Forget the traditional real estate market: You can now sell your house online, trade it in like a used car or use a website to get enough money to buy your next house in cash.
With the spring home-buying season shifting into high gear, a slew of new companies have entered the Charlotte market, trying to convince buyers and sellers that their algorithms and technology are ready to upend the housing market.
Funded by venture capitalists and private equity firms, these new companies — with names like Offerpad, OpenDoor, Knock.com and Ribbon — account for a tiny slice of the housing market but are poised to grow rapidly.
Their pitch is simple: Sell or buy with us, and avoid all the things people hate about the whole process, like clearing out for open houses, being beaten by all-cash bidders and worrying about the deal falling apart before it closes.
Help us deliver journalism that makes a difference in our community.
Our journalism takes a lot of time, effort, and hard work to produce. If you read and enjoy our journalism, please consider subscribing today.
“The fundamental problem itself is the transaction,” said Shaival Shah, CEO of Ribbon, which is rolling out in Charlotte this week. The company essentially gives home buyers funding to make an all-cash bid, in exchange for a 1.95 percent fee. “It’s frustrating, it’s complicated, it’s uncertain.”
So far, real estate records show the new services have closed just over 100 sales in the Charlotte region between them, a sliver of a market that saw more than 47,000 home sales last year. But they’ve only been active here for a few months, and they’re ramping up quickly.
“People who are accustomed to doing everything digitally are ready for this,” said Daren Blomquist, senior vice president at real estate tracking firm ATTOM Data Solutions. “It’s long overdue for some digital disruption in the real estate marketplace.”
Charlotte home prices keep rising. That means more challenges for buyers and sellers.
The companies are all selling certainty and freedom from anxiety — something Charlotte buyers and sellers are feeling a lot of this spring.
In April, the average sale price for a house in Charlotte jumped 8.1 percent from a year ago, to $292,158. At the same time, the number of homes for sale plunged by almost a quarter, meaning the market is getting tighter and more expensive, with homes selling fast and multiple offers common.
Fast growth in Phoenix
Other cities hint at the impact these companies can have.
In fast-growing Phoenix, Offerpad and OpenDoor now account for more than 5 percent of homes sold since the companies launched a few years ago. That makes them the biggest single buyer of homes there, a success they hope to repeat elsewhere.
They buy houses directly from owners, who fill out a few forms online and have an in-person inspection, closing when the customer wants, with no open houses or contingencies. Then, they fix up the houses and sell them on the market. They’ve raised hundreds of millions of dollars from Wall Street to fuel their purchases.
The companies — which also operate in Raleigh — charge a variable fee of around 6 percent or more for the service. OpenDoor has been active in Charlotte for almost two months. Mike Henry, the company’s general manager in Charlotte, said it takes about 10 minutes to fill out required forms online, and customers get an offer within 24 hours.
“They will get an offer with just a few clicks,” he said. Almost half of those who test the waters with an offer end up selling to OpenDoor, he said. The company has about 50 homes under contract so far in Charlotte.
“They’re not just tech-savvy millennials,” he said. “We’re seeing people in all phases of life.”
For customers, it can take some time to get used to the idea.
“It was a little uncomfortable doing it all online at first,” said David Carrara, who is under contract to sell his Huntersville house to OpenDoor. “It got more comfortable as I did it.”
A home for sale along Springdale Avenue in Charlotte on Wednesday, May 9, 2018.
David T. Foster III
With two kids out of the house and only one left, he and his wife wanted to downsize. They decided to move into an apartment for a year while they search for their next house.
Carrara acknowledged that by not working with an agent to get multiple offers, he might not be getting as much money as he potentially could if a bidding war broke out (the sale hasn’t closed yet, so the price was not available). But Carrara said the speed and ease of selling to OpenDoor made it worthwhile.
“We signed the contract all online, picked the closing date,” he said. "How much am I leaving on the table? I guess I really don’t know… But it makes sense for us."
Upending the system?
Although the companies criticize the traditional real estate sales process as slow and inefficient, they also work closely with traditional real estate agents — and point out that they can be a benefit to them as well.
Ribbon is partnering with local Realtors to sign up buyers to use their service and make all-cash bids. The other companies hire local agents, typically on a salary, to work with clients and handle their transactions. They also list the properties they acquire for sale on the Multiple Listing Service, and work with agents to find buyers.
Anne Marie DeCatsye, CEO of the Charlotte Regional Realtor Association, said the new companies aren’t radically different.
“They’re a part of the same system everybody else is,” she said. Online listing services Zillow and Trulia have already given people much more access to information about real estate than they once had. “To me, it’s just a new iteration of something we’ve seen before. It doesn’t really faze me.”
Realtors said the new companies are a constant topic of discussion in their world, however.
A home for sale along Dilworth Mews Court in Charlotte on Wednesday, May 9, 2018.
David T. Foster III
“Not a week goes by that there’s not at least talk about what Offerpad has done, the way that Knock is operating,” said Jonathan Osman, owner of Jonathan & Associates Real Estate. “People are scared…You’ve got less inventory, more competition, and you’ve got guys with millions of dollars.”
To get ahead of the curve, he’s partnered with Ribbon and OpenDoor.
Osman’s clients who are selling will get all-cash offers from OpenDoor, while buyers will be able to use Ribbon to make all-cash bids for their new house. Osman said such services will leave him and other real estate agents to do more high-end work instead of routine tasks like pointing people to listings.
Yuriy Vaynshteyn, owner of the Engel & Volkers brokerage in Charlotte, is also working with Ribbon. He’s got about 15 pending transactions with buyers using the service. He likes that their business model is built around working with traditional agents.
“That job is easier with a company like Ribbon who is not trying to eliminate Realtors from the transaction,” said Vaynshteyn. "Ribbon’s platform allows homebuyers to compete with institutional investors."
A home for sale along Hillside Ave in Charlotte on Wednesday, May 9, 2018.
Sean Black, the CEO of Knock, said the company works with local real estate agents, as well as hiring them.
Knock operates on a home "trade-in" model, where customers get their current houses appraised and then identify a new one through Knock, which buys the house. Then they move and Knock sells their old house.
"We play really nice with the traditional folks," he said. The new companies could ultimately help the housing market out of its low-inventory, high-priced rut by simplifying transactions, said Black.
"I think the market clearly needs help," he said. "The reason more people aren’t selling is because then they have to turn around and buy, and they’re in the same situation."
How each company works
Each of the new home buying and selling companies has a different business model. Here’s how they work.
"We’re taking the power of capital, technology and process and giving it to the buyers and the Realtors,” explains Shaival Shah, the co-founder. "That’s really the core, core core value proposition… access to capital.”
Ribbon allows qualified customers to sign up for its services online, where they receive a "personalized buying power" amount in as little as 15 minutes. They can take that amount and use it to make an all-cash offer on a house they want, with Ribbon’s money. The company is funded by entities such as Bain Capital Ventures.
Ribbon buys the house, and the customers have time to arrange financing. They move in and Ribbon then transfers the house to them. The company takes a 1.95 percent fee.
Offerpad and OpenDoor
Dubbed the "iBuyers," these companies price houses with proprietary algorithms, then buy the houses directly, fix them up (if needed) and resell them. They collect a variable fee that’s typically around 6 percent from the seller, and also profit on home price appreciation. They offer flexible closing dates, contingency-free sales and speedy transactions.
They’ve received hundreds of millions of dollars worth of funding from various venture capitalists to ramp up their operations and fund their all-cash bids.
Knock operates in almost the reverse order of the iBuyers. When a homeowner wants to sell, they plug in their information and get an estimate of its worth online. An inspector comes out and confirms the price with an in-person visit.
Then, Knock helps the seller find their next house, buys it with cash from their venture capital funders and relocates the seller. Knock.com then fixes up the old house as needed, markets it, sells the house and settles up with the original. They charge fees comparable to traditional real estate agents.
Jennifer Wood recently used Knock to move from Atlanta to Charlotte. She said having the company make a cash bid on her new property helped seal the deal.
"As we were looking at homes in Charlotte, they were flying off the market," she said. "It’s amazing what the Internet now can do."