There has been a lot of talk lately about two companies that have entered the Phoenix real estate market and are claiming their purchase model is going to disrupt the way real estate is done. Open Door and Offer Pad have been present in the Phoenix market for a little over a year with Zillow just announcing they will join the game. These companies tout that they will give you fair market value when selling your home to them. I’m not here to bad mouth any competition. Let’s just tell it like it is. These companies work on high volume purchase, light rehab and resale. The business model is, make a little bit of money on a lot of houses fast. These companies are essentially a wholesale purchaser that will resell the property as quickly as possible. This means that even in an appreciating market, you will hardly ever get an offer for what an owner occupant would be willing to buy for. So why is there a place in the market for these types of companies? Some folks will have to discount their property because of condition and others need to sell quickly for a multitude of reasons. For these reasons, these companies are just another wholesaler throwing low offers against the wall to see if they have a situation where it will stick.
For those for you who don’t need to give your home away, even if it at first an offer from these companies appears to be close to market value, remember these offers are usually accompanied with 9-11% resale costs. A typical traditional agent representation will only cost between 6 and 8%.
Does this type of business have a place in the Phoenix real estate market? Yes. Will such disrupt the real estate market? My guess is not anytime soon. It’s business as usual, with a couple of investors buying a little higher than most.