This is a bit of a different type of article than I normally write, but I found it interesting and wanted to share it. A few months ago, Zillow announced its Instant Offers program, which essentially allows sellers to receive offers on their homes within two days from institutional investors. These investors are highly qualified buyers and close on all cash within a week. At this time, Zillow states that it does not offer this service to negotiate deals and collect commissions; he is doing it to fill a need in the industry. They claim that he is actually encouraging sellers to use agents, and not the other way around.
Many agents are upset. In fact, according to a recent survey, 87 percent of real estate agents believe that Zillow is trying to become a broker and weed out agents. However, some agents are excited about this change and want to work more closely with Zillow.
If you haven’t heard, here’s how the Instant Offers program works in two test markets. A home seller fills out an online questionnaire. From there, Zillow passes this information on to a small group of institutional investors who are buying homes on that market and to a qualified real estate agent. The real estate agent is tasked with providing a detailed comparable market analysis, while the investors are tasked with submitting offers. In just a few days sellers should have multiple cash offers and a CMA to compare offers. They then decide to go ahead and accept one of the offers where they can work with an agent to help with the transaction, or they can close the transaction without the help of an agent, or they can choose not to accept the offer and sell the house in a more traditional way. . This could include listing with an agent.
There have been several agents who claim to have received a large number of leads with the new program. They submit the CMA and then are encouraged to follow up to try and get the list.
I don’t see this as a bad thing for agents. Zillow does not charge borrowers or investors any fees for this service, and states that it is not interested in setting up a brokerage or charging commissions. They generate revenue from listings and sales from leads, not houses. Although many agents feel that this could change because Zillow is not a profitable company. Getting into the brokerage business could be a new profit center. I don’t see it that way, at least not yet. I see this more as a marketing ploy to attract leads for agents.
While I’m not worried about Zillow taking over the broker’s job, nor do I see this as a huge threat to investors, I can see how one could see it that way. Zillow’s mission with the Instant Deals program is to capture as many opportunities as possible from struggling sellers and deliver them to cash buyers or their pay-to-play agents, virtually eliminating the small rehab investor. It’s our job to stay on top of what’s going on and maneuver our business to our benefit.
Here’s why I’m not worried. First off, cash buyers will need deep discounts, and agents who just want a quote will offer inflated CMAs. Those two could be so far apart that it will hurt Zillow and the Zestimate it is so proud of. (Zillow Value Opinion) This alone could cause the program to crash before it even launches. However, that is not what I think will happen. My guess is that most sellers will end up listing the house with the agents who provide the inflated CMAs. The agent will likely have trouble selling it because he will be pricing it too high. This could be a big deal for a small rehab investor. Here are two ideas you can implement to take advantage of, assuming the Instant Offers program reaches your market.
- You can network with “pay to play” agents. If you can show that you close their contracts and build a relationship with them, they will bring a cash offer to the table as well. There are ways to make your offer more attractive than offers from institutional investors. This could be a great way to get the attention of sellers before distressed homes get listed on the MLS.
- You can keep track of listings that appear to be too high on the MLS. Once they have been listed for a while, you can start trading with the listing seller and/or agents. However, be careful. You may not be able to market directly to the owner of a listed home unless you are not licensed. Cash offers on distressed homes are attractive after the motivated seller has their home listed for a while without traction.
This show is currently only available in Las Vegas and Orlando, but there seems to be a lot of optimism surrounding it, so there’s a chance it could hit your market before too long.
