A recent cover story in the San Francisco Business Times looked at how fintech startups are trying to “disrupt” the real estate industry, aiming to make the process of buying and selling a home “easier, more tech-enabled — and a lot cheaper.” There are now startups that allow people to buy or sell property entirely through an app. Others buy homes outright without a buyer, and some have reduced commission fees or even split these with the purchaser.
The article notes that technology has allowed the “democratization of access” to home sale listings, and the ubiquity of smartphones has made searching for a home incredibly easy. These factors, combined with the fact that the real estate market continues to be red-hot, has spurred investors and others to look for ways to cash in. Industries such as travel and investment services have gotten rid of the middlemen, so why shouldn’t the real estate business?
It’s true that buying and selling a home is not a simple process. But there are reasons why it’s not as easy as clicking a button, and it has to do with protecting you, the consumer/seller. So just what are the benefits of working with a licensed Realtor? And can an app really replace an agent when it comes to helping you buy or sell a home? Let’s examine some of the claims made by these fintech companies:
Claim #1: Buying or Selling a Home Through a Realtor Is Too Expensive
Real estate agents are paid by commission, meaning they earn a percentage of the sale price. Although there is no fixed commission price, they normally range from 5% to 6% for the seller, who then traditionally splits the percentage with the buyer’s agent, leaving no cost for representation to the buyer. Some startups are trying to entice buyers by giving them this commission, instead of pocketing it themselves. So a $1 million house could offer a return of about $30,000. Sounds like a deal, right?
But buyers may not be aware of some of the hidden costs that can come with a home if they don’t have an agent looking out for their best interests. One of the most obvious ways that an agent can save a buyer money is by negotiating contingencies. Let’s say an inspection reveals a crack in the foundation or electrical wires that need to be replaced. An agent can negotiate a lower price or have the seller fix these issues before a sale. For sellers, an agent can help make sure that such problems are properly disclosed to potential buyers before a sale. Failure to do this could result in a lawsuit. In other words, the thousands of dollars you save by skipping having an agent could end up costing you much more down the road.
“What many people don’t understand is you essentially get what you pay for,” said Red Oak agent Negar Souza. “Local agents like myself work hard to perfect not only our marketing and presence to the community, but also our market timing and networking with other local agents that you simply can’t get through an online-only process.”
Claim #2: Technology Can Help Users Save Time and Energy
Another issue fintech startups say they want to address is the complexity of the buying and selling process. For example, instead of having to tour a property with an agent, a buyer could do so alone, and use an app to inform her or him of the various features of the property. And if you have a question about something, you can simply text an “expert.” Sellers don’t need to stage a home, these fintechs argue; instead, “dynamic staging” allows shoppers to reconfigure a room to fit their taste using their smartphones.
But statistically speaking, staged homes sell at a higher price than non-staged homes. Staging allows buyers to help envision what a home might look like with their belongings in it, and an app can’t replace the experience of seeing real-life furniture in a real-life space. In addition, an experienced agent knows a lot more than the average home buyer about property details. They can often spot visual defects or potential issues, they know which fixtures and design features drive buyer demand and resale value, and they know the difference between poor and exemplary craftsmanship — something an app can’t qualify. Not to mention they know the external issues that support or impede value — crime, schools, neighborhood issues — and what that means not only now, but moving forward. Technology may be able to provide a statistic, but can it explain the relevance in real life?
One startup will buy homes outright in as little as three days, negating the need for buyers at all. The catch? The fee is between 6 and 12 percent, which is actually higher than an agent’s commission, and there are additional fees if repairs are needed. Most homes need repairs before going on the market, and it’s safe to say sellers who sell their homes through these startups won’t be getting fair market value. Perhaps these startups speed up the process, but in doing so, sellers compromise on the potential upside.
“Technology is our friend but only when used correctly is it effective,” said Souza. “The best way to really understand the market and its trends and to sell or get your offer accepted is to have your ear to the ground and your feet on the pavement.”
Claim #3: Agents Simply “Walk Around the House, Pointing Out What Is in the Bathroom or the Kitchen”
The process of buying or selling real estate can be stressful, emotional, and challenging for all sorts of reasons. Maybe your home needs some repairs before hitting the market. Maybe you’re not sure what you can afford, where to buy, or if now is a good time. Or perhaps you’re just emotional about leaving a house that has been your home for decades and are overwhelmed at the prospect of moving all your belongings.
A real estate agent can help you navigate all of these issues, acting as support and a resource. They can hook you up with contractors, provide feedback on which kinds of upgrades will help you get a higher price for your home, and help you handle movers, lenders, and other people you may need to interact with.
“We help people overcome their anxiety about the exorbitant costs of real estate, and the complexities of the transaction,” said Red Oak agent Terri White. “We help people understand who to turn to for specific solutions to problems as varied as drainage to taxation.”
Sometimes it’s impossible to anticipate your needs until the process begins, and things almost never go according to plan. A good agent will handle these obstacles with ease because they can draw on years of experience as well as the wealth of knowledge shared within a brokerage.
“Ask anyone who was in an escrow where things turned for the worst and see how they felt about having someone knowledgeable in their corner working for only their best interest,” said Souza. “As agents, we have to be problem-solvers, negotiators, coaches, therapists, advisors, designers, babysitters, lawyers, contractors, and housekeepers — and that’s just in one day!”
“To say all we do is ‘walk around the house, pointing out what is in the bathroom or the kitchen,’ is simply ignorant,” added White. “Yes, we do that, too, but the depth of knowledge we possess and share with our clients is what makes it possible for buyers to purchase and sellers to sell a home with confidence, and without the court system being filled with suits alleging fraud, misconduct, and worse.”
And a relationship with an agent doesn’t just end when escrow closes; many agents maintain friendships with their clients for years afterward, helping them buy or sell other properties, deal with any repair issues, or help other friends and family buy or sell property.
Yes, the real estate industry is full of complex rules and regulations, but that’s because they’re trying to protect you, the consumer, from unscrupulous lenders, sellers, contractors, and, yes, agents. A real estate agent keeps abreast of these complicated issues so that you don’t have to. And when you hire a Red Oak agent, you’re not just getting that person but a whole team of people dedicated to making sure your experience goes as smoothly as possible. The fact that we don’t just let you click a button and buy or sell a home is actually a good thing — for your wallet and your peace of mind.
Fintech startups may say they’re just offering consumers a choice, but currently that choice more closely resembles a confusing array of unproven startups.
Said White: “No matter how sophisticated an algorithm is, it cannot replace the compassion and care we give our clients, nor the counsel we give after interpreting problems our clients haven’t yet even anticipated or identified themselves.”