[Music]
Hello everyone and Welcome to another
episode of Selling Greenville your
favorite real estate podcast here in the
upstate of South Carolina I am your host
as always Stan McCune realtor here in the
Greenville area and you can find all of
my contact information in the show notes
or in the show description whatever it's
called in your podcast app if you need
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list a house to talk real estate
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all of those three things that I just
mentioned
todayis kind of funny because I
planned out this podcast yesterday
I'm recording this on August the 2nd
I I did kind of a little write up
yesterday as I Was preparing for it and
then in the evening time I saw a very
interesting article that had just come
out literally after I had written up
everything that was literally had
tons of overlap with my podcastand
soso I've got plenty of material
hereand I'm just going to kind of
see where the spirit moves as far as
this podcast goesbut there has been
the past few years really an influx and
particularly in the Greenville Market I
can't speak to other markets but there's
been an influx of large investment
companies buying up real estate not for
rental property purposes we we have have
had that and we continue to have that
with with big companies like American
homes for rent companies like that
and we talked a little bit about that in
last week's episode of the
Pod but we're seeing a lot of companies
now trying to flip houses and that has
really been I feel like that's really
taken off during the pandemic which
is no surprise because the pandemic
period of time when home prices are
appreciating you know 10 to 20% in some
markets even more than that per year
that it's easy to flip right because if
you purchase a home and don't do
anything to it a in just a year from now
you can sell it maybe for 20 to 25% more
than you bought it for that that's a
pretty good investment by by most
metrics rightand so there are these
large investment companies that have
been flipping houses even more than
ever the past couple of yearsand
I've been seeing them in Greenville a
lot the really the two biggest ones that
I see in our area are companies called
open door and offerpad
and then Zillow also had kind of a
pilot program that they did trying to
flip houses and they actually had to
shutter that one they had to close that
one entirely they had to lay off like
40% of their staff Zillow completely
failed in the house flipping gamebut
open door and offer pad they're still
going strong there is an offer pad house
for sale in my neighborhood right now
I just had someone that I know
that recently started talking to Open
Door about potentially selling their
house house and and I've seen a lot of
Open Door listings I've shown Open Door
houses I've shown offerpad houses so
they are very prevalent in our market
now the thing that is really funny that
just came out last evening or at
least I just read about it last evening
it was an article in Business Insider
that that was published around 5:00 P
p.m. last night eastern time is that
the Federal Trade Commission well hold
on let me back up for a second and just
talk about these large investment
companies what they do is they they buy
up properties really anywhere in the US
do usually their properties that just
need a light rehab or maybe no rehab at
all they try to buy them with enough
margin that then they can just do a
little bit of work and then sell them
for a markup often times that markup
isn't like a huge percentage I don't I
don't know if they what kind of rules
they're trying to followbut but in
terms of of the margins that I I see I
often times don't see like massive
margins I just think that they're buying
and selling so many properties that it's
more of a to scale they end up making a
a good amount of money just just because
they of of how many properties total
there are but I feel like you know I I
talked to local house flippers that are
like you know the minimthey want to
make on a house is 50,000 or 880,000 or
100,000 whatever the case may be
different people have different philosop
opes and different different standards
I feel like open door and offer offer
pad will often times just make 15
$20,000 on a house but when when you're
flipping hundreds or thousands of houses
per month then those numbers add up
right sothat's something that's
that's kind of a short version of their
model and essentially they will try to
get people to to go on their website
fill out a form on their website some
and some cases they're sending out
postcards to people saying hey your home
may be worth XYZ amount please go ahead
andyou know submit an application
and we'll start a process with
evaluating your home value etc etc etc
and then ultimately they they try to
purchase your home and like I said then
ultimately try to make some money by
doing thatwell interestingly the
Federal Trade Commission again
article that I just that was just
published last night business insight
FTC has fined Open Door $62
million which honestly isn't a ton of
moneyin when you're talking about
massive investment firms but still $62
million is not nothing they're finding
Open Door $62 million for quote unquote
cheating home sellersI'm just going
to read this straight off of business
insiders website in a settlement
announced on Monday FTC said open door
told customers that they could make more
money selling their homes to it than
by there's actually an error in here
but I'm I'm going to redact the error so
they it said that they would make more
money selling their homes to it to open
door than they would by selling homes
traditionally the FTC found that in fact
most people who sold their homes to Open
Door made less money than they would
have selling to regular buyers via a
real estate agent very interesting
interesting data there and then it says
in 2021 open door which bought 36,9
eight homes a lot of homes is an instant
buyer or I buyer which buys homes
directly from owners and then resells
them sometimes making small renovations
to the home the company is able to close
on homes much more quickly than
traditional buyers purchasing via a real
estate agent open door which reported 28
million net income in the first quarter
of 2022 makes money by charging its own
fee in the place of a traditional
broker's feeso I'm not going to get
into the Weeds on on all of thatbut
I do want to talk about what it is like
dealing with these larger investment
companies I'm I'm not going to
continue to call them by nameI I
started with just giving them them as
examples because like I said open door
offerpadand Zillow are or have been
in in the Greenville Market
traditionallybut there are other
large investment companies that are
flipping houses like they are and I'm
not going to single one out I actually
have to be very careful in terms of
of singling one of them out because
these companies also have their own
brokerages typically speaking so open
door actually has an Open Door brokerage
and and they actually list their
homes
typicallyI'm not allowed to talk bad
about other brokerages and I'm not going
to do that anything that I say here is
not about on this podcast right now
I'm not talking about any Brokers or any
brokerages I'm talking about the
divisions of companies that are focused
on on acquiring and and flipping and
making profit off of off of the
housing marketso from here on out
I'm just going to refer to them as large
investment companies I apologize if that
gets redundant but it is what it is
so as I said before I've had clients who
have both looked at homes listed by
these companies and also who have
entertained offers by these companies to
buy their homes I've had large
investment companies send me postcards
saying your home is maybe worth XYZ
please go ahead and enter your
information on our website and then you
know our team of experts will determine
the value of your home and get you a
cash a cash offer different things
like that so what's going on with these
types of businesses outside of the fact
that the FTChas singled out one of
them that that believes that they
should be
fined okay let me clarify I don't know
all the inner workings of these
companiesbut because obviously I've
never worked for them but I'm going to
share to the best of my knowledge what I
do know about how these large investment
companies workand and here's the
thing is that what they what they say
and what they do are not necessarily the
same things because obviously when we're
marketing you know you there are ways of
wording things that I don't want to say
are are misleading even though again the
F FTC has talked about some some
misleading advertisingbut it's it's
not always exactly how it sounds you can
use words to say things that sound one
thing to someone else and aren't Mis
aren't untruebut that at the same
time are are saying something different
than what it sounds like if that makes
any senseand so as I already said
what typically happens is these large
investment companies they Market to you
either online or postcards or whatever
try to get you to their website try to
get you to fill out information on your
homeand then typically they want you
to to kind of show your home to them
whether that be by means of of uploading
photos whether that means you kind of
taking a video and doing a walkthrough
and kind of pointing some things out
giving them kind of a virtual tour they
want to actually get inside your home
without getting inside your homenow
a lot of these companies these large
investment companies they will say that
they have local experts but everyone
that I know that has ever dealt with
themhas not actually communicated
with someone local so you as the
homeowner are are kind of having to do
some of the work for these large
investment companies to help them to
assess the
home in the process they're kind of
determining how much work needs to be
done to the homeand obviously how
much they think that they can sell the
home forafter the work is done which
they're not going to share with you for
obvious reasons and then they will give
you an offer at that point andit is
true as Business Insider said that typic
they can make an offer that is
quick relatively easy relatively
painlessI do think oftentimes they
give themselves a due diligence period
allowing them to back out for any
reason at you know so they can actually
have an inspector go in there and look
at the housethat might vary from one
large Investment Company to the next
but these companies are are giving
themselves ultimately as much Freedom
as possible and they're trying to
they're trying to make money at the end
of the dayand so obviously their
their model is such that that they have
to buy properties that have meat on
the bone so generally speaking offers
that they make are going to be below
market value that's the only way as a
house flipper that you make money is if
you buy a house cheaply and if it's a
house that that isn't a fixer uper and
and I can tell youthe large
investment companies that I've seen
typically are not buying fixer uppers
they're buying properties that need very
light work and so typically the only way
that they can do that is by buying below
market valuethat being saidI
don't want to just say that every time
that they are buying below market value
I have seen in some instances where they
have it's not it's not the norm it's
like maybe 10 to 15% if thatbut
there are some instances where they have
bought properties at or maybe even above
Market market valueand at the end of
the day they're running numbers from
their offices in other parts of the
countrysome of them have local real
estate agents like I said they have
local
brokerages but I have no idea the extent
to which those agents are involved I've
tried multiple times over the years
that I've been doing this like when
I've had clients that have been
interested in a home that's being sold
to one of these large investment
companies and they're like hey can you
can you ask them about this can you ask
them about that and I try to call the
agent and I'm like rerouted to like a
call center and in another country or
possibly in another part of the US in
Phoenix or somewhere like thatand so
it's it's really difficult to know like
how much of of a
presence locally that they have it does
not seem like it's a very substantial
local presenceand so that's
important because if you're just talking
to someone in Phoenix they don't know
anything about the Greenville Market
they you know aren't going to know
for instance as they're valuing a
propertythat tailor above Wade
Hampton is much different than tailor
below weight Hampton so those are
just little things that that local
professionals know that someone in
another state is is just not going to
understand there's no way that they
could have that kind of specialized
knowledge so to me well and and so I
should just say because of that I have
noticedthat sometimes I think that
their valuation process can be can just
be wrong right because they don't
they're the way they're valuing
properties is just going to be
there's got to be a margin of error so
they probably I'm sure they factor
that in they know they're they're going
to miss the mark on a certain C
percentage of properties but again
they're doing so much volume that it
doesn't really matter at the end of the
day it seems like their risk profile is
fairly low I don't see them buying
properties in weird areasthey they
tend to really like properties in
production built neighborhoods where you
can get comps very easily and so that's
what I that's what I see kind of
happening most often and most of the
time they're buying below market value
and that allows them to make a
profit but as far as how they value
these properties is a little bit of an
enigma to mebecause what I here's
what I think that they're doing I think
that they are looking at what a home
sold for last so let's say you you
bought your home in
2015and they're looking at what you
bought your home for in 2015 and then I
think looking at what the market has
done how the marketin your meta area
has has change has grown over the the
last seven years and then determining
basically the range of what your home
should be worth based on how much
appreciation has happenedI don't get
the impression that they are analyzing
comps and doing you know things of that
nature in fact one large Investment
Company specifically says that that they
don't do thatone of them I'm on
their
website they have a section that
discusses here's how we value their home
and they give three things that they
rely on one is your inputs about your
homes condition features and updates I
can tell you right now that's one of the
least important things to them that's
more of a just kind of ensuring that the
home is not like trashed you knowbut
they're not doing a major assessment
based on you know what kind of updates
that that you've done to the home they
just want to know what does the home
basically look like number two our
robust data model this is where they're
putting I mean I would say probably 90%
of the weight is their data model and
that's what I'm saying I think that
their focus not so much on on comps not
so much as okay here here all the comps
this neighborhoodbut looking at what
your home was bought for and then what
it could be worth now based on how the
market in that area has appreciated
and I'm sure that data model takes into
account comps and all of thatbut but
it's probably acting very similar to
like zillow's zestimate and that's kind
of how they're they're determining the
value of your home from their standpoint
and then number three they said our
team of local pricing experts well as I
already said I I really don't know what
that entails you know that sounds really
good butI I have never seen any
local experts or I've never talked to
any local experts from any of these
companies despite having interacted with
the companies multiple times so I'm not
exactly sure what to what to make of
thatand and also it's important to
say like there's a few things here the
order that they put these that they put
those in those three things is important
you know from a marketing standpoint the
first thing they put is your input
they want to make it seem like you're in
control that that you that your opinion
has value that what you did to your
housethat they that they really
value that from people that I know
that's interacted with these companies
they haven't felt that way they haven't
felt like they're what they did or that
their opinion was very valuedthat
might vary from one person to the next
but that's just what I've heard
generally
speaking
and we also don't know like again how
much weight is given to any of those
thingsagain my opinion is that the
data model is 95% of itthat probably
the local pricing experts is almost none
of itand that as far as theas
far as the aspect of you providing input
I think that that's and and kind of
showing off the house and whatnot I
think that that basically just kind of
sets a baseline for what condition your
your home is in so that they can then
basically say you know maybe on a scale
of 1 to 10 here's what condition the
home is in in comparison to the rest
of the market in that general area
so that's just that's just what I think
so what does that all mean like how
would that work practically speaking
so let's say that you bought your house
for $200,000 in 2019 and large
Investment Company a determines that
your home has gone up by roughly 50% in
value since that time meaning that it's
now worth
$300,000 but it probably needs you know
on average it looks like it's in pretty
good shape probably needs some paint
probably needs some some touchup you
know ultimately maybe like $115,000
worth of work just to get it up to Snuff
clean it up all of that so what do
they do so so you bought it for $200,000
it needs $115,000 in repair and the
after repair value that they're
determining is around $300,000 they
might offer you
250,000 they're they can see all of this
they can see okay this is a lot more
than they paid for it and that and we
can offer them a quick closing smooth
transaction they get 50,000 more than
they paid for it also they have some
Equity even in addition to that since
they bought it they might not realize oh
if we just did a a of little bit of
touch-up we could sell this thing for
for 30 thou for sorry
$300,000and then and
then they convince customers to sell
that way and then they relist the home
and then they make a profit at at the
end of the day now some of them also
will do this thing where they where they
charge you some extra fees as well some
closing costs and things like that since
there aren't Realtors involved they'll
say you know hey you would normally have
to pay 6% for realtors we don't do that
but we do charge a a a two or 3% fee as
well so in some cases they're doing that
too in order to help themselves out it
really just depends I've heard different
things from different large investment
companies now I mentioned this I alluded
to this before but I met with someone
this past week that was reached out to
by one such large Investment company
via mailand this person contacted
this company to see what they would
offer them on the house and the large
Investment Companythis is kind of an
interesting detail this is what makes me
even more so think that that they're
not that they're just basing things on
what the market is doing not so much on
that house specifically in comparison to
other houses or or what we would call
comps comparable properties
comparable salesso they had in their
system that this house was 1100 square
ft when in reality it was actually
three times that sizeand so the
initial offer the the initial number
that the larg investment companies sent
them seemed a little low but they were
just like wellthey being
the person who owned the housethey
were just like well I mean the home is
three times the size of what their their
system thought it was so for sure that
value is likely to come up so you know
they corrected that data they put that
it was you know 3,400 32 3400 Square ft
they fixed thatthen they showed them
the different updates that they had done
to the house large Investment Company
told them okay we got to run our numbers
get back back with you after a few days
they did and they came back with the
exact same price that they had initially
offered so the fact that the house was
actually three times the size of what
their system originally had did not
matter at all it did not matter and the
simple reason why I think it didn't was
because they were just looking at the
fact that they had bought this house a
few number of years ago for this amount
and here is how much the market has
appreciated since then so here is likely
what the house is worth here's what we
need to buy it for in order for our
numbers to work boom then and Ne was to
say they didn't sell to to this large
Investment company because it wasn't
enough money they consulted with me I
told them the house was worth a lot more
which it is and now they're
potentially listing it and and that's
there's still a lot that that needs to
be determined from all of
thathow ever as I have kind of
alluded to before the Val this valuation
model that that these large investment
companies use can mean that they will
sometimes purchase homes close to retail
valuethe way I know this is that
sometimes I will see one of their homes
that has just been on the market for a
really long time and I'll pull it up and
just and see you know okay there's been
a couple price reductions and I I might
have a client that's like hey I've seen
this house as been on the market for a
while do you think that they'll come way
down on the price you know maybe if
started at like 300,000 and and now
they've reduced the price of
275,000 and thenI'll have a client
that's like hey do you think that they
might take a low ball like 240 and so
I'll pull it up and look at the history
and see what they bought it for and what
I'll see in those instances sometimes is
that they they might have bought that
house that they have listed for 275,000
and it's not selling at that price point
that that they actually bought it for
like 250,000 and I'm looking at this and
I'm like well 250,000 is pretty close to
what that house in this market should
be worthand so again that's just an
error in their in their data model
that obviously they have an acceptable
a number of those that happens where
they where they end up paying too much
and then they end up not being able to
sell the sell the house and make any
profitthat being said
I think
that again generally speaking they
are making a profit but it I have found
it very interesting that usually their
homes Linger on the market a lot longer
than other homes do and and probably a
lot of that has to do with the fact that
it's difficult it honestly my
perspective as a realtor when I have had
to to communicate with these with these
large investment companies and and their
brokerages it can sometimes be extreme
extremely difficult because again I'm
not talking to a local person they often
times will have their own scheduling
software for scheduling showings that
and they will give you a code that is
only has a certain amount of time
that it works for so if you're running
late at all then you have to request a
new one that can take several minutes
I've had one time they gave me a code
that didn't work so then I was there
with my client trying to get that
resolvedand it's just and and I I've
seen I've been in some of them where you
know they we walk in and it's like okay
this place needs quite a bit of work and
again I don't know who the local experts
were that were assisting them with with
getting a home ready for Market but it's
like this home needs 25 $30,000 worth of
workand the large Investment Company
might not even realize that they might
have been sold you know a bad bill of
goods by some contractor that a home was
was ready to get on the market when
it really wasn't so for a lot of reasons
I have noticed that their homes for
several of these companies tend to
stay on the market longer than others
for me if I have a client that wants to
look at any of these properties you know
I will always just warn them hey just so
you know this is being sold by a large
investment company that cranks out a lot
of volume of these there's been some
challenging experiences with some of
them you should just know that upfront
because a lot of people don't want to
don't want to purchase a flipped house
and so I try to get out in front of
that with my clients just to just to
make sure because just a general rule of
thumb is that house flips whether done
by big companies or small ones they
frequently have issues and that's simply
because and I've talked about this on
past episodes but it's because a house
flipper is looking to make money they
will often times cut Corners focus on
cosmetic updates put lipstick on the pig
rather than fix actual issues and a a
Savvy buyer or a Savvy buyer agent they
they will notice those issues they'll
see oh the crawl space is has a lot
of
moisture apparent in there there's no
Vapor Barrier it looks like some things
were ignored the AC's really oldall
these types of things people that are
Savvy will notice that but a lot of
first-time home buyers and and a lot of
agents that only been in real estate for
a few months or a few yearsthey
won't know to to look for that kind
of stuff and they'll get blindsided in
the middle of of theof the
transaction after they've gone under
contract they'll get blindsided by an
inspection report that they thought was
going to be clean but has a bunch of
things on it that are wrongand so
these types of homes also have a high
contract falling through percentage a
lot of contracts fall through on these
large Investment Company homesand so
in the end these large investment
companies have really taken off in
recent years with with flipping houses
but I'm really curious as the market is
Shifting if they will be able to adapt
like I said before Zillow couldn't make
it they they tried it and they failed
and it was really easy when when homes
were appreciating by 1 to 2% per month
when you didn't do anything to them
really easy to flip homesbut what's
going to happen when that appreciation
rate
really slows down and and as we've been
talking on this podcast I really
anticipate that it will slow down
already local house flippers that I know
are they're saying hey we're adapting
we're changing our strategy will these
big companies be able to adapt when
they're not relying heavily on local
people when they're not relying heavily
on local experts it will be really
fascinating to see and I'll certainly be
monitoring that closely to see what
happens and we'll see if the FTC keeps
finding them that that's an interesting
an interesting data point as well
well thank you guys for listening I
appreciate all of my listeners and I
appreciate if all of you could make sure
you subscribe rate and review the show
excuse me lost my voice there for a
second subscribe leave a five star
rating leave a short little review if
you need me all my contact information
is in the show notes and we will talk
again next time
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