Real Estate Round-Up: Don't be duped

Last week I spent two days in Los Angeles at the California Association of Realtors corporate office. I am one of 18 members out of the 209,000 licensed Realtors in California that was appointed to sit on the Strategic Planning and Finance Committee.

This committee is tasked with staying informed of industry and professional changes that may have an impact on real estate across the state and coming up with responses to those changes. Those changes come in the form of new real estate models, new legislation and economic conditions.

As an association, we lobby to protect home ownership and private property rights, which many times are impacted by the three key changes mentioned above.

Today, I want to focus on a new real estate model that has substantial Wall Street funding behind it. It is the “I-Buyer” model. The “I” stands for “instant” and is being offered by many large Wall Street backed companies, who want to cash in on your money by playing to its one strength, which is a fast and easy transaction.

When people who recently sold or purchased property are surveyed, the one common criticism of a real estate transaction, is how cumbersome it can be.

If you’ve bought or sold a home recently, you understand that there are specific activities associated with that process.

Selling a home requires time to prepare a property for market, then actual time on the market, filled with showings and open houses. Once an offer has been received, there are the disclosures, reports and buyers’ inspections.

There’s the appraisal from an unencumbered party to the transaction that can turn everything sideways, if the appraised value does not come in at purchase price.

There’s the request for repairs, which in the hands of an uninformed real estate agent can look more like a whole house make over than a focus on safety and mechanical issues. Recently, insurance has become the new “unanticipated” stumbling block to a transaction, due to the devastating fires California experienced.

The “I-Buyer” model eliminates all of that. A company makes you a cash offer on your property, in exactly the condition it is in, with no need for disclosures, reports or inspections. No appraisal is required and there’s no need for insurance. Sounds too good to be true, right? Well, unless you absolutely must move immediately, it is too good to be true.

In order for the purchase to make sense to the corporate buyer, it needs to be low enough to account for all the “repairs” that may or may not be needed, for updating the property to current market standards and for holding time while all of this occurs.

Accompanying the lower than market rate purchase price are additional fees charged by these corporate buyers of 7% to 15%. It’s astonishing to me that anyone would even consider this option, but in 2018, 0.2% of all sales were to “I-Buyers” and in 2019 that number will double to 0.4% of all sales.

You’re probably saying, that’s not a very big number, so why am I telling you about it? Because Arizona is the epicenter of this phenomena. Forty percent of all sellers in the Phoenix area receive an “I-Buyer” offer when they are considering selling their home.

Approximately 1000 “I-Buyer” sales occur each month in Arizona, so as ugly as the financial outcome is to the seller, roughly 12% of all sellers are taking advantage of this fast and easy model.

As a professional Realtor, I am not promoting this as an option, and some would say, I should not even talk about it. But the reality is, there have been disruptive business models cropping up in real estate, and this is one that seems to have a measurable amount of traction. I don’t want any of you to be duped by this fast and easy approach to selling your home.

You have worked hard your entire life. You have viewed your home as an incredible part of your retirement portfolio. You, not a corporation, backed by greedy Wall Street investors, should benefit from your dedication and commitment.

The last time Wall Street got invested in real estate, at homeowners’ expense, was during the early 2000s. The lenders, backed by Wall Street greed, made mortgages to anyone who could fog a mirror. They then sold those mortgages, as if they were “A” paper to unsuspecting third parties and the rest is history. It’s called “the Big Short.”

Don’t be fooled. Wall Street investors want only one thing, to make money. It does not matter who it costs to make that money. Don’t let that be you. There are legitimate ways to maximize your properties’ investment value for you. Murphy and Murphy Southern California Realty would welcome the opportunity to do just that.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.