Tag: Open Door

Let’s Hear It for the Multiple Listing Service: The Best Tool for Buyers & Sellers  

We hear a lot about “off-MLS” sales of homes, particularly by investors. Investors love to buy homes off the MLS, but they turn to the MLS to sell the homes they bought. Prospective sellers should read that sentence again, because it says everything you need to know about the value of the MLS: Buyers can pay less if the seller doesn’t put their home on the MLS; and sellers net more money by putting their home on the MLS.

Investors know they would pay “market value” for MLS listings, because that’s what the MLS is — it’s the market! Investors know they’ll be competing with other buyers if the home is on the MLS. That’s why they find the homes they buy by soliciting homeowners who do not have their home on the market.

They make an appealing pitch — no showings, no open houses, and a quick cash closing. Remember, investors are in business to make a profit, and the only way to make a profit is by paying you less than your home is worth by buying it off the MLS, and then selling it on the MLS.

Now, if money doesn’t matter that much to you — for example, you’re the personal representative of an estate, but you’re not a beneficiary — that’s probably an attractive pitch. After all, it’s not your money! But, if it’s your house and your money, just know that you’ll make more money from the sale of your house if you let a professional like one of the agents at Golden Real Estate expose your home to the full market — which is only accomplished by putting the home on the MLS.

I have written in the past about “iBuyers,” such as Open Door, which buy homes off the MLS, then flip them with minimal improvement by listing them on the MLS. You can find columns on that topic dated Jan. 2, 2020, and Aug. 22, 2019, at JimSmithColumns.com, where all these columns are archived. In those columns I point out that the iBuyer companies typically convince homeowners to meet with them by offering a high sight-unseen price, which is thousands above what they finally offer the seller. It’s a bait and switch approach, so beware!

The essence of the MLS is “cooperation and compensation.” Sellers hire a listing agent for a negotiable commission — currently averaging under 6 percent — which is large enough for the listing agent to compensate another MLS member for producing the buyer of that listing.

There’s an understandable misconception that the seller pays both the listing agent and the buyer’s agent and that somehow that’s unfair — that the buyer should pay his or her own agent.

But, although it may look as if the seller is paying both agents — because it is taken from the seller’s proceeds at closing — in fact, as I said above, the listing agent is paying the buyer’s agent out of his or her listing commission.

As shown in the graphic below, the MLS is at the heart of making the real estate market work efficiently to expose listings to the full universe of buyers. No other industry that I can think of works as well as the real estate industry, because no other industry has an MLS.

Last year, the National Association of Realtors introduced the Clear Cooperation Policy to make the MLS system work even better, telling participating Realtors, in effect, that if they want to be a member of the MLS, they must commit to giving fellow members a reasonable opportunity to find and sell their listings.

That policy has yet to achieve its goal because some MLS members find a way around it so they can sell their listings without sharing their commission with other MLS members. Golden Real Estate’s agents, however, are in full compliance.

If You Don’t Put Your Home on the MLS, You May Not Get What Your Home Is Worth

A reader wrote me last week complaining that some homes in her subdivision are being sold privately for less than they should, without putting them on the MLS. It bothered her because doing so creates lower comps that could affect what she is able to get for her own home when she sells.

Just as important, there are buyers who would like to move into her neighborhood who are frustrated when a home is sold before they can submit their own offer for it. And, of course, sellers are not getting the highest possible price for their home, as I’ll explain below.

Among the culprits are fix-and-flippers and “iBuyers” such as Open Door and Zillow Offers, who convince sellers to take a cash offer, claiming to save them the cost and inconvenience of listing their home on the MLS. More about them below, as well. (See my Jan. 2, 2019 and my Aug. 22, 2019 columns about iBuyers.)

If anyone offers to buy your home for cash without listing it, there’s one thing you can be certain of: they’re going to pay you a price that leaves lots of room for profit. That is money that could be yours if only you exposed your home to the full market by putting it on the MLS.

The worst thing you can do in a “sellers market,” which is what we have now, is to sell your home off the MLS. The next worse thing you can do is, after putting your home on the MLS, to sell it to a buyer who quickly offers you full price. If someone offers you full price on day one, you can be sure that there are other buyers who’d be happy to pay even more. Four days should do it.

But there is something worse than both those scenarios, and that is to put your home on the market at a price which does not attract any offers. I tell my sellers that they can overprice their home, but they can’t underprice it, because a low price can trigger a bidding war. An experienced Realtor like myself can help you set the perfect listing price. Just remember not to accept the first offer — unless that offer comes long after you put your home on the market, because you overpriced it.

What I see all too often is sellers putting their home on the market at a wished-for price, then lowering the price reluctantly over several weeks, and ending up getting only one offer, not multiple offers, at a price that’s lower than what they might have gotten if they had priced the home right initially.

It’s tempting, I know, to accept an unsolicited offer to sell a home without paying 6% commission, but I can’t even remember the last time I charged 6% commission. Remember, 2.8% of any listing commission goes to the buyer’s agent. Typically, sellers who try to sell “by owner” end up paying that 2.8%, so they only save the difference between 2.8% and the full listing commission, which is 5.6% on average. At least that is what I charge, and I reduce it if I sell the home myself, and I reduce it further when I earn a commission on the purchase of the seller’s replacement home.

If you factor in the totally free moving which I provide (locally, of course) when you sell and buy with me, it’s hard to justify not putting your home on the MLS with Golden Real Estate, thereby exposing it to all those bidders in this still-hot seller’s market.

Our Denver MLS, REcolorado, is now enforcing a new rule called “Clear Cooperation,” which was voted into being by the National Association of Realtors last November. It requires MLS members to put their listings on the MLS within 24 hours of promoting their listings in any way.

The rule is very simple: If a listing agent promotes his or her listing in any way — with a yard sign, tweet, Facebook post, or newspaper article, etc. — the listing must be on the MLS, either as “Coming Soon” or “Active.”  If it’s “Coming Soon,” the sign must say so, and it can’t be shown, even by the listing agent himself. Once shown, it must be changed immediately to Active status, making it available for showings by all members of the MLS. Prior to Sept. 1st, REcolorado only issued warnings, but fines are now being levied for violations.

So, yes, there can be off-MLS sales, but not involving an MLS member unless there was no marketing at all, not even emails to his/her clients. With “pocket listings” now banned, the focus now turns to the iBuyers, companies like Open Door, Zillow Offers and others which directly solicit homeowners to purchase their homes, charging a 7% “service fee,” with the intention of flipping the home for a profit.

Only time will tell whether this new rule, with fines being levied, will make a big difference, but it surely will make some difference.

Learn the True Cost of Selling Your Home off-MLS to an iBuyer Like Zillow

Perhaps you’ve heard the pitch from an iBuyer firm such as Open Door, Zillow Offers, or another firm with the word “Offers” in their name.

These companies are promoting the convenience of selling your home quickly for cash, without putting it on the market or having buyers traipse through your home, or worrying that their financing might fall through.

But what is the cost of that convenience?

My column on Aug. 22nd reported on the “true cost of selling to an iBuyer,” but you can’t know that cost personally until it’s your home. So let’s talk about your home!

The next time you get a solicitation to buy your home direct for cash without putting it on the market, go ahead and ask them for a quote.  Then call us and we’ll analyze the offer for free, with no obligation whatsoever.

Here’s what you need to know about the offer you’ll receive.

1)   They will tell you that you won’t pay a commission, but the contract will deduct a “service fee” which, in the case of the Open Door contract I wrote about in August, is 7%.

2)    There will be an inspection contingency. They’ll tell you that you don’t have to make any repairs, but the company will do an “assess-ment” and come up with a dollar figure they will deduct from the purchase price to cover “necessary” repairs. It could amount to tens of thousands of dollars–$38,563 in the case of the Open Door contract I reviewed in August.

3)   The good news is that you as seller are given the right to terminate the contract at any time prior to closing — at least according to that Open Door contract I reviewed.

Most of all, you need to know that these iBuyer firms are only buying your home because they expect to make a profit when they resell it. They will entice you with an offer that is reasonable, but in the following weeks that offer will be eroded by other provisions such as I’ve mentioned above.

Perhaps the convenience of selling a home for cash to someone who will resell it at a higher price makes sense for some sellers. My point is that you should know how much that convenience is going to cost you.

An “iBuyer” is nothing more or less than an investor who makes money by buying low and selling high, with or without making any improvements. For years I’ve been advising homeowners who receive unsolicited offers for their home to treat such an offer as the “opening bid,” and to talk to me or another Realtor about seeing how much more they can get for their home once it is exposed to the full market. That is only accomplished by putting a home on the MLS.

It’s all about maximizing exposure. The more potential buyers who learn about your home, the more offers you are likely to receive. I’m saddened to see how many homes are sold with zero days on the MLS.  Those homes were sold without entering them on the MLS, and the listing agent only puts the home on the MLS after closing as a courtesy to other agents (for market analysis purposes) and/or to receive credit for the sale in terms of personal sales volume.

Consistently over the past three years, between 60 and 160 homes per month in Denver & Jeffco have been entered on the MLS only after they sold. The majority of them sold at or below the listing price, because the home was not exposed to additional buyers, and a high percentage of them were “double-ended” by the listing agent, meaning that the agent doubled his commission by not giving other agents with willing buyers the opportunity to earn their half of the listing commission. 

Our policy at Golden Real Estate is to avoid selling a home before it has been on the MLS at least 3 or 4 days, during which all potential buyers have had a chance to see the home and consider making an offer. This is consistent with our responsibility under state law to put our sellers’ interest ahead of our own.

This policy is an expression of the value statement that appears on our yard signs — “Hometown service delivered with integrity.”

In my Aug. 22 column, I quoted a report on iBuyer transactions by Collateral Analytics. The final paragraph in their report is worth quoting again:

“In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor. For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen.”

Call me or any of our broker associates at 303-302-3636 before accepting an off-market offer for your home. And remember: even if you are already under contract with an iBuyer, you may have the right to terminate the sales contract.