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Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

bloomberg.com

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Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#21

Post by josefwasinski »

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#22

Post by hshehehjdjdjd »

jjeaff wrote: post #17
kosei wrote: post #15

Doesn't this create a big conflict of interest in their Zestimate algorithm that's core to their business? 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.

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#23

Post by hshehehjdjdjd »

subpixel wrote: post #10
mwnivek wrote: post #7

Earlier quoted context omitted.

From the article: > 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…

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#25

Post by winslow »

what-the-grump wrote: post #9
pfarnsworth wrote: post #6

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.

It’s what happened to all the billionaires that got into the NYC market in 2007. Sold everything at 50+% loss and shit on the economy.

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#26

Post by SomewhatLikely »

josefwasinski wrote: post #21

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 improvemen…

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#27

Post by dagw »

tristanj wrote: post #11

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 owne…

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.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#28

Post by starchild_3001 »

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)?

Wonder what others think about that.

Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas

#30

Post by kafquaesque »

dagw wrote: post #27
tristanj wrote: post #11

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 owne…

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.

A “flipper” could be highly inexperienced and not even know the underlying issue. So they may not even act in bad faith.

Having a brand behind a flipped house could assuage some of those fears.

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