convince the seller’s agent and the sellers who had not considered the implications of these restrictions that the value of the property was diminished due to the impact of these issues. The approximate savings to the buyer was somewhere between $500,000 to $1,000,000.
Preliminary Title Reports
Here are problems that arose on title reports of four different properties during this same approximate time frame:
- An easement that did not exist was included in the report. A corrected report was issued eliminating this easement.
- An historic designation affecting a property’s tax base did not show up. A corrected report was issued to show the designation
- A preliminary title report showed the wrong jurisdiction, i.e. the City rather than the County – In this particular instance, there are differences in development potential and we did not want our client to be provided with misleading information.
- A seller and listing agent did not disclose extensive maintenance obligations required of a property owner, but a careful review of the recorded information allowed us to point this out to our buyer client.
Some houses are built in such a way that some insurance carriers consider them high risk. By carefully reviewing inspection reports and disclosures ahead of time we were able to direct our clients to sources for insurance. When working with a seller we can anticipate this need and arrange potential insurance sources prior to putting a home on the market so that the ability to obtain insurance does not become an issue in escrow.
Exercise Caution Before Entrusting Your Real Estate Needs to a Discount Vendor
For many people the purchase or sale of a home is one of their major financial transactions. To achieve the best financial results and mitigate risk an experienced real estate professional is your best resource and guide.
The model proposed by Open Listings does absolutely nothing to protect the consumer, and consumers should exercise caution before engaging their services. The money “saved” through a commission rebate does not compare to the value gained by making an informed, well-structured and negotiated real estate purchase.
This business model is a pennywise and pound foolish approach to a significant financial decision and investment.