Over the past few years the “New Way to Sell Your Home” has become proliferated by way of excessive advertising. So much so that it has become big business for three of the top companies that offer this type service. Usually the pitch is you can move to a new home and they will guarantee the sale of your home within six to eight weeks. Further these companies tout that you have to do absolutely nothing and you don’t have to deal with the hassles of a traditional sale using a Realtor. In some instances the term “trade in” has been implicated. Unfortunately unlike a car that depreciates at an accelerated rate usually real estate appreciates. Hence the comparison of a trade in is not a comparable term.
After doing some research on these unbelievably enticing promises I decided to do the necessary research to help my friends and associates understand these programs better to make an informed decision. The “new way to sell your home” programs or the “traditional way with a Realtor”, should be carefully weighed out in the balances of the scales so to speak.
For starters, as with everyone seeking a service I wanted to know how much was the fee charged for the service. After reviewing each one I was surprised to find that the commission rate is typically the same as that of a traditional sale. With this discovery I felt the need to dig a bit deeper as to how they make a profit that is any different than a traditional sale. Oddly enough, many consumers I have spoken with seem to think that this route is cheaper.
Let’s start with the guarantee of your home being sold in a set time frame. In a traditional sale this is something that cannot be guaranteed and highly unlikely to be predicted in any other instance. Estimated maybe. In the explanation of most these programs the selling price of your home usually has statements that the current “values” would be rendered to the seller based on local “tax assessor records” and sales. For me this was a huge red flag! There is a significant difference in an assessed value and current market value.
The assessment value is compiled for a different reason than the market value. For the most part local governments employ an assessor to place a value on a property for the purpose of taxes being levied on it. Granted the assessor evaluates a lot of the same things a Realtor does for a market value analysis but from a different perspective. They look at what similar properties sold for, consider the value of recent improvements to a property, factor in replacement costs, and basic condition of the property. Once the assessor comes up with a value, he will then multiply this by an “assessment rate”. Usually the rate is between 80% and 90%. So, if your home’s market value is $250,000 and is assessed at an 80% rate your “assessed value” would be around $200,000 for tax fees to be applied. Clearly the market value is at least 20% higher than the assessed value and depending on the current market trends a bit more than 20%.
With the understanding of the difference between “assessed value” and “market value” it is clear they are very different. Thus the “New Way to Sell Your Home” process starts with a value that is less than the current market value. Using the assessed value gives them an edge of at least 10% to 20% profit if they were to buy your home at the agreed upon terms of their service. This means from the start you are down by $50k. (using the previous example of $250K as a market value)
Next it is promised that they will do all the repairs to make your house marketable to get the most for the sale of your property. That’s right you do nothing but move into that new house you selected! Amazing Right? Interestingly once a representative of the “new way to sell your home” program is sent out, you will be given a total fee for repairs that YOU pay from the proceeds of your home sale. So if for example, the updates and repairs THEY DECIDED would be done come to a total of $15,000, this is added to your expenses to sell your house. Bringing your current total debt to $65K in the red.
A quick review of their terms is appropriate to consider at this point. First they buy your house at the “assessed value” of $200,000. Next they bill you for repairs in the amount of $15,000. This means your current net value of your property is now diminished to $185,000. Interestingly the money you just were billed to make the house sell at a higher “Market Value” will be to the benefit of the “new way to sell your home” program. Hypothetically the “Market Value” of your home with the improvements you paid for most likely come in around $260,000. This means the “new way to sell your home” program will profit a total of $60,000 on the sale of your home without spending anything toward improvement costs.
You may be thinking, yes but I didn’t have to deal with the frustrations that come with contractors to do the repairs. This is very true and may be worth $60K to you depending on how much value you place on your hard earned money. However, when the sale occurs you are also obligated by the “new way to sell your home” program to pay the 6% commission fee on the selling price. The “market value” sales price is now $260,000 which means at 6% commission fee you must additionally pay to the “new way of selling your home” program $15,600. In our last review your net property value was down to $185,000. With this additional cost you are now down to a net value of $169,400.
Now you are thinking yes but I got instant gratification of moving into a new house of my choice AND they paid the new mortgage until my house sold. Here is something to consider about your new house. Most likely the “new way of selling your home” program provided you with several houses to choose from that matched your criteria closely. For a moment think about your current net value of the house you sold. Imagine that the houses you were given options to choose from were sellers just like you that used the “new way to sell your home” program. Just let that sink in for a bit. In regard to them paying the mortgage for you until your house sells it should be noted that this is billed back to you from the proceeds of your sale. Hence, they didn’t give you these funds they just advanced them to you on short term loan.
So back to the house you are in. To get you into a house that quickly without the loan and underwriting process of a third party, most likely the “new way to sell your home” program chose to provide you with seller financing. This means they extend a loan to you at an interest rate that THEY decide is BEST FOR THEIR return on the loan to you, not unbiased on your credit worthiness. In my research I learned that most of the “new way to sell your home” programs charge between 7% and 8% for the duration of your home being sold which is at least the first two months you live in the new property. Just a heads up, most loans collect the largest amount of interest at the beginning of the loan. Next after they have gotten a bit more profit from you with the interest for two months or so, most likely they will “SELL” your loan note to another mortgage or lending institute. Yep, at a profit of course.
By now you may be a little less enthusiastically thinking, okay but at least I was able to get everything done in one place. So, lets just reflect back to that last net value of the house you sold. The “new way to sell your home” program has now diminished your net value to $169,400 (which is either close to what you paid when you first bought the house or a little below) Next you will have to pay all the standard fees associated with selling your home. Some of these include, closing attorney fees, your share of prorated taxes, loan payoff fees, and a host of other small office related expenses including a wire fee. These fees don’t go to the “new way to sell your home” program, but the third party services that do the legal work to finalize the sale.
But wait there is more! The “new way to sell your home” program has one more fee you will be charged. Usually the fee is referred to as the “the new way to sell your home” program’s service fee or experience fee. From all indications in my research these usually are between $1800 and $2500. (basically an additional commission bonus) I still haven’t figured out exactly what this fee pays for but it is usually billed to the seller.
Here is an interesting tidbit of information. A selling broker or in this case the “new way to sell your home” program can charge 6% commission fee to the seller which usually is for the purpose of paying the buyer’s agent a portion of the funds for coverage of the buyer’s commission owed them. However, a selling broker does not have to agree to pay this fee to the buyer’s broker. Hence, now that you are the buyer of that new home you got to move in so quickly YOU will be paying the “new way to sell your home” program that 3% commission for their services to get you that new home instantly! So lets assume the home you bought from them of the choices they gave you sold at a “market Value” of $300,000. This means that you owe them $9000! Of course you will also have to pay the “new way of selling your home” program their loan origination fees since they provided seller financing to you. Most likely there will be an appraisal fee, inspection fee, and of course lets not forget that same “new way to sell your home” processing fee just like the one charged you in the sale of your home!
At best when all is said and done you will have spent a significantly larger amount of fees and expenses than if you had sold using a traditional sale process. You will be forced to pay whatever the repair fees that were decided for you unlike with a traditional sale where these costs are negotiated. Perhaps the most depressing outcome is accepting that your house was sold far below the market value with you receiving the bare minimum in profits from the investment you put into your home. Here’s something to think about. Selling your home significantly lower that the median sales in your community will affect the values of your neighbors negatively. Remember the neighbor you may have been friends with for years while living in the neighborhood? Yep you just hurt them a little financially.
From the stand point of a traditional sale you would have had to deal with the inconvenience of property showings at scheduled times with ample notice. The agent would request keeping your house clean and presentable at all times which is what should be the case anyway for most households. Further you would have to sit back and let your agent do all the work of marketing, dealing with contractual offers, coordinating with lenders, attorneys, inspectors, appraisers and any other third party entities affiliated with the sale process. Did I mention exposing your property to any and every buyer without bias as opposed to attempting to sell your home to a pool of buyers in their own brokerage. In the end you pay ONLY the 6% commission and the standard closing expenses of any average home sale. In regard to your new home purchase a good Realtor will coordinate your process of looking at as many houses as you wish until they find the right one instead of giving you a few that you must choose from. Further a good Realtor can navigate to have both your sales processes closed on the same date or a few days apart with good contract writing.
What I discovered from the research is that these companies that are the “new way to sell your home” programs, are useful for some. Basically they fit the same concept of a convenience store. Namely, you pay a higher for the same products you can get elsewhere since you can quickly access them. You may be wondering when is this a good service when it comes to something as large as a home investment. Some examples would be: a seller that has a job relocation and must move at any cost; sellers that are going through a foreclosure and will loose their investment anyways where something is better than nothing; A seller that can no longer afford their monthly payments and must sell ASAP; Sellers that don’t have any idea about the process; and maybe sellers that just don’t want to negotiate or haggle as they see it.
As a Real Estate agent that takes pride in looking out for the best interest of my clients I personally DO NOT offer services that involve dual agency. I do not try and steer my clients to buy houses that I prefer. I do not charge my clients additional fees outside of the commission. I do not attempt to increase the selling price to get a larger commission. The only things I ask of my clients is honesty, loyalty, and of course referrals and good reviews for future clients to consider my services. I am loyal to my clients and serving only their best interest. If you have more questions or would like a free consult please CLICK HERE.
This information is for informational purposes only based on my findings and my final analysis. Thus it is deemed valid information but is to be held with no liability to me as an opinion written article.