It seems alternative real estate companies and apps are springing up like weeds all over the world, offering homeowners and buyers various benefits, mainly the promise of savings. The number of alternative real estate options, also called third-party syndicated sites, is somewhere in the neighborhood of 175 right now. So how do these companies work, and should you use one of them?
Let’s take a look at a couple of the most popular alternative real estate companies on the market right now and examine how they work.
People love Zillow. People love it so much that there was a sketch on Saturday Night Live earlier this year about how people escape the stress of the pandemic by looking at Zillow homes. Zillow is useful for researching neighborhoods, getting an idea of the style and size of a home you want, viewing photos of homes, and seeing what’s on the market in your desired area. You can even get pre-qualified for a mortgage. But can you actually buy a home through Zillow? And more importantly, should you?
The primary complaint about Zillow among homebuyers is that its information isn’t always accurate. Zillow gets most of its information from the multiple listing service (MLS) which is a database where realtors input information about homes they are selling. (Zillow users only see the most basic MLS information–the rest is only visible to realtors within the MLS.) Zillow’s data is only as fresh as its last database download, that’s why price, availability, and other information about a home can be wrong.
If you’re lucky and the home is available, you can ask the listing agent to show it to you. Some people think you don’t need a realtor if you’re buying a home you find online, but there is actually little benefit to going at it alone. The seller pays both the buyer’s agent and the listing agent’s fees from the proceeds of the sale, so there’s no financial downside of using a realtor.
The listing agent may offer to represent you in the transaction, but this is a tricky business. Some states don’t even allow a “dual agent” arrangement because it is so difficult for one realtor to represent both parties fairly in such a transaction. Texas does allow a realtor to act as a dual agent but be careful here. You may not want the person representing you in the purchase to also be representing the buyer as it can be a conflict of interest.
A much better choice is to select your own trusted realtor and let them arrange for the showing of any homes you come across on Zillow. Chances are that your agent will have already found them for you anyway. According to the NAR 2020 Profile of Home Buyers and Sellers, 91% of recent buyers found a realtor to be a very or somewhat useful information source. And 91% said they would use their agent again and recommend their agent to others.
A local real estate agent learns what you want and can find it much faster than you can through their network of other agents and their knowledge of the market. Realtors make it their business to know what is about to come on the market and a good realtor can get you in to see a home soon after it has been listed, before it even shows up on Zillow.
Redfin is another alternative real estate website that offers a database of homes for sale. Like Zillow, Redfin pulls its data from the MLS. Redfin is a discount real estate broker, and their realtors are paid a salary rather than receiving a percentage of each sale. Redfin’s listing fees are about half of a traditional realtor’s although the company does have a minimum listing fee.
You can use a traditional realtor to buy a home listed with Redfin and many people do. Homes sold with Redfin typically pay a standard commission percentage to the buyer’s agent to ensure the home gets plenty of traffic and a quick sale.
You can also buy a Redfin-listed home with a Redfin agent. When this happens, Redfin receives the buyers commission, which is typically 2.5%-3% of the sales price. The company claims it will then rebate the buyer a percentage of the buyer’s commission, depending on various factors such as your location, home value, closing costs, etc. It’s important to note that Redfin will not disclose how they calculate their rebate amounts. This rebate might sound good in theory, but this is an example of “you get what you pay for” because Redfin is able to give the buyer a rebate by paying their realtors less.
Traditional realtors, on the other hand, are paid by the seller, so there’s no money out of your pocket to use them. They most likely have a wealth of knowledge about the local area, have a huge network to draw on, and have a tremendous incentive to do a great job for you. They know if they do, you are likely to use them again and refer them to others!
So, what’s the bottom line with alternative real estate services that claim to save you money? Online real estate services have to make their money somehow, but how can they afford to do it? If you work with one of these companies, you might save some money, it’s true. But it’s probably not worth it if you lose at the negotiating table because you don’t have the right representation. In general, traditional real estate agents have much more to offer their clients than the online real estate services. Online home databases are great for getting ideas and choosing neighborhoods, but it’s hard to beat the personal touch of a full-service realtor.
If you’re looking for a new home within Prosper ISD that’s just minutes from Frisco but has small town appeal, take a look at Lilyana by Hillwood in Celina, TX. Your realtor can work with you to find the home that’s perfect for you and can guide you through the purchase process. Take a virtual tour of Lilyana today.