Power Buyer tools help your everyday buyers win “their” house in the face of competition from institutional and/or wealthy all-cash investors.
What is a Power Buyer?
Real estate’s “Power Buyer” business model essentially gives an everyday consumer with an everyday income the ability to compete with all-cash buyers, either institutional investors or wealthy consumers, to purchase a house in this highly competitive, fast-moving housing market.
Simply, power buyers provide two services: a power buyer buys a home in an all-cash deal on behalf of the everyday consumer. The consumer then buys the home from the power buyer.
Likewise, the power buyer also enables the home owning consumer to buy the house she/he wants before they sell the house they already own.
(By the way, Mike DelPrete, well-known real estate analyst and real estate technology strategist, coined the phrase “power buyer.”)
READ: 2022 Top Agent Success Secrets [Revealed]: New FREE Real Estate Coaching Web Event, Revealing 17 Surprising Secrets Of The Top 100 $ Millionaire Agents. Get Your FREE Spot For The 2022 Real Estate Coaching Webinar Now. After You Have Attended This Event You Will Have A Huge Feeling Of Relief Knowing You Will FINALLY Laugh At Your Money Worries – You Will Have Your Own Personalized 2022 Step-By-Step Business Plan. Learn Now How To Generate 100’s of Motivated Leads for FREE, Without Coming Off As A Pushy Salesperson and Losing Your Soul. You Will Soon Know How To Become One of the 1000s of Agents Making HUGE Money Who Never Thought They Could. YES, I Want To Attend The FREE Webinar! <——Click To Register
How Do Cash Offers Work?
Here’s how the majority of cash offers work when the consumer is working with a power buyer:
- The homebuyer must complete a qualification process that confirms the homebuyer’s creditworthiness. The homebuyer provides a budget to the power buyer. If/when the homebuyer is approved, the homebuyer chooses the home they want and the power buyer purchases the home on the buyer’s behalf with an all-cash offer to the seller.
- The homebuyer may have to provide an earnest money deposit or pay a flat-rate transaction fee. (Power buyers who offer mortgage and title services could waive this transaction fee if the consumer chooses to finance their home purchase with the power buyer.)
- The homebuyer can move into the house immediately while they secure their mortgage to “repurchase” the house from the power buyer.
- The homebuyer will likely pay a prorated rental fee for living in the home before closing on their mortgage with the power buyer.
How Do Buy-Before-You-Sell Options Work?
The buy-before-you-sell services are essentially alternatives to bridge loans and help home sellers-turned-homebuyers find a way to pilot two simultaneous transactions.
- The home-seller-turned homebuyer has to complete the same qualification process as the homebuyer. described above in the cash offer section.
- The home-seller-turned-homebuyer is then given an extended rental timeline to sell the home they already own and secure a mortgage for the new home.
- The power buyer can then help the home-seller-turned-homebuyer sell their house on the open market. The power buyer can provide home prep services and an in-house agent to help the home-seller-turned-homebuyer sell the house (for fees, of course).
- If the house doesn’t sell on the open market within a defined timeframe, usually 180 days, the power buyer then buys the home.
“Chicken and Egg Issue” Solved
According to Tim Cooke, Director of Sales with Flyhomes for Agents, “I think (power buyers) solve the ‘chicken and egg issue.” (Let’s say) “I own a home and in order for me to buy a new home, I need to release the equity from my old home, but I can’t buy the new one before I sell the old one, and I don’t want to sell the old one until I know for sure that I’m going to be able to buy the new one.”
Cook added that this “chicken and egg issue” has “…always been around. What a power buyer does is step in and say, ‘We’ve got you. Don’t worry.’”
Power Buyers Offer Additional Options – Sale-Leaseback & Lease-To-Own Services
Here’s how the sale-leaseback service works:
- The homeowner sells their home to a power broker to access a portion of their home’s value in cash.
- The homeowner/now buyer will continue renting their home from the power buyer with an option to either repurchase the home themselves or to release the power buyer to sell the home on the open market. If/when the home sells on the open market, the homeowner gets another payout…minus the power buyer’s purchase price.
Here’s how the lease-to-own service works:
- This service offers the same benefits as cash-backing services BUT with a much longer repurchase timeline, usually 24 – 36 months. During this longer rental timeline, the power buyer company will put a portion of the monthly rent into a down payment fund and may provide financial guidance to the eventual homebuyer.
- When the homebuyer reaches their down payment goal, they can then purchase the house from the power buyer OR they can walk away from the deal altogether and simply pocket their savings for a future home purchase.
- Lease-to-own service companies essentially serve buyers who are “on the cusp” of purchasing but not “there” yet regarding financing issues needed to secure a mortgage or make a down payment.
Thanks to Inman.
