In the last year online real estate firms Redfin and Zillow have rolled out new programs aimed squarely at taking a bigger piece of the real estate market. Marketed as "Redfin Now" and "Zillow Offers" these digital real estate firms now want to help you sell your home directly - to them. Advertising quick sales & reduced hassles, is this a dream come true for sellers? Are human realtor's days numbered? To hear it from realtors, the answer is a resounding, "No!" Indeed, the one who drops a flyer every month on my door had this to say, "You'll give up the opportunity for truly competitive pricing, negotiation rights, testing the market and discovering what it will bear." A different realtor's e-mail landed in my inbox a few months ago with the title, "How Not to Make a Costly Mistake." Hmm... They don't sound very excited about this. But perhaps these voices are just a bit jaded, after all, their livelihoods are at stake. Instead, let's try and take an unbiased, objective approach in this months newsletter, complete with an example or two and see what we can learn. Before arriving at a conclusion, it's important to understand the process. To do so, I went through it myself :) Using Zillow Offers, I submitted my contact info claiming I was interested in selling my home. After a quick phone interview by a Zillow representative who wanted to confirm some details about my home, and a few days time passage, I received an offer sheet. The price seemed about $10-20,000 less than my own relatively uninformed market estimate and the fees were ~1% higher than typical realtor transaction fees (meaning another few thousand dollars less for me). Still, there was no need for showings or staging (a plus when you have two small children), the buyer was certain to come through, and I knew the deal would close if I was truly interested (note: an inspector visit is typically required before closing and it's possible this may result in a reduced offer). All-in-all, it was about what I expected. There was a price to pay, let's call it somewhere between $5,000 and $20,000 for the ease of the Zillow Offers process. Okay, maybe the realtors are right. After all, hassles are hassles, but I could put up with them in return for thousands of extra dollars in my pocket! Now let's move on to our second example, a much more interesting one, as it turns out. And before we do, let's think back up to that realtor claiming a benefit of the sales process is "testing the market and discovering what it will bear." Because, as it turns out, sometimes the market doesn't bear what you think it will. Remember, for as informed as Zillow or Redfin might imagine themselves to be, at the end of the day, they're using an algorithm based on comparable sales, maps, sales trends, and who knows what else. What these "iBuyers" don't have is "boots on the ground." And it seems our friendly realtors think this will always work in your favor (like it probably would have for me). But does it? What if the neighbor's yard is atrocious? Or maybe your yard is! What if there are dogs nearby that bark at every passerby? Or deciduous trees that block an unsightly view part of the year, but not others? What if the comparable sales used by the online firm's computer algorithm really aren't that comparable at all? Back to that second example. A client of mine recently decided to move from Boulder to Denver. He owned a nice Boulder townhome but it was somewhat close to Foothills Parkway. After using a realtor, Adam Kroll of Spaces Real Estate, to buy the home, he was interested to see what Redfin would offer him on a potential sale. Redfin quickly produced an offer of $594,000. With this offer in hand, my client went back to his realtor and asked if he thought a standard listing could get him more cash? Adam worked up an analysis and came to a rather startling conclusion. He thought Redfin was making a mistake! That Redfin's offer was about $30,000 higher than market value! Being an ethical realtor, Adam told my client what he thought - take Redfin's offer! And so he did. But how did it work out for Redfin? Was Adam's analysis right? That's where this story gets interesting. We know Redfin paid $594,000 for the property and they then re-listed it about a month later at $598,000. After a few weeks, the price was dropped to $585,000. It finally sold for $567,500 about a month after that. Turns out, Adam was almost spot on in his analysis. And his honesty netted my client an extra $20,000 after taking into account all fees which were (or would have been) charged. Well done, client (and Adam), stick it to the robo-man! So, are iBuyers always going to make mistakes like this? By no means. In my client's case, it's likely Redfin didn't account well enough for the proximity to Foothills Pkwy or that they'd be trying to sell the property at a time when leaves were no longer on trees. This meant both an unsightly view and more noise. What we're generally seeing is iBuyers making offers a bit below market value and with an extra 1-2% in fees. So as long as you're okay with the aforementioned hassles of selling, it likely behooves you to sell the traditional route (use a realtor). However, it certainly wouldn't be foolish to invite an iBuyer (or two) to make an offer. They might just make another mistake.