How will they hedge risks related to a national housing downturn?
Perhaps by trading Case-Shiller index futures on the CME? http://www.cmegroup.com/trading/real-estate/residential/Sand...
Like taking out puts and allowing them to expire?
Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
31–40 of 49 posts
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#32Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#33It'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.
No. A seller is only responsible for what you can negotiate after inspection. Which is why it is critically important to have a good inspector.
The only homes to have any sort of clawback are new constructions. Which are warrantied for about a year.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#34It'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),…
In markets like Vancouver and SF, the ROI is well over 10% per year. And banks are quite willing to offer extra leverage, so the capital costs remain reasonable.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#35Homes are for living in, not investment vehicles. Housing is not a free market: supply will not rise to meet demand, and entry into the market is limited not by the ability to pay a mortgage, but the ability to pay a deposit, which limits participants to those with access to large amounts of cash.
Individuals doing so are increasingly punished for this behaviour as a way for governments to control anti-social investing (eg, in the UK) or increasingly prevented explicitly from doing so (in China).
I hope the same happens in the US: the alternate is house prices spiralling further out of reach of those without family wealth or very large incomes and those with family wealth or very large incomes growing increasingly wealthy.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#36Earlier quoted context omitted.
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.
No. A seller is only responsible for what you can negotiate after inspection. Which is why it is critically important to have a good inspector. The only homes to have any sort of clawback are new constructions. Which are warrantied for about a year.
10 years (by law) for structural issues.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#37Earlier quoted context omitted.
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.
Anecdotally, the zestimate on my home purchase (in 2016) was off by ~30% (the zestimate was too high).
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#38It'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),…
Open door pioneered house flipping? It’s a game that’s been around for a while.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#39Earlier quoted context omitted.
No. A seller is only responsible for what you can negotiate after inspection. Which is why it is critically important to have a good inspector. The only homes to have any sort of clawback are new constructions. Which are warrantied for about a year.
10 years (by law) for structural issues.
It's the same in France, 10 years for structural issues and 1 year for the basic stuff.
Re: Zillow Launches Home-Flipping Program in Phoenix and Las Vegas
#40What 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.
What they’re doing is an extremely common thing and proven business model.
There are lots of interesting things you can do to consistently buy “below” market value. Don’t use a realtor, that’s 3-6% savings. Buying in cash and guaranteeing a smooth closing is incentivizing to a lot of sellers, another couple % points. Etc.