Zillow is setting up their home-flipping business in Phoenix and Las Vegas, which are two very safe towns for taking a risk.
The vast majority of houses there are easy-to-value tract homes, and relatively inexpensive compared to the coasts. But Zillow’s stock price has plunged 10% since they announced their new venture.
In this cnbc article, Mahaney makes a good point. Having skin in the game will assist Zillow to better gauge and predict market conditions. When we still hear the typical market nonsense from N.A.R., Zillow could become the voice of real estate – if they’re not already:
In May 2017, Zillow announced the launch of Instant Offers, which enables home sellers in the Las Vegas and Orlando test markets to get cash offers from potential investors on Zillow’s platform. The company said homeowners prefer the process, and that most of them who requested an Instant Offer ended up selling their home with an agent.
“Home sellers welcome a hassle-free experience selling your home without decluttering your garage or taking the kids out of the house,” Rascoff said.
Rascoff said the company will take on collateralized debt to purchase the homes, and hopes to have between 300 and 1,000 homes held for sale by year’s end. He called the move “industry friendly,” benefiting buyers, investors and agents. He also said it could help stimulate the real estate market and open up new inventory for prospective buyers.
“There are people that are basically stuck in their home that would love to go buy another home, but can’t sell,” Rascoff said. “This could provide the ability to unstick people from their homes.”
Mahaney said that it will help Zillow test how much the real estate market is turning.
“This is an interesting experiment on the company’s part,” Mahaney said. “They’ve reached the point of scale with both real estate agents and with consumers. There are data points in the market that suggest this way of buying and selling homes is really starting to gain traction.”
The program will start this year in Phoenix and Las Vegas. Zillow didn’t say when it will expand into other markets.
I doubt any of the corporate flippers will ever come to the high-priced California coastal markets – with fewer tract homes and high cost, it’s too risky.
Whoever spends the most money on advertising will win, and Zillow spends around $100,000,000 per year. Who can keep up? In the video he says that 90% of the home sellers chose to hire an agent, rather than sell to Zillow:
Nearly one year ago, Zillowshook up the real estate industry when it announced that it was getting into the home selling business by launching “Zillow Instant Offers.”
In the program, homeowners looking to sell their home in the test markets of Las Vegas and Orlando are able to get cash offers for their home from selected investors interested in buying it, all within Zillow’s platform.
As it turns out, that was just the beginning.
Zillow announced Thursday that it will begin buying and selling homes directly to and from homeowners.
To repeat, Zillow itself will soon be buying homes directly from sellers, then turning around and reselling them.
According to Zillow, the program will start small and test in two markets, Las Vegas and Phoenix.
But the program represents a huge change in the business model for Zillow. Back in 2015, Zillow CEO Spencer Rascoff said that the company views itself as a media company, not a real estate company.
“We sell ads, not houses,” Rascoff said at the time. “We’re all about providing consumers with access to information and then connecting them with local professionals. And we do a great job of giving those local professional high-quality lead, they’ll covert those leads to at a high rate and then want more media impressions from us. So we’re not actually in the transaction, we’re in the media business.”
But that’s not the case anymore.
Now, Zillow sells ads and houses.
According to Zillow, its homebuying program will roll out “this spring” in Phoenix and Las Vegas.
The company said that home sellers in those markets will be able to compare an agent’s comparative market analysis to offers directly from Zillow or from other investors.
Zillow says that it when it buys a home, it will make the “necessary repairs and updates” and list the home “as quickly as possible.”
Now, what appears to make Zillow’s direct buying program different from companies like Opendoor and OfferPad is that it does not cut real estate agents out of the process.
According to Zillow, a local agent will represent Zillow in the purchase and sale of each home, which will enable agents to earn commission on the purchase and sale.
He says C.A.R. would “oppose any such development that eliminates many consumer protections”. Well, are you opposing the Zillow Instant Offers? It doesn’t sound like it. As usual, the leaders of the realtor business are comatose while outsiders strip us down for spare parts.
There is an easy solution. Everyone provide ‘instant offers’.
I have regular buyers for North San Diego’s coastal region that will happily pay 10% under value, and investors that will pay 20% to 30% under value. Both will close in 5-10 days. Contact me today!
June 7, 2017
Fellow REALTOR®,
No doubt you’ve heard about Zillow Group’s “Instant Offers” pilot program for home sellers where, with or without an agent, homeowners can entertain instant offers and sell their home quickly. This program – which is essentially a new take on another “I’ll buy your house for all cash, below market value” business – is a small segment of the marketplace. The reactions we have received so far falls into either the camp of strong opposition or strong support. For those who are opposed, the pilot has been the subject of much consternation by REALTORS® since its announcement because it creates a path that eliminates the critical role an agent plays in the transaction – another step toward disintermediation.
Many see this as an antagonistic step against the very industry that fuels the site with listing content and premier advertising money, only to promote the prospect of excluding REALTORS® from the transaction. For those who see it that way, they have the option of rethinking their participation with the site. Those holding the other opinion have reported that they see business opportunities to enhance their work through this program. No matter how you look at it, we can all agree it’s bad for consumers who need to get sage advice, excellent customer experience, and top dollar when they’re selling their home, especially when consumers have to pay an exorbitant cost to participate in the program.
C.A.R. has been asked for its take. First of all, there is no substitute for the tremendous value REALTORS® bring to what is usually the largest, and often the most complicated, transaction a consumer will ever make. The program seems to be geared toward investors or investment groups who are willing to make more speculative investments. Any move which promotes eliminating REALTORS® from their role as a trusted navigator in this complex undertaking would ultimately harm most consumers, leaving them without a duty-bound advisor just when they need one most. C.A.R would oppose any such development that eliminates many consumer protections and will ALWAYS advocate for the unparalled value of using a REALTOR®.
This is the perfect opportunity for you to discuss with your clients the value proposition that a REALTOR® brings to the table and look at expanding the services you are uniquely able to offer investors and investment groups.
Sincerely,
Geoff McIntosh
2017 President
CALIFORNIA ASSOCIATION OF REALTORS®
Zillow thinks that if they encourage sellers to hire an agent, it will be enough to appease their big-money-spending Premier Agents, because sellers will also have the option to engage with an agent regarding their home’s value.
But there is recent evidence to know how effective that program will be.
Zillow rolled out their big Seller Leads program at the last Premier Agent conference that we attended in Las Vegas last year. We signed up for the 6-month program, figuring if it does catch fire, we’d want to be involved!
During our paid six months, we got one listing in Spring Valley.
Our advertising with them has been so ineffective that we quit all Zillow advertising this month. Our listings will still be prominently displayed, but you won’t see me being part of the three-headed monster on the right-side of the listings in Encinitas and Carlsbad.
They have a good shtick, but in reality, the Zillow advertising being sold to agents works most effectively in the lower-end areas, where buyers and sellers aren’t connected to several agents already.
The Instant Offers program is likely to find a similar fate.
Zillow is attempting to capitalize the Open Door model, which has 200 employees operating in the Phoenix and Dallas markets, and has raised $320 million in venture capital. Zillow probably feels the pressure, and figured they have to do something to compete with Open Door.
As we saw with Tom, not every homeowner is greedy. There are those who would rather cash out quick than navigate the path to a retail sale – heirs to the estate, long-time landlords, etc., who just want to get their money!
Things that are likely to happen with Zillow’s Instant Offers:
The investors will hire great salespeople.
Agents will attempt to game the system.
Higher-end sellers will hesitate.
If the investors have great salespeople who convince sellers that their discount is worth the fast money, the program might work – whether the buyer is Open Door, Zillow, or Tom T!
