Could the CarMax business model work in the Real Estate industry?

Imagine selling your house almost as soon as you decide to list it, and for a fair price. Now flip that around: Envision finding and purchasing a new house using only the smartphone in your pocket.

Traditionally homeowners must list and show their home, then wait for (and negotiate) a satisfactory price. Only after that’s complete can they proceed with the purchase of a new home, since their money is tied up in the first house.

What if this process could be accelerated by a company that purchases the home directly from the seller and then takes on the task of selling it? This could be achieved with a pricing model and algorithm based on public and private data to generate a fair offer price within minutes of the seller’s online submission. In return, the seller would pay about 2-4% more than they would pay a traditional real estate broker.

This is the business model that CarMax has introduced to the used car market; you drive your care to their lot, they determine the fair market value, discount it for their risk and cost of doing business and write you a check.  Why couldn’t this be done in the Used housing business? Why would this model work?

People sell their homes for several reasons, depending on their reasons their urgency and time line varies.  I’m finding more and more motivated buyers in the luxury home market here in Birmingham. The biggest change in the past five years is driven by The Baby Boomer Sell-Off.  Nine thousand Baby Boomers are reaching 65 each day, they own 75% of the luxury real estate.  Most want to downsize or move to a different area to be closer to children or to peruse a different life style.  Then there’s the sellers that must sell their big homes to finance their retirement.  My experience as a financial advisor tells me that one in five of the luxury homes on the market fall into this category.

Another ten percent of the luxury homes on the market are being sold because of a death.  The surviving children are trying to sell their deceased parents luxury home.  In many cases the children are in a different state and they want to rid themselves of maintaining the big house in Birmingham.

These are motivated sellers and they are experiencing delayed gratification because the Generation-X’ers who lost their equity in 2007 -2009 because of the banking crisis are not in the market.  These conditions present opportunity for a savvy investor.

These sellers are expecting to pay a real estate broker a 6% commission, they’re also expecting to sell their home for 5% to 10% below their asking price, cash on the table today and to the motivated seller will probably discount the house another 5%.  So, a savvy investor could buy a $1,500,000 home for $1,185,000, clean it up, fix it up and sell it for $1,400,000.  That’s a $215,000 profit or 18% return on investment.

Is this possible?

It’s being done by Opendoor.com in Phoenix and Dallas in the $200,000 to $500,000 housing market.  In the past two years, they’ve helped over 4,000 homeowners buy and sell homes and they’re currently transacting over $60,000,000 in home volume each month.  Opendoor’s services are notable because they focus on two problem spots for home-buying: Deferred maintenance and inspection. Fixing up wear and tear is often challenging for home sellers because they don’t have the cash up front. Buyers aren’t usually open to taking it on either. To help with that, Opendoor takes care of inspecting, designing, and fully fixing up the house before listing it.

Founded Opendoor executive chairman Keith Rabois and CEO Eric Wu. in 2014 by former PayPal executive and investor Keith Rabois, Eric Wu, Ian Wong, and JD Ross, Opendoor aimed to make buying and selling a house easier. To speed up the process, the company purchases each home directly from sellers, thanks to credit lines from undisclosed financial institutions, and takes on the task of selling them. Opendoor has built its own pricing models and algorithms using public and public data, which generate what it describes as a fair offer price within minutes of the seller’s submission through its website. In return for the convenience, Opendoor charges the seller a fee that is 2% to 4% higher than a traditional real estate broker.

 

For buyers, Opendoor makes it equally easy. It lets them tour available homes for sale at their own convenience and even handles fixes or improvements, such as repainting the walls, at their request (though the work factors into the final sale price).

Is this right for every home on the market?  Certainly not, but for a segment of the market and considering current market conditions it is a solution to a problem.  Used car sellers can put their car on Craig’s List, EBay or auto Trader and get 30% more for their car then they will get by selling it to CarMax or AutoNation, yet over 500,000 sellers chose to take the lower price and move on.  

 

Kerry Grinkmeyer is a real estate agent in Birmingham, AL specializing in the marketing and sales of luxury homes. Kerry's a retired financial advisor, he sold his firm, one of the largest in the Ameriprise Financial Advisor system in 2005 to his son, daughter and nephew.   Now he's building one of the largest boutique real estate agencies that he'll eventually sell to his grandchildren.  He the author of the children’s book The Christmas Web- A Family Christmas Tradition.  Kerry competes in the Senior Olympics in to 50M, 100M and 200M dash as well as the 5k and 10k time trial cycling events.

Kerry offers you his financial background, knowledge of the community, love of business and family and energy to assist you in one of the most important financial decisions you'll make in your lifetime.

205 919 6006 

bestofus.kg@gmail.com