How Instant Offer Companies Work

Lately we’ve been seeing lots of marketing ploys pop up in the real estate world.  This is common whenever there is a “hot” real estate market – people all want a piece of the pie.

A few one we are starting to see is “Instant Offers”.  I recently appeared on Bay News 9 to talk about how these instant offers work.  Some of these Instant Offer companies include OfferPad, OpenDoor and Zillow Instant Offers.

These are companies that will give you an offer on your home in a very short period of time – usually within 24 hours.  Sounds great right?  They’ll buy your home and you can close immediately.

Again – not everything is as it seems.

When I first started hearing about Instant Offers I thought to myself – why would someone do this?  How does it work?  So, I decided to try it.

I went to OfferPad and put in a house I own in St. Petersburg which is currently worth about $425,000 – based on area comparable sales.  It’s a 3 bedroom 2 bath with a pool.  Here’s the offer they sent me:

So, they offered me $105,000 UNDER what I could sell for if I sold it on my own or with a real estate agent.  To top that off, they also charge a 7% service fee, which includes a mover.  I don’t know about you, but I can find a mover who’ll move me for a whole lot less than $22,400.

Here’s how they make money.  First, that 7% fee obviously – it’s not a whole lot different than a real estate agent who charges a commission except they are making it a package deal and throwing in a mover and saying you can stay in your home for 3 days post-closing (which is something any real estate agent can negotiate by the way.)

Secondly – the reason the offer is so low is because once they buy the property and fix it up they resell it or flip it to an investor, thus turning a profit there.

The only reason I can think that a consumer might use the Instant Offer service is if they have a new job somewhere out of state and have to move tomorrow, and don’t want to deal with selling their home.  But they have to realize they are taking a very significant loss on what the home sells for – in my case I’d lose over $105,000!

One of these “instant offer” sites I’ve seen gives you the option of either going with their investor’s offer to buy your home OR you can request a market analysis from one of their real estate agents.  Again – they make money either way.  If you choose the real estate agent, they are charging that agent a fee to be part of their program in the form of a referral fee or a flat cost upfront.

My point is, when it comes to selling your home, do a little homework.  Pull up online reviews of local Tampa Bay realtors and see who is selling a lot at a high list-to-sell ratio.  You want the very best agent representing you in the sale of what is likely the largest financial asset you have.  Don’t let just any agent do this for you.

A savvy real estate agent can sell your home in 30 days or less when the condition is good and the price is right, and alleviate the hassles of selling for you.  We are currently in the highest real estate market I’ve seen in 12+ years, it’s a great time to sell.