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Zillow Offers Takes a Break (?)

Hat tip to GA for sending this in:

Zillow Group Inc. is taking a break from buying U.S. homes after the online real estate giant’s pivot into tech-powered house-flipping hit a snag.

Zillow, which acquired more than 3,800 homes in the second quarter, will stop pursuing new home purchases as it works through a backlog of properties already in its pipeline.

“We are beyond operational capacity in our Zillow Offers business and are not taking on additional contracts to purchase homes at this time,” a spokesperson for Zillow said in an email. “We continue to process the purchase of homes from sellers who are already under contract, as quickly as possible.”

Zillow is best known for publishing real estate listings online and calculating estimated home values – called Zestimates – that let users keep track of how much their home is worth. The popularity of the company’s apps and websites fuels profits in Zillow’s online marketing business.

https://www.bloomberg.com/news/articles/2021-10-17/zillow-pauses-home-purchases-as-snags-hit-tech-powered-flipping

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They are known for their marketing prowess, so if you’re like me, you probably wondered if they just cooked up a great excuse – and/or if was there any more to the story.

I know one homeowner who got a quote from ZO about a month ago that was around the retail value of the home. Two weeks later, ZO revised their quote downward by 5%, and claimed it was due to ‘market conditions’, not a pipeline backlog.  But there’s no obligation for them to tell the same story everywhere.

Let’s check their market conditions.

These are the MLS stats for the broker from Corona who has 91 agents handling the bulk of the Zillow listings for Southern California:

Solds between April 18 – July 18th:  174

Average Days on Market: 14

Median Days on Market: 6

Solds between July 19 – Oct. 18th:  273

Average DOM: 26

Median DOM: 22

ACTIVE LISTINGS TODAY:  294

Average DOM: 29

Median DOM: 21

They were in love with the frenzy, and were able to sell half of their listings in the first 6 days on the market. But today, most of their active listings have been on the market for weeks, and are still unsold.

When their home isn’t selling, amateur sellers cancel their listing and wait for a ‘better market’.

San Diego Pricing Momentum

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Speaking of Zillow, they also said in this June article that San Diego home prices would rise 24.7% by May.

How are we doing?

There has never been a great measuring stick for home prices, but let’s look at the most common ones:



Yikes – it looks like home prices have been fairly flat over the last 2-3 months, at least according to the standard ways of measuring. Pricing doesn’t have to rise 2% every month to get to their 24.7%, but having upward momentum is critical because once we roll into Plateau City, it gets harder to convince buyers to overpay. They are already cooling their jets:

Get Good Help!

Zillow Forecast By Area

Here are the latest guesses from Zillow that they’ve sent me over the last month.  They agree with me that next year will be rip-roaring!

In parentheses are the percentage increases for the last year:

NW Carlsbad 92008 (+28%)

SE Carlsbad 92009 (+30%)

NE Carlsbad 92010 (+28%)

SW Carlsbad 92011 (+28%)

Carmel Valley 92130 (+26%)

Del Mar 92014 (+23%)

Encinitas 92024 (+27%)

La Jolla 92037 (+20%)

Rancho Santa Fe 92067 (+23%)

West Bernardo 92127 (+30%)

Basically, we’re going to have a 40% to 50% increase in local home values over two years!

Get Good Help!

Way Over List

San Francisco leads the 50 largest U.S. metros in the share of homes sold for 30% over their list price or higher at 7.4%. It’s followed by the hot market of Buffalo, NY, where 6.2% of homes sold for more than 30% over list, and Austin (5.3%). All shares in these markets are up substantially over the first quarter.

The markets with the most homes sold for half a million or more over asking in the second quarter are San Francisco (657), San Jose (283), Los Angeles (99), Seattle (88) and Miami (74).

https://www.zillow.com/research/share-of-homes-sold-way-over-list-doubles-29974/

Can we find the six that sold for $1,000,000 over list?  I went looking for that needle in a haystack, but couldn’t find any.  If you know of the properties that for more than a million dollars over list this year, let us know!  The 2021 numbers are staggering, given the pricing:

San Diego County First-Half Sales, All Property Types

Year
Total Sales
Median SP
Median DOM
Sales Over $3,000,000
2017
19,236
$521,000
22
150
2018
17,922
$554,000
14
156
2019
16,981
$569,000
20
159
2020
15,037
$593,000
14
155
2021
20,263
$702,000
9
485

Record pricing, and record sales at the same time – what a frenzy!

iBuyer Update

The ibuyers are borrowing money like crazy to build their inventory of homes to flip.  Opendoor doesn’t have the brand-name awareness of Zillow, so they are advertising a lot and buying homes directly off the MLS.  Zillow has everyone’s email address so they are able to reach their users directly. Both have been fairly well-compensated during the 12-month frenzy – will it continue?  From this article:

Opendoor Technologies Inc., which buys homes from consumers and lists them for resale, is in talks with lenders for a new revolving credit facility of roughly $2 billion, according to people familiar with the effort.

The company, which is rapidly accelerating the number of homes it purchases, plans to use the proceeds to help increase acquisitions, said one of the people, who asked not to be named because the matter is private.

A representative for Opendoor declined to comment.

Opendoor, led by Chief Executive Officer Eric Wu, pioneered a data-driven spin on home-flipping known as iBuying. After the company buys a home, it makes light repairs and seeks to resell it, profiting by charging sellers a 5% fee for the convenience of an easy sale.

The company acquired 8,500 homes in the second quarter, more than double the number it bought in the first three months of the year, according to an statement Wednesday. It also had roughly 8,100 additional houses under contract at the end of June.

Opendoor uses debt to fund acquisitions, and had just under $4 billion in borrowing capacity under existing revolving credit facilities as of the end of June. The company had drawn $1.8 billion on those facilities, according to a filing.

Zillow Group Inc., Opendoor’s main competitor, has also moved to increase its firepower for home purchases. The company borrowed $450 million through a first-of-its-kind bond offering earlier this month.

Zillow’s recent activity has been more consistent than Opendoor’s, so let’s look at the Zillow numbers to see if the convenience they offer sellers is paying off. Zillow currently owns 138 homes in San Diego County, and of those, 72 are active listings and 38 are pending.  They have sold 48 homes this year – here are the 13 they have closed since July 1st:

Zip Code
Purchase Price
List Price on the Flip
Sales Price
92021
$549,000
$586,100
$585,000
92025
$542,000
$565,100
$542,000
92027
$819,000
$860,100
$930,000
92054
$927,500
$949,700
$961,900
92057
$369,500
$402,900
$425,000
92057
$763,500
$821,000
$890,000
92058
$451,500
$486,900
$500,000
92069
$831,500
$861,700
$836,600
92102
$446,000
$466,900
$475,000
92111
$430,000
$442,000
$437,600
92129
$463,000
$498,500
$500,000
92130
$605,500
$641,000
$641,000
92130
$699,500
$732,900
$727,000
Totals
$7,897,500
$8,314,600
$8,451,100

They have a consistent 2-month turnover between the day of purchase, and the day of sale, so it’s a quick $553,600 profit, or an average of $42,585 per sale – though they had to pay out close to half of that in buyer-agent commissions (all fix-ups are included in their purchase prices).  It’s a good thing that sellers aren’t in a hurry – Zillow is currently six weeks behind in responding to purchase requests.

Sellers are leaving some money on the table, but as long as Zillow is flipping every home, buyers will still have the same amount of inventory to consider – it’ll just be at a higher price.

Zillow Local Forecasts

What’s your prediction on local home-price appreciation over the next year?

Here’s what Zillow thinks – they sent these to me over the last three weeks:

La Jolla:

Del Mar:

Carmel Valley:

Rancho Santa Fe:

Encinitas:

SE Carlsbad:

SW Carlsbad:

NW Carlsbad:

NE Carlsbad:

Even after the market perked up last year, their guesses were still in the single digits on November 1st:

https://www.bubbleinfo.com/2020/11/01/zillow-2021-forecasts/

In January, they did revise upward and predicted that all of the local areas would hit 10% to 12%:

https://www.bubbleinfo.com/2021/01/11/zillow-increases-appreciation-forecast/

This year, their forecasted-value increases range from 0.4% to 11.5% – quite a spread!

Opinions of Zillow vs Realtors

It’s probably no surprise that a well-branded company that spends $100 million per year on advertising has made an impression on the consumer.  On the other hand, agents are independent contractors running around hoping to sell a house.  The impression that leaves on consumers isn’t always great.

But Zillow has been built upon lies and deceit from the beginning, and they are doubling down now when they say they are going to pay the amount of the zestimate for your home in cash.

A part-time blogger guy like me isn’t going to change anything, but for those who find this page and want the truth about Zillow and how they do their business, here are several examples below:

https://www.bubbleinfo.com/category/zillow/

Zestimate Accuracy

I have suspected that consumers rely on their zestimate more than we’d like to admit.

It’s been around for ten years, so it’s familiar and easy.  Because there isn’t any other internet tool like it, homeowners follow their zestimate and fantasize about their equity position – and start believing.  Zillow sends regular reminders which reinforce that there might be something to it.

When I’m talking to sellers, if my price is different than the zestimate, I better have a good explanation.  Likewise, I don’t mind when the zestimate is above my list price. If buyers happen to believe in the zestimate’s accuracy, then it helps make my listing look like a deal.

But the truth is that the zestimate is wildly inaccurate and heavily manipulated by Zillow to suit their own needs – especially in their quest to buy homes from coast to coast.

A good friend has been contemplating the sale of this home in Santa Monica.  We have watched the zestimate rise steadily over the years, and once it touched $8,000,000, we thought it would be a good time to put it on the market and hope the zestimate would help propel the sale.

As we prepared to launch the listing, I monitored the zestimate closely:

June 16th Zestimate

The zestimate had gone up $362,339 in the last 30 days, and was well into the $8,000,000s. We planned to list for $6,950,000, which would have looked very attractive, relatively.

The next day, our zestimate got revised.

June 17th Zestimate

Whoa – it dropped $3,284,879 in one day???

We had committed to at least conducting some price discovery, so we listed for $6,950,000 on June 22nd.

What did Zillow do?

  • They changed the zestimate to the EXACT list price,
  • They suggested a sales range evenly around the list price
  • They erased the history of the $3,284,879 drop from five days prior:

June 22nd Zestimate

The zestimate went from $8,195,161 to $4,910,282 to $6,950,000 in less than a week.

You’d be crazy to trust anything they say.

It was the erasing of the previous drop that is the most disturbing – which they have done for years.  If you drop $3 million in one day, then stick with it – don’t recreate history just to make yourself look better.

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Ivy Back on Market

Our listing in Fire Mountain is back on the market.

The buyers, who according to their agent were in love with the house and the price, decided to cancel because of what they found out about the city restrictions.  The City of Oceanside won’t allow short-term rentals because the driveway is only 20 feet wide, instead of 24 feet wide. Long-term rentals are fine.

Though the short-term rentals are controversial and we really can’t predict their future, it was enough for the buyers to say no – they didn’t want any unusual restrictions that could possibly affect their kids’ future once they take over the house. The buyers had planned to live there for the duration.

We are getting an assist from Zillow – their zestimate has gone up nicely since we hit the open market:

Here’s the zestimate from the day before the listing was inputted:

Because Zillow is buying homes in the area, it helps them to keep their zestimates artificially low.  If they were legit, and kept the zestimate at the lower amount even though the list price was substantially higher, then fine – that’s your opinion.  But when it fluctuates with the list prices, it’s a sham.

Because there is so little information available, the consumers rely on anything they can find, and the zestimates are the best-known valuations available – even though they can change by $400,000 in a day.

Zillow Selling Homes?

Zillow’s full assault on realtors is ramping up.

They are happy to buy your house for the amount of their zestimate, which in this fast-moving market can only mean that sellers are leaving money on the table – it’s just a matter of how much.  But sellers – who have been cocooning more than ever – may not have a feel for the real estate business or the differences between agents and who just want quick cash will likely jump at their offer to purchase.

Zillow has opened up as a brokerage as well.

They are masterful at blurring the distinction too, because they are still very dependent upon realtors spending billions to advertise on Zillow.  But check out their latest video that encourages home sellers to call Zillow, and if it weren’t for the broker ID at the 0:33-minute mark (for three seconds), a viewer would think that this sale was handled by a Zillow agent.

Commercials like these are building their brand as the go-to destination for home sales.

It will just be a matter of time before they replace their partner agents with their own licensed employees to process your paperwork.

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