"I love buying stuff from commissioned salespeople..."
Said no one.
Still, like it or not, middlemen (and women) are a fact of life.
Sometimes, you need a salesperson. Perhaps you're buying a yacht... or a mansion... or a classic car.
In situations like that, the complexity makes a broker a requirement. For premium purchases, you need salespeople with specialized knowledge. That's just how it is.
But what about buying an ordinary house?
Well, your home probably feels special to you. It's yours, after all. But the reality is that your home probably isn't special.
Today, I'll show you why. And I'll share why robots could soon replace real estate agents as we know them.
Most homes aren't that special. Let's use my neighborhood as an example.
Where I live, a pretty nice part of town in North Florida, the FHA loan limit is about $360,000.
This is important. FHA loans are backed by the government – specifically, the Federal Housing Administration. They're designed for folks with low to moderate income. And they're the loans that keep the housing market moving.
So, if you want to get a "conventional" loan in my neck of the woods, you're borrowing less than $360,000. That won't get you a shack in California's Bay Area. But out here, and in most of America, it's a lot to work with.
Now, let's say you're a well-prepared home buyer. You've saved up a 20% down payment. That means you can look at homes up to $450,000 and still fall into the conventional loan category.
Knowing this, we're ready to go home shopping. In my zip code, 241 homes are listed for sale. Only 35 homes are priced over $450,000.
That means only 14.5% of the market in my area is "unconventional." Those unconventional homes – the ones that require so-called jumbo loans – probably do require a broker. They're more complicated and more specialized than a typical home.
The rest probably aren't special. Around here, they're mostly ranch houses... three or four bedrooms and a couple bathrooms. The features are slightly different from home to home, but in the big picture, they're mostly identical.
These conventional homes are, for the most part, commodity products... They're closer to corn or soy than they are to luxury yachts. But historically, we've treated conventional homes like they're something special.
We use real estate brokers for just about every purchase. They earn big fees to match buyers and sellers. But here's the reality...
Nearly 6 million home sales took place in the U.S. in 2018. And most of them weren't special.
That's where the robots come in.
Big companies have noticed the nature of the housing market. They see that the average home is a commodity product. The logical next step is to trade homes... just like any other commodity. So that's what's happening right now...
So-called "iBuyers" are buying homes across America. And they're doing it sight unseen.
That's because they don't really want the homes... They just want to make a bit on reselling the home. And they're using "robots," or algorithms, to do it.
These algorithms scan the market. They look at your home's basic attributes. And then, they come up with a price that they predict will motivate you to sell... but also make them money.
They're able to do that because most homes simply aren't all that special. They're just another commodity.
Now, these online real estate buyers like Zillow or Opendoor don't always pay top dollar. But the convenience they offer can be amazing. They'll make you an offer almost right away. And the sale can close when it's most convenient for you.
Moving across the country and need to sell now? No problem.
Where I live, iBuyers make up 3% of the market. So there's still a lot of room for growth. But in other markets, they're already a sizeable force.
In Raleigh, North Carolina, iBuyers make up almost 7% of the market, nearly double what they made up in 2018.
For consumers, this means the market is getting more efficient. It should be a net benefit in the long run. Some folks will shoot for top dollar through the brokered market. But others will choose a streamlined process, cutting out the middleman entirely.
After all, most homes aren't special... They're conventional. So the next time you buy a home, you might have more options than you think.
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