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How Zillow's homebuying scheme lost $881M

fullstackeconomics.com

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Re: How Zillow's homebuying scheme lost $881M

#31

Post by sokoloff »

mwt wrote: post #27
ddoolin wrote: post #16

Earlier quoted context omitted.

The problem here is that they were buying the homes at prices above what they would actually sell for to real buyers and Zillow ended up racking up losses in that way. In your scenario in which two iBuyers outbid each other -- fine, but wouldn't the same situation as Zillow's happen? They'd just end up with overpaid inventory.

Whether or not the market works itself out later, it puts everything into a weird state while the bidding war is going on. If iBuyer1 and iBuyer2 together buy up the inventory of a zip code for 120% of asking, then what are people who are willing to go to 105% to do? Maybe it just resets the market to whatever the drunken algorithm decided it to be.

Buy in one of the surrounding zip codes? Wait out the idiots?

Re: How Zillow's homebuying scheme lost $881M

#32

Post by [deleted] »

rank0 wrote: post #18
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

I think people should expand what "desirable" means to them. There's a ton of suitable houses all over the country. Everyone seems to need to own a SFH in a trendy part of a trendy city.

[deleted]

Re: How Zillow's homebuying scheme lost $881M

#33

Post by duck »

haroldp wrote: post #24
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

> I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. But iBuyers are always low-balling. They are bidding under the asking price with an all-cash offer that they hope will make up in speed and ease what it lacks in price. > It's not that uncommon to see nearly entire neighborhoo…

Are you saying AirBnB fixed all this? I don't see them renting much in late October nor passing out candy.

Re: How Zillow's homebuying scheme lost $881M

#34

Post by janj »

rank0 wrote: post #18
thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

I think people should expand what "desirable" means to them. There's a ton of suitable houses all over the country. Everyone seems to need to own a SFH in a trendy part of a trendy city.

I don't understand this comment, maybe you can expand. It makes sense to me that what is desirable for a primary residence would significantly overlap with what is desirable for rental, comfortable space, walkable to a city center, etc. Is your point that people should be more accommodating to the rental market? IMHO I think all cities should strongly regulate what can be a rental and add tax to homes when it is not occupied, prioritizing affordable permanent residence. This isn't just a "trendy city" problem, it's wide spread across the country.

Re: How Zillow's homebuying scheme lost $881M

#35

Post by harikb »

dpierce9 wrote: post #13

Anecdote on the estimates. We bought a house for X and renovated it. The day before we listed it both Zillow and Redfin estimate had an estimate around the purchase price X. When we listed it for 2X, both companies changed their estimate to be close to the listing. However, Redfin changed the entire price history as well showing a gentle slope. Zillow preserved their previous history and showed a spike.

+1 I have always been annoyed by Redfin's rewrite of history. At least have the decency to show two lines (original prediction for last year and how it turned out to be).

Re: How Zillow's homebuying scheme lost $881M

#36

Post by Invictus0 »

I wonder how this would have ended up if they just dealt in options instead of taking on the inventory. For those that don't know, a real estate option gives the holder the right to buy the property at a fixed price within a certain timeframe, in exchange for a premium. This would have been a much better way to learn the market than diving straight into home purchases.

Re: How Zillow's homebuying scheme lost $881M

#37

Post by micromacrofoot »

avgDev wrote: post #3
h2odragon wrote: post #2

Zillow's estimates of home values in my area have consistently been 150% of actual prices, as far as I've seen over the past years. Not that I've looked that closely and given that this is a hard area for them with low sales and a broad range of values for reasons not easy for their algorithms to quantify. However, I always took that to be intentional, sort of a "see how valuable your home is / how high the values ar…

Odd. My house is valued at $330k on zillow, would sell for $420K+ in a few days.

It varies a lot based on location and what's sold locally. If there aren't a lot of similar properties in the area that have sold recently it will be much less accurate.

Re: How Zillow's homebuying scheme lost $881M

#38

Post by rank0 »

kevingadd wrote: post #22
rank0 wrote: post #18

Earlier quoted context omitted.

I think people should expand what "desirable" means to them. There's a ton of suitable houses all over the country. Everyone seems to need to own a SFH in a trendy part of a trendy city.

Are there jobs near those houses? Specialist doctors? Good schools? I WFH so I could probably buy one of those houses, but most of my friends in my age bracket are expected to show up to an office 5 days a week, so those suitable houses are no good for them.

Yeah those are good points. I live in a bit of a bubble where most folks around me either WFH or have to travel to work. There are absolutely "specialist doctors" in every large city though...

Re: How Zillow's homebuying scheme lost $881M

#39

Post by jjice »

It's such a glaring red flag that one of the largest public resources for getting pricing information on housing is also buying and selling that housing. Come on, this is so glaringly abusable that any teenager could tell you what's wrong.

Re: How Zillow's homebuying scheme lost $881M

#40

Post by paxys »

thr0wawayf00 wrote: post #9

The scary thing is that it's easy to see how something how like this could drive a market boom and bust cycle. I'm imagining a scenario where two iBuyer companies try to outbid each other algorithmically, driving the prices further and further out of reach of people who are looking for a primary home. Tangentially related, I talked to a friend who works on geospatial data for one of the big vacation rental companies,…

One can blame Airbnb, Zillow or whoever else, but the truth is that speculation in real estate and vacation towns have both been a thing for a very long time. If the population rises and we refuse to build more houses, the existing ones will get more expensive no matter what. The solution is out there in front of us but everyone prefers to dance around it.
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