After using Zillow for years, consumers probably start to cozy up to the zestimates, just out of familiarity and convenience.
Those who are new to the game – and believe Zillow to be an authority – are going to think the zestimate is a neutral opinion of actual value. But the zestimate is simply based on the list price, and not some fancy algorithm.
Ryan at the sacramentoappraisalblog.com ran a post that showed how a zestimate fluctuated during the time the house was on the market.
The zestimate nearly matched the list price, then went down with the first price reduction. Then once it sold, it really went nuts.
Hat tip to Eddie89 for sending in this article on the prospects of Zillow’s ibuyer program, which looked a little sketchy to me too until it was divulged that these ibuyers are primarily in it to make the fee income, and if they can make a profit by selling the houses for more it will be icing on the cake:
Steve Eisman, an investor known for his correct bet against subprime mortgages a decade ago, told Bloomberg News that he’s taken a position against Zillow Group Inc. ZG, -7.08% calling its new venture into selling houses “a terrible business.”
That Zillow venture, then called “Instant Offers,” was announced in April, to mixed analyst reviews. “We are big fans of this pivot,” said Stephens’ John Campbell at the time. A few weeks later, RBC Capital downgraded the stock, saying the shift into what is now called Zillow Offers set the company up for a “transition year” even as the stock remained overvalued.
In response to a request for comment on Eisman’s remarks, a Zillow spokeswoman emailed, “we think Zillow Offers is an attractive service for sellers in all types of housing markets. In a slower market, our offer might seem even more attractive to a seller.” Zillow shares, which had been up more than 50% for the year to date, tumbled nearly 7% after Eisman’s appearance.
If Steve wants another reason, he should consider how realtors react to change in the market. Yesterday, I saw an agent in a private realtor Facebook group ask for alternatives to the Zillow advertising he has been doing, which is exceedingly expensive. Historically, the minute the market turns, realtors stop spending money, and I think that time is here.
This might be the greatest sucker play in the history of housing. The I-news featured a story about the first five Zillow buys in Phoenix, and as you can see above, they are planning to lose money on all of them.
The reporter also interviewed one of the homeowners who sold. She said that her offer from Zillow was higher than the other ibuyers (Opendoor and Offerpad). What a great way to enter an already-competitive market. Make headlines about offering the most money, and don’t look like you’re gouging the homeowners – heck, they look like Robin Hood!
The publicity should fuel a surge of interest in homeowners wanting to sell to Zillow, and the story mentions that they are expanding their staff to 50 people in Phoenix to handle the ‘stronger-than-expected’ demand.
It could just be a ploy to load up their Premier Agents with listings, and/or to gain advantage over the other ibuyers.
Will they eventually resort to flat-out lying to people like all the rest of the real estate advertisers these days? Here’s an example, where they say they will pay ‘fair market value’ (how do you know if it never hits the open market), and no mention that their fees are 6% to 13% – but at least they tell you that they will hammer you for repairs once the deal is in play:
Zillow’s panel of economists is forecasting the next recession, with 66% of them predicting it will start between 4Q19 and 1Q21:
Experts in housing are predicting a recession starting in 2020, according to Zillow’s 2018 Q2 Home Price Expectations Survey; however, they anticipate monetary policy—not the housing market—as primarily responsible for the swing.
Panelists were also asked to project the pace of growth in the Zillow Home Value Index over the next five years. The average of all expectations among the 114 experts offering a prediction was for home values to end 2018 up 5.5 percent over the end of 2017, a slowdown from current annual growth of 8 percent. On average, panelists said they expected home value growth to slow further in coming years – to 4.1 percent by the end of next year, 2.9 percent in 2020, 2.6 percent in 2021 and 2.8 percent by 2022.
Last week I mentioned the problems with agents selling houses before inputting their listing onto the MLS (link here). Agents are so accustomed to doing it that there isn’t much hope it will change, at least not until an outsider puts an end to it (district attorney or disrupter).
The listings that are first exposed as ‘Coming Soon’ suffer a similar fate.
Zillow has legitimized the practice with their whole-hearted endorsement, yet the listings are vague and unclear, except for the On Market date. But even that doesn’t have any rules, and agents regularly ignore their own declaration and never put them on the open market at all (probably because they found a buyer from their Coming Soon campaign), or delay for a few extra days in hopes of a big pay off.
For these agents, the MLS-input is a last resort.
Rarely do the listing agents who offer a property as ‘coming-soon’ have a specific strategy, and they tend to be vague about showings and offers.
What can be done?
If the ‘Coming Soon’ had more parameters, it would help. Rather than just a future on-market date, let’s add two other questions:
1) Are you showing the home before the on-market date?
2) Are you entertaining offers before the on-market date?
Just those two questions would not only give buyers and their agents direction on what to expect, but also it would create some accountability. Because there are no rules currently, it’s anything goes, which isn’t good for buyers or sellers.
Are there clues for detecting the listing agents who do this stuff? The trail of evidence starts with their photos of the front exteriors of their listings – it is against the MLS rules to include a photo with your for-sale sign, so those who insist get their sign fuzzed out by the MLS police:
Obviously, the photo-taking happens before MLS-input, so if they already have the sign in the yard for their photo, you know they have been shopping for buyers for days, if not weeks, prior to MLS-input.
But most agents are happy to tell you that they will not only conduct a ‘Coming-Soon’ campaign, but they also have a their database of ready buyers, and an office full of productive agents who have their buyers too – all of which will be exhausted before they put your home on the MLS.
What is best for the sellers – and buyers too – is for everyone to engage at the same time, via the MLS, for maximum urgency.
They paid $410,000 and are listing for $425,000? Are they expecting a bidding war? By the way, OpenDoor has 300 listings in Phoenix already!
Hat tip to daytrip for sending this in – an excerpt:
Noel Levine, a freelance IT consultant and self-described geek, said he looked into other online services like OfferPad and OpenDoor, which the new Zillow program competes against. He was thinking about listing the house with a broker when he saw an article about the Zillow Instant Offers expansion in the local newspaper. Zillow was able to accommodate the quick turnaround. The deal started with a request for an offer on May 3 and closed 15 days later, at a purchase price of $410,000.
“So in two weeks I went from having a house to put on the market to being out of the house with money in the bank,” Levine wrote in a thank you note to Zillow that he shared with GeekWire. “It spared me from having to go thru the trials and tribulations of wondering how many showings it was getting, then wondering if I should accept an offer, to dealing with the inspection deductions to worrying about what could go wrong with the closing.”
The home is now listed on Zillow with a priced at $425,000 (the Zestimate is $414,233). It boasts “real wood flooring, travertine tile, and stacked stone accents,” according to the listing. The company bets that buyers will love the “cozy gas fireplace” and “master retreat.”
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.
Hat tip to SM for sending in Zillow’s latest version on the best dates to put your home on the market. San Diego is the only town in America that gets started this early – let’s go!
Not only is now the best time to hit the market, their research shows it is ideal to sell early in the listing period:
According to earlier research, the largest number of home shoppers will see a given listing within its first week on the market, and it’s important to capture that early interest as quickly as possible in order to boost the chances of a quicker sale.
Zillow started their ‘Coming Soon’ feature in the summer of 2014, so by now the gimmick is maturing. Agents have worked every angle of it, and consumers have seen it all too. Everybody comes to their own conclusions.
Here’s how one consumer described it to me yesterday:
Interesting tactic. Post a ‘Coming Soon’ sign for two weeks and then drop it on to the MLS when it doesn’t sell.
Makes me immediately think the price is too high. Couldn’t get it sold as a “Coming Soon”, so now trying the traditional way.
It looks over priced especially after the pictures.
The listing agent could have been playing it straight and was really holding back all buyers until the house was ready, but who would know? The consumer’s conclusion is that it must be over-priced – is that in the seller’s best interest?
Consumers have never been so skeptical of agent tricks, and are jumping to their own conclusions. Because agents don’t define their Coming Soon strategy, the rest of us just assume there is none, or the agent is just shopping for his own buyers before MLS input.
A tactic like this burns up any urgency there might be for the home – the necessary ingredient for it to sell for top dollar. Buyers don’t feel the need to step up because the house isn’t on the open market. Then once the listing is inputed onto the MLS, those who saw the failed Coming Soon campaign are rewarded for their patience – and will likely wait longer.
The ‘Coming Soon’ campaigns are good for one thing:
The listing agent occasionally pocketing both sides of the commission, while ignoring their fiduciary duty to their sellers.
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