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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.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

Zillow vs The Rest

This week we heard the the news that homes.com was acquired:

Homes.com has a similar business model to massive real estate website Zillow, at least as far as Zillow’s core business goes. Homes.com is a property listing portal that helps agents and brokers market properties. The platform supports more than a half-million agents and brokers, and the website receives about 5 million unique visitors each month in the form of buyers searching listings.

For the time being, Homes.com is a much smaller business. Zillow’s real estate platform received more than 200 million unique monthly users in the fourth quarter of 2020 and was visited 2.2 billion times altogether. And Zillow has a rapidly growing business of directly buying and selling homes, while Homes.com is solely a home search platform. What’s more, keep in mind that CoStar is buying Homes.com for $156 million — Zillow’s market cap is about $34 billion.

However, it’s not just Homes.com anymore. Once it’s brought under CoStar’s umbrella, it will join forces with brands like the LoopNet commercial real estate marketplace (an area where Zillow doesn’t operate), Apartments.com, Apartment Finder, and most importantly, the Homesnap real estate agent workflow software business.

Homesnap is another recent acquisition, purchased by CoStar in December 2020. The Homesnap platform offers a marketing platform for agents, and CoStar plans to take advantage of the combination with Homes.com. As CEO Andrew Florance said in the press release announcing the acquisition, “Our plan in bringing Homesnap and Homes.com together is to help agents market their listings in support of the ‘your listing, your lead’ philosophy — which stands in contrast to most players in the industry.”

Can any home-search portal keep up with Zillow?  They would need to spend the big bucks on advertising like Zillow does, just to be in the running.  Zillow already has the name-brand recognition, a huge lead in monthly visitors, and they have the killer instinct and willingness to spend big on advertising – including key product placement. Displaying their for-sale signs in their ads will further establish them as a national brokerage in the mind of the consumer:

Home Seller Survey

An excerpt from Zillow’s seller survey:

With the rollout of vaccines against COVID-19, 70% of homeowners in a recent Zillow survey say they would feel mostly or completely comfortable moving to a new home when vaccines are widely distributed — and 78% of homeowners who say widespread vaccine distribution would impact their decision to move say such distribution would makes them more likely to move.

“We expect that the vaccine rollout will likely boost inventory, as sellers become increasingly willing to move despite COVID-19 — resulting in greater numbers of new listings beginning this spring,” says Chris Glynn, principal economist at Zillow. “That injection of inventory could give buyers more options and breathing room in a competitive market. The vaccine, however, will also likely add to already-strong demand, given that most sellers will become buyers as they trade in for a home that better suits their new needs.”

Zillow research shows that 63% of sellers are also buyers. And, as buyers, they have specific reasons for selling. A recent Zillow survey shows that homeowners who are thinking of selling in the next three years have a variety of reasons for doing so.

Additionally, 26% want to live closer to family, 24% wanted out from being responsible for yard work, 14% say their family or household is getting larger and 13% say they can no longer afford their home.

Nearly 40% of homeowners who are considering selling within three years (39%) say they think they’ll get a better price if they wait. They’re not necessarily wrong — although waiting comes with tradeoffs, according to Zillow economist Jeff Tucker.

“Potential sellers are likely correct that home prices have yet to reach their peak,’’ Tucker said, “but in the long run prices tend to rise, so there’s no clear ‘right time’ to sell.”

The catch, he said, is that waiting to sell may raise the cost of trading up to their next home if mortgage interest rates rise.

https://www.zillow.com/agent-resources/blog/potential-sellers-gaining-confidence/

Zestimates During Frenzy

Today:

This isn’t the type of environment that you should put much stock in your latest zestimate.

A month ago, on March 3rd, the zestimate was $1,336,035.

Today, on April 4th, it is $1,723,510.

Zillow wants you believe that their zestimates are within 1.9% of being right. But if you would have sold this home to them for the latest zestimate amount, you still would have left $100,000+ on the table.

Zestimate Accuracy

Let’s go around the horn with the automated valuation models.

Zillow says that their zestimate is within 1.9% of being right on price with the on-market homes, which sounds really good until you realize what that means.

Their zestimates of the OFF-MARKET homes are way off – especially in this market:

Once we listed for $1,599,000, they kept their zestimate at the $1,336,035, but after we received six offers that were all over list price and accepted one at $1,770,000 – and raised the price accordingly – then Zillow bumped their zestimate by $352,658:

You sure you want to sell your house to them for the off-market zestimate?

Redfin said they didn’t have enough information to generate a value when they saw my initial $1,599,000, but then they came around once the list price was raised to $1,770,000:

The other automated valuation models aren’t any better, but at least they don’t cheat:

GET GOOD HELP!

 

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