1."We're hopelessly out of fashion."
Once a primary tool for real-estate agents looking to sell a home, experts say the traditional open house has lost its influence in the Internet age. Nearly 90% of buyers search online for homes, while only half that number visit open houses, according to a 2011 report from the National Association of Realtors. And open houses are rarely used as a first step to a home search: Thirty-five percent of buyers start their search online while just 4% start at open houses. Online listings are now the most popular source for finding a home, followed by real estate agents, according to the NAR. Open house signs rank third. "Open houses are somewhat of a dinosaur," says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla.
Indeed, most buyers today conduct their preliminary research at home -- reviewing online photos, virtual tours and a home's layout -- and arranging for private showings of the properties they're interested in. In addition to listings, other information such as comps (the prices similar homes nearby sold for), property taxes and the school district the house belongs to can also be easily found online. Years ago, buyers had to visit open houses or speak with a real estate agent to get the low down.
2. "We can cost you plenty ..."
To prepare for an open house, some real estate agents encourage homeowners to hire a professional stager who will advise sellers on how to de-clutter, rearrange furniture, move stuff into storage, improve lighting, spruce up landscaping and make other improvements. Granted these changes may well improve curb appeal, but the process can be pricey. Homeowners will shell out $1,800 on average for professional staging, according to StagedHomes.com. In high-priced areas, that number can easily jump to $5,000 and million dollar homeowners will pay significantly more than that. At a time when many homes are selling for less than their asking price -- in March, the median listing price in the U.S. was 14% higher than the median price that homes sold for, according to Realtor.com and the NAR -- that bill could be steep for homeowners.
Staging has become a lot more common during the housing downturn as real estate agents and sellers try to make homes more appealing to buyers. Roughly 25% of homes for sale are staged, up from less than 5% in 2007, says Barb Schwarz, CEO of StagedHomes.com, which tracks data in the home staging sector. Schwarz says she expects that figure to grow as more real estate agents recommend this service to their clients.
For their part, stagers say that their work helps sell a home faster. Roughly 94% of professionally staged homes sell in an average of 29 days or less, according to StagedHomes.com, compared to 145 to 194 days for homes that aren't staged. Stagers say that their work can also help increase the eventual selling price. Cleaning and de-cluttering, for instance, can add nearly $2,000 to a home's sale price, according to 2011 data from HomeGain.com. The National Association of Realtors says home staging is believed to help sell homes faster and may lead to a higher price.
3. "... and we probably won't attract serious buyers."
In the six years that Dallas real estate agent Barbara Deltuva held open houses, not one resulted in a sale. "Open houses don't produce viable buyers," she says. Deltuva's experience isn't a fluke. Just 11% of homeowners said they found their purchase from an open house sign (or a yard sign), according to the NAR. Meanwhile, 40% said they found their homes online and 35% said they learned about the home from a real estate agent, according to the NAR. For their part, roughly two thirds of agents say open houses don't result in sales.
In the rare cases when an open house produces an interested buyer, the likelihood of that person qualifying for a mortgage could be slim. The reason: Open house attendees are rarely screened. Since the housing downturn began, most real estate agents have been urging their clients to find out what kind of mortgage they can get approved for before they start searching for homes. That way, buyers won't waste time making offers on homes that they ultimately can't qualify for or afford. But open houses, as the name implies, are open to whoever wants to attend. There's no way the listing agent can know if every person who walks into the door is qualified to purchase the home, says Keith Gumbinger, vice president at mortgage-data firm HSH Associates.
Some real estate agents say the housing downturn is the culprit as to why open houses can be ineffective. During the housing boom it was more common for buyers to make an offer at an open house because they were worried that another buyer would beat them to it, says David Kent, president of the National Buyer's Agent Alliance. But with real estate sales slower in most markets, "The urgency isn't there," he says.
4. "Attend us at your own peril."
Buyers who plan to visit an open house without their own agent could be setting themselves up for problems. At worst, they could lose the chance to have their own representation, says Doug Miller, executive director of Consumer Advocates in American Real Estate. The reason often boils down to commissions, which is how real estate agents get paid. Listing agents, the ones who run the open houses, represent the seller. They have a fiduciary responsibility to represent the seller's best interests, which, not surprisingly, are often in conflict with the buyer's best interests.
Miller recommends buyers work with an exclusive buyer's agent who makes sure the buyer's best interests are protected when they go into contract and closing. Typically, the buyer's and seller's agents will split the commission. But if a listing agent shows a buyer an open house, that person could claim that he or she has done all the work and refuse to share the commission with another agent. At an open house, just by walking in the door on their own, buyers create the potential for a commission dispute, says Miller.
To avoid complications, buyers should establish a relationship with a buyer's agent before house hunting begins. Ideally, buyers and their agent will visit open houses together. Barring that, buyers should tell the open house listing agent that they have their own representation, then provide that agent's name, says Gary Rogers, a seller's agent in Waltham, Mass. Otherwise, if the seller's agent refuses to share the commission, buyers could be stuck making a difficult decision: paying for a buyer's agent out of pocket (since the listing agent would be getting the entire commission) or proceeding with the listing agent who could take on a "dual agent" role. State laws vary, but most states will allow a listing agent to become a dual agent, says Walter Molony, a spokesman for the NAR. The dual agent would be prohibited from negotiating the purchase price or terms on the buyer's behalf, says Miller.
5. "For agents, We're free advertising."
If a home doesn't sell after an open house, the seller's agent doesn't necessarily leave empty handed. Bryan Sweeley, a Silicon Valley, Calif.-based seller's agent with ZipRealty, says his first priority is to sell the home, but he does host open houses with the hope of finding new clients. "It is a very low-cost way to personally meet prospective buyers," he says.
Here's how it works: If after viewing the home, the buyer tells the seller's agent that he isn't interested in it, the agent may ask what kind of property he is looking to buy and then recommend several properties in the prospective buyer's price range. (This scenario plays out when buyers aren't already working with their own agent.) The NAR confirms that many real estate agents report meeting new clients both buyers and sellers at open houses.
Buyers who meet listing agents at open houses and decide to work with them should know that this agent will probably take on the role of "dual agent," representing the seller and the buyer if state laws permit it. The agent's fiduciary responsibility in this case is to treat the seller and buyer as equals and to not give one side better representation than the other, says Kent. But, the situation can be ripe for conflict. Real estate agents are supposed to represent the best interest of their clients but a seller's and a buyer's interest sell high vs. buy low are naturally at odds with each other. According to the NAR, roughly six in 10 buyers choose their own representation.
6. "Be wary of agents who keep us to themselves."
Ambitious real estate agents who want to spread the word about a property will suggest an initial open house exclusively for other real estate brokers and agents. The goal is to inform real estate professionals in the area about the new listing so that they'll spread the word about it to buyers, says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles. Sellers should question a listing agent who doesn't recommend hosting this event, he says. It could be a sign that the agent isn't focused on selling the home quickly or might not want to work with other agents and split the commission, experts say.
Typically, a listing agent will recommend a broker open house soon after he or she lists the home, says Paul Bishop, vice president of research at the NAR. That way, the brokers who attend can bring clients who they think might want to buy the house to the actual open house event.
7. "Sellers should keep an eye on their belongings."
It's rare, but open houses can attract thieves, say real estate agents. Kevin King, executive vice president of the Realtors Association of South Central Wisconsin, says agents in the region reported a small number of thefts of jewelry, money clips and prescriptions at open houses over the past several years. In one incident, a homeowner had made sure to remove prescriptions from the medicine cabinet, but the stash in the nightstand drawer had mysteriously disappeared after an open house.
With dozens of people passing through a home, agents can't keep an eye on everyone, says Rogers. The NAR's Molony confirms the danger of theft and says real estate agents take precautions. "That's the issue with an open house -- you don't know anything about the people walking in the door," he says. Agents say they tell their clients to lock up their valuables or to move them to a safe deposit box. If homeowners become victims of a theft, they should contact the police and inform their agent. Separately, most home insurance policies will provide some coverage.
8. "One of us is usually enough."
Unless a home's selling price has been slashed or another major change has occurred since its initial open house, sellers might want to rethink holding multiple open houses. The initial open house is the seller's opportunity to announce that the house is on the market and the real estate agent's responsibility to attract a large number of buyers to the home. Additional open houses can make a seller appear desperate, says sellers' agent Gary Rogers, and suggests to buyers that there's little interest in the property and few, if any, offers.
As a result, buyers will think there's a greater chance that the seller will accept a low-ball offer. He says that agents who agree to do more than a couple open houses on a property are increasing the chances of selling the house at a large discount compared to its asking price. "More open houses are more damaging," says Rogers. The National Association of Realtors says it doesn't track the impact of how a home is marketed on the eventual purchase price.
9. "We're not always so 'open.'"
The high foreclosure rates of recent years have made builders extremely cautious. One consequence: Some builders are screening potential buyers before they allow them into an open house or model home. Before they ever gain access to a look-see, buyers are often asked a series of questions, including how soon they plan to move and what kind of house they're looking for, says Bob Schultz, a Boca Raton, Fla.-based consultant to home builders. Often times, buyers looking to attend an open house at a model home must first meet with a sales agent in the garage or den, he says. The agent could also ask the buyers if they've qualified for a mortgage and have enough cash for a down payment, says John Mulville, vice president at Real Estate Economics, which tracks housing data.
For the most part pre-screening occurs with small, entrepreneurial home builders that sell roughly 50-100 new homes a year, says Schultz. Rather than scare buyers away, he says, the goal is to learn more about them so that builders can sell them a home -- maybe at a different development -- rather than lose a potential client. For its part, the National Home Builders Association says it hasn't studied how builders approach open houses, but Steve Melman, director of economic services at the NAHB, says that in this environment builders want to see every serious buyer.
10. "Beware of our 'foreclosure tours.'"
The routine is the same every week. Marc Joseph, a broker in Lee County, Fla., meets with 15 or so prospective buyers who then board a bus to embark on a "foreclosure tour" of six to eight vacant houses. Most of the buyers are visiting the state and looking to buy a home for retirement, vacation or investment purposes. And unlike buyers at regular open houses, a large number of attendees on foreclosure tours make offers. Joseph says about 45% of buyers purchase a home about a week after the tour. In San Jose, Calif., Adam Wu, a broker with residential brokerage firm Sunshine Investment, says 30% to 40% of buyers who join the firm's weekly foreclosure tours end up buying.
The risks of buying real estate this way are huge. First, buyers can't always get in to see these houses. Making an offer on an unseen home is always risky but with a foreclosure there's also a high chance of infrastructure problems. Separately, touring homes with a group of buyers fuels competition. When a buyer expresses interest in a property, it often leads to multiple bids that drive up the price, says Brian Liberto, a real estate consultant in Orange County. And the prices aren't guaranteed to be a deal. As prices of regular homes fall, the price difference between a distressed property versus a regular home has shrunk. The average selling price of a distressed property was $164,944 in the fourth quarter of 2011 (the latest available), 29% below non-distressed homes, compared to a 35% difference the year before, according to RealtyTrac, which tracks foreclosures.