21–30 of 93 posts
I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
I wouldn't be surprised if they make a bunch of money and then make a big mistake and lose a much bigger bunch of money.
Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Improving liquidity in the market, aka being a market maker, can provide an interesting advantage.
Zillow wins by buying an asset it has more information on the true market value of, then providing an easier, economies of scale on the associated services (inspection, legal, repair, etc), then being able to offer a standardized product to home buyers.
Buyers win from taking a lot of the uncertainty out of a transaction. And from possibly lower fees if Zillow decides to rebate a portion.
Let's not forget there's a standard 6% commission in US real estate transactions... most retail would kill to start with a 3% margin.
If Zillow has high confidence a home is underpriced, it makes sense to time arb that into profit when it can match with a buyer.
Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Question I have is if whatever "pie" Opendoor is grabbing is actually sustainable in a recession/down market...seems like the worse case scenario is that they are left holding a bunch of illiquid inventory of declining value they can't get rid of.
Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
It’s rarely a good idea to compete against your customers
Ethically, it seems a bit fuzzy for me given that one of Zillow's big features is there zEstimate. How can they demonstrably prove they aren't tweaking that somehow for their own gain?
So what does it mean for me if I buy a home straight from Zillow? Better price?
Likely you'd get the same deal as any other real estate developer in the flipping business would give you. They'd be looking for undervalued properties that can be fixed up and resold at a profit. Which means they're on the open market and you're bidding against other purchasers, like normal.
Unless Zillow has some new efficiency that no one else has (super contractors that can fix up cheaper than other investors, low cost capital) I don’t know how they will be able to outbid the market consistently as there aren’t enough dumb sellers with dumb agents out there.
But maybe I’m missing a way how they could use analysis to identify “bargains” without the seller getting clued in and upping their price.
I get the feeling a company like this would only make this kind of leap because they have the data to show it will pay off. I.e. they can formulate algorithms to make the best purchases and the most profit. I foresee big gains from this
Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business. Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing…
Real Estate is one of the older investment games in town - It is what I am basing my retirement on. I wonder how this will impact disclosure rules versus sales advertising? Existing model to use, or adopt another industry's? Will this cause fears of LIBOR-style manipulation? This will be interesting to watch... edit: p.s. Maybe another chance to make a Carfax-like system for homes? In the US market, I find there is n…