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Zillow surprises investors by buying up homes

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Re: Zillow surprises investors by buying up homes

#41

Post by tonyedgecombe »

ethbro wrote: post #24
vincentmarle wrote: post #4

Earlier quoted context omitted.

Improving liquidity in the market, aka being a market maker, can provide an interesting advantage.

Agreed. The surprisingly bespoke nature of home translations definitely provides an opportunity for this to be a win/win. 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 uncertai…

Let's not forget there's a standard 6% commission in US real estate transactions

I never really understood this, the last time I sold a house in the UK the fee was 1.5% and only on my side, the buyer pays nothing.

Re: Zillow surprises investors by buying up homes

#42

Post by bunderbunder »

jacobkranz wrote: post #31
malloci wrote: post #27

Earlier quoted context omitted.

Isn't Amazon's marketplace similar in that regard? They compete with other sellers using Amazon's platform all the time. 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?

I'd argue that Amazon's customers are the buyers of the products, not the sellers using Amazon's platform.

I'd argue that Amazon has many different groups of customers.

Re: Zillow surprises investors by buying up homes

#43

Post by subpixel »

dawhizkid wrote: post #25
cs702 wrote: post #2

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 suspect part of the reason is that SV "unicorn" Opendoor ( https://www.opendoor.com/ ) is doing this and it wants a piece of the pie. 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.

The risk is in sitting on a lot of properties and getting overextended during a downturn. I think that can be mitigated because Zillow/Opendoor's model is not to buy and hold, but to:

1. buy at a discount (essentially a fee for the service of selling your house with a click)

2. sell at a markup (we're talking a small one in most cases, but the fact is in a good market you can reliably print small amounts of money with some paint, some minimal landscaping, and new kitchen appliances. Zillow will not be using a high-interest loan for the purchase or repair, so they will not be sweating like your typical flipper on TV.)

Assume for the sake of argument that Zillow has data to decide where these bets are safest based on comparables and key economic indicators. And they will say no to sellers as often as the data suggests they should.

I don't think this has much to do with finding super-profitable deals with data, but with reliably shaving points off a large pipeline of deals.

If it doesn't work in a healthy economy, they stand to lose the difference between the discounted price they paid for a house and the market value they can sell it for. In a recession, they can probably stay afloat by renting properties they can't sell at a decent price.

Re: Zillow surprises investors by buying up homes

#44

Post by dawhizkid »

rejschaap wrote: post #32
dawhizkid wrote: post #25

Earlier quoted context omitted.

I suspect part of the reason is that SV "unicorn" Opendoor ( https://www.opendoor.com/ ) is doing this and it wants a piece of the pie. 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.

It is interesting they even choose the same cities to start in.

Vegas makes sense...the best markets for something like this are ones where there's a good amount of inventory, median prices are not very high, avg time on market is on higher side (giving a reason for sellers to use Opendoor to trade value for liquidity) and there's a good balance between buyers/sellers.

Re: Zillow surprises investors by buying up homes

#46

Post by [deleted] »

loeg wrote: post #40
starchild_3001 wrote: post #33

How can zestimate be trusted if zillow is in the business of buying and selling homes? There's a reason why banks separate advisory business from the trading business.

It's already pretty inaccurate today (overestimates by about 10%[0]), so there's not much change there. ;-) [0]: Very rough estimate, may be market-specific.

[deleted]

Re: Zillow surprises investors by buying up homes

#47

Post by aidaman »

tonyedgecombe wrote: post #41
ethbro wrote: post #24

Earlier quoted context omitted.

Agreed. The surprisingly bespoke nature of home translations definitely provides an opportunity for this to be a win/win. 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 uncertai…

Let's not forget there's a standard 6% commission in US real estate transactions I never really understood this, the last time I sold a house in the UK the fee was 1.5% and only on my side, the buyer pays nothing.

Welcome to the US.

Re: Zillow surprises investors by buying up homes

#48

Post by pyoung »

prepend wrote: post #28
Finnucane wrote: post #15

Earlier quoted context omitted.

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.

The problem seems to be that any homeowner getting an offer from Zillow would immediately know they had mispriced their listing and not accept. 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. B…

I mentioned this elsewhere, but 'closing certainty' is a real concern in the real estate market, to the point where many sellers will take a lower offer price in favor of a cash buyer.

Re: Zillow surprises investors by buying up homes

#49

Post by cma »

mjfern wrote: post #26
cs702 wrote: post #2

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…

Or Zillow has access or insight to data that general property investors do not, thus driving abnormal returns.

They even know unlisted data, like which buyers are currently looking. If they combine it with data from social network partners and other providers they can know the school-friend networks of the buyer's kids, church affiliations, how racist they are, etc.
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