Maybe if they're fast and buy up enough, they can get bailed out in the next housing downturn. Even better if they can gain recognition as a bank of some sort before that time.
> Unlike traditional home-flippers who bet they can make money on home appreciation, Zillow plans to profit by charging sellers a fee in addition to agent commissions.
So they plan to make offers on houses near market rate, invent a "fee" to account for the fact that they won't actually be paying market rate, and then turn around and sell the same house at market rate, pocketing the fee.
For this to work at scale a lot of people must be in a situation where they can't afford the holding costs associated with waiting for their house to sell for what it's worth. Or a lot of people's houses have appreciated sufficiently that Zillow's fee is a non-issue. If anyone knows if this is true, I guess Zillow would.
In almost every US housing market except the Bay Area, houses can sit on the market for quite some time waiting for the right buyer. I’m looking at apartments right now in nyc and we saw a very nice place that has been on the market for half a year. It’s not exactly right for us at this time, and perhaps it is a little over priced, but it’s not hard to picture this making the owner antsy.
Every situation is unique: maybe the sellers need a certain price for financial calculations that are wholly separate from the apartment they are selling.
My argument is that Zillow is always going to come in under-market. That's their whole model, and in order for it to work a lot of sellers need to be in a financial situation that allows them to say 'fuck it, I'll take the Zillow price and be done with this'.
Generally, things like this mark a top in the market. Zillow will get caught with a ton of inventory that they can't sell, and then take a huge loss trying to unload them for cash. It probably won't happen right away, but I can totally see it happening in the next year or so.
Can you expand on this a little bit? Billionaires wouldn't necessarily unload their properties when the market took a dump. If anyone, billionaires would be the most likely to be capable of weathering the storm (depending how leveraged they were) and hold on to the property until present day where property values are generally back to where they were circa 2008 housing bust.
But if you are constantly buying, a down market is actually good as it is followed by a bull run.
If you have funds (and zillow would) each doen market is am opportunity to buy some houses for cheap. Put some make up, and eventually it will have buyers, in good markets.
Similar to accumulating stocks. Downturns are an opportunity to buy some stocks for cheap.
It's not fully clear what Zillow is offering here, but my reading is that Zillow is buying homes, quickly fixing them up, and selling them. If this is what they are doing, I can see a lot of value in these "Zillow Approved" flipped houses.
I've read a lot of online horror stories where people buy flipped homes only to realize they bought a lemon. Houses with shoddy construction work, code violations, and the new owners are stuck with tens of thousands of $ in repairs.
Home inspections help, but they don't catch everything. Anything inside the walls, such as poor plumbing/electric work, are unlikely to be flagged.
I'd be happy to pay a 0.5% to 1% premium on the sales price to be assured the people who renovated this house followed local housing code, used proper construction procedures, and used decent materials.
the new owners are stuck with tens of thousands of $ in repairs.
Don't sellers have any responsibilities for what they are selling in the US? Certainly in Sweden it is the sellers responsibility to disclose any known problems to the buyer and they're financially responsible for any problems they fail to disclose.
In Sweden the law basically says you as a seller are responsible for anything you reasonably should have known about (and didn't disclose to the buyer). So it's not enough to claim that you genuinely didn't know that your cellar had been flooded (because you never went down there) or that you shouldn't use wood glue to put up bathroom tiles, you have to prove that it's the sort of thing a reasonable person couldn't be expected to know.
There is a market for home inspectors to prevent the purchase of a property with issues.
I have yet to hear of anyone having a civil or criminal suit taken against them due to issues with a property (not saying it hasn’t occurred—just that I don’t know of it occurring).
I think there's a whole host of people who don't know much about homes and don't want to deal with the headaches of ripping out walls and such who would easily pay a small premium to be assured of a consistent level of quality (if it were well documented and enforced).
Frankly, I'd just love an affordable service that takes care of regularly scheduled house maintenance tasks without breaking the bank.
I doubt zestimates are really a core of their business.
Try to use a zestimate to negotiate the price on your next home. Watch how quick the experts laugh you out if the room.
The zestimate is just a nice quick way to get a ballpark value of a home. But I don't think they are playing any significant role in affecting market prices.
I find zestimates are most accurate on the day a real estate transaction is recorded. It would be interesting to see an error histogram of zestimate-day-before-transaction.
As someone who used to sell a very similar product, most people understand that those prices are estimates and a just a starting point in determining a fair price.
Others would insist that I match whatever numbers they found online - our standard response was to explain that Zillow won’t actually buy your house from you at the number they’re quoting, so we value their prices accordingly.
This is copying the Opendoor business model. Keith Rabois, an Opendoor founder / investor, claims this is vaporware and implies this is trying to block an ongoing funding round: https://twitter.com/rabois/status/984544209188237314
What Zillow are doing is charging for certainty, buying a house is a huge financial decision - with potential risks.
As a seller, how much do I value a certain payout today? It's at least a few % points.
As a buyer, how much do I value a property which has been "Approved" and been fixed up? Again at least a few % points.
They can easily get a 5% margin, if not closer to 10% (especially if they do value-add improvements)
Then it is just about managing inventory, and not being overly exposed during a downturn - however depending on how their capital is structured are there is the opportunity to rent until it can be sold.
I question how much value Zillow would be adding. Inspectors should be playing the role of approvers. And most sellers value getting the biggest offer. If Zillow develops a reputation of offering you less than market value then people will stop taking that offer. Also, if the house is actually changing ownership to Zillow then in some states they would owe at least an excise tax on each sale.
What they’re doing is an extremely common thing and proven business model.
There are lots of interesting things you can do to consistently buy “below” market value. Don’t use a realtor, that’s 3-6% savings. Buying in cash and guaranteeing a smooth closing is incentivizing to a lot of sellers, another couple % points. Etc.
I was the first data scientist hired at Opendoor. We have a strong team of data scientists, engineers, designers and operators. We're ready and excited to take on this challenge.
It's interesting that they're following the lead by Opendoor---the startup that pioneered the same.
What I don't like about this business is it's very capital intense with low ROI. Sort of like high frequency trading for homes.
Plus, transaction prices are all public. Sellers get pissed off when they see how much profit you made off of them. They assume they could've made that 10-20% themselves (in those rare cases), leaving the flipper with bad reviews on Yelp.
Does it make more sense to turn this into a fund, a long(ish) term investor in homes... say longer than 6 months or 1 yr? Essentially creating a medium-term hedge fund. Basically, capital needed to flip shouldn't be mixed up with firm's equity (else you constantly need to raise huge sums)?
In markets like Vancouver and SF, the ROI is well over 10% per year. And banks are quite willing to offer extra leverage, so the capital costs remain reasonable.
Homes are for living in, not investment vehicles. Housing is not a free market: supply will not rise to meet demand, and entry into the market is limited not by the ability to pay a mortgage, but the ability to pay a deposit, which limits participants to those with access to large amounts of cash.
Individuals doing so are increasingly punished for this behaviour as a way for governments to control anti-social investing (eg, in the UK) or increasingly prevented explicitly from doing so (in China).
I hope the same happens in the US: the alternate is house prices spiralling further out of reach of those without family wealth or very large incomes and those with family wealth or very large incomes growing increasingly wealthy.
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> Unlike traditional home-flippers who bet they can make money on home appreciation, Zillow plans to profit by charging sellers a fee in addition to agent commissions.
For this to work at scale a lot of people must be in a situation where they can't afford the holding costs associated with waiting for their house to sell for what it's worth. Or a lot of people's houses have appreciated sufficiently that Zillow's fee is a non-issue. If anyone knows if this is true, I guess Zillow would.
My argument is that Zillow is always going to come in under-market. That's their whole model, and in order for it to work a lot of sellers need to be in a financial situation that allows them to say 'fuck it, I'll take the Zillow price and be done with this'.
Similar to accumulating stocks. Downturns are an opportunity to buy some stocks for cheap.
I've read a lot of online horror stories where people buy flipped homes only to realize they bought a lemon. Houses with shoddy construction work, code violations, and the new owners are stuck with tens of thousands of $ in repairs.
Home inspections help, but they don't catch everything. Anything inside the walls, such as poor plumbing/electric work, are unlikely to be flagged.
I'd be happy to pay a 0.5% to 1% premium on the sales price to be assured the people who renovated this house followed local housing code, used proper construction procedures, and used decent materials.
Don't sellers have any responsibilities for what they are selling in the US? Certainly in Sweden it is the sellers responsibility to disclose any known problems to the buyer and they're financially responsible for any problems they fail to disclose.
Having a brand behind a flipped house could assuage some of those fears.
There is a market for home inspectors to prevent the purchase of a property with issues.
I have yet to hear of anyone having a civil or criminal suit taken against them due to issues with a property (not saying it hasn’t occurred—just that I don’t know of it occurring).
The only homes to have any sort of clawback are new constructions. Which are warrantied for about a year.
https://en.wikipedia.org/wiki/Latent_defect
Frankly, I'd just love an affordable service that takes care of regularly scheduled house maintenance tasks without breaking the bank.
If they provide lowball Zestimates, that allows them to buy homes for cheap. Or if they own the home, they can increase the value prior to sale.
Hard to trust when they could easily use this estimation system to their other business model's advantage.
Try to use a zestimate to negotiate the price on your next home. Watch how quick the experts laugh you out if the room.
The zestimate is just a nice quick way to get a ballpark value of a home. But I don't think they are playing any significant role in affecting market prices.
Others would insist that I match whatever numbers they found online - our standard response was to explain that Zillow won’t actually buy your house from you at the number they’re quoting, so we value their prices accordingly.
As a seller, how much do I value a certain payout today? It's at least a few % points.
As a buyer, how much do I value a property which has been "Approved" and been fixed up? Again at least a few % points.
They can easily get a 5% margin, if not closer to 10% (especially if they do value-add improvements)
Then it is just about managing inventory, and not being overly exposed during a downturn - however depending on how their capital is structured are there is the opportunity to rent until it can be sold.
There are lots of interesting things you can do to consistently buy “below” market value. Don’t use a realtor, that’s 3-6% savings. Buying in cash and guaranteeing a smooth closing is incentivizing to a lot of sellers, another couple % points. Etc.
What I don't like about this business is it's very capital intense with low ROI. Sort of like high frequency trading for homes.
Plus, transaction prices are all public. Sellers get pissed off when they see how much profit you made off of them. They assume they could've made that 10-20% themselves (in those rare cases), leaving the flipper with bad reviews on Yelp.
Does it make more sense to turn this into a fund, a long(ish) term investor in homes... say longer than 6 months or 1 yr? Essentially creating a medium-term hedge fund. Basically, capital needed to flip shouldn't be mixed up with firm's equity (else you constantly need to raise huge sums)?
Wonder what others think about that.
Individuals doing so are increasingly punished for this behaviour as a way for governments to control anti-social investing (eg, in the UK) or increasingly prevented explicitly from doing so (in China).
I hope the same happens in the US: the alternate is house prices spiralling further out of reach of those without family wealth or very large incomes and those with family wealth or very large incomes growing increasingly wealthy.