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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

#151

Post by JaimeThompson »

paxys wrote: post #40
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.

A town close to me has lots of land to build new homes, few restrictions, fast fiber Internet and prices are still going up way faster than before which seems to indicate multiple things are causing this.

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

#152

Post by philipodonnell »

devmunchies wrote: post #82

> Zillow’s exit from the market strengthens the position of companies like Opendoor or Offerpad, which do something similar Does Opendoor just have better algorithms/models? What factors allow them to have different outcomes from Zillow?

If I remember the discussion at the time, OpenDoor and Offerpad are pure-play iBuying while Zillow was an already huge business pivoting into iBuying to make up for declines in its advertising business. Zillow had a reason to scale faster than the others and they didn't do it very well.

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

#153

Post by MiroF »

programmarchy wrote: post #120
KptMarchewa wrote: post #70

Earlier quoted context omitted.

>local regulations state that I am not allowed to live with more than 2 people unrelated to me What? Where is that? It sounds insane and extreme overreach. How can somebody regulate with whom consenting adults choose to live?

If you have a family home, you probably don’t want 8 college students moving into the house next door to you. This was a restriction in my college town. As a student, I didn’t like it, but as a homeowner with a family, I completely understand.

If you want to control who lives next to you, feel free to buy the neighboring properties.

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

#154

Post by panzagl »

dave5104 wrote: post #86
KptMarchewa wrote: post #70

Earlier quoted context omitted.

>local regulations state that I am not allowed to live with more than 2 people unrelated to me What? Where is that? It sounds insane and extreme overreach. How can somebody regulate with whom consenting adults choose to live?

Occupancy limits are somewhat common in many cities/towns. But probably only enforced via neighborly complaint, so you don't really hear about them. Just searching "occupancy limits city" popped up the limits for Boulder, CO: https://bouldercolorado.gov/occupancy-limits

Boulder is... special. A college town where a bunch of rich people decided to live. I've never seen a campus with so many non-students on it, just hanging out like they belong there or zipping through campus on their bikes at 40 mph. But most college towns have similar occupancy laws for neighborhoods where they want to keep students of the wrong sort out of.

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

#155

Post by rahimnathwani »

"Do market makers in the stock market run into this problem?"

Yes, that's why they have to account for the probability that whoever hits their bid is an informed trader (vs. uninformed/noise trader). And it's part of the reason they can provide price improvement when they source order flow from retail brokers, whose customers are mainly uninformed/noise traders.

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

#156

Post by krinchan »

It definitely feels like market making is something all parties involved in a real estate transaction would like. The article lays out the problems of applying the concept to real estate pretty clearly.

Personally, I think the physical cost of holding inventory and the lack of commodity status (commoditization?) for houses is manageable, if not outright surmountable. I think the condition that simply must change for this business model to work is the velocity of buying and selling residential real estate. Until you can go from “I want this” to “I bought this” or “I want to sell this” to “I sold this” in a scale of days if not hours, any market maker in residential real estate is going to end up a market risk taker implicitly betting on the future price of the property. Even if Zillow could move directly from closing on the house from the seller to initiating a sell to another buyer in less than 24 hours, there’s still several weeks involved. If the market is volatile, that’s a substantial risk exposure.

Simply put, it needs to be possible to move the title twice in 24 hours along with some way to finance a buyer on a very accelerated timescale. Both of these things will need reforms at all levels of government: municipal, state, and federal. I just don’t see that happening for a very long time, to be honest.

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

#157

Post by lubesGordi »

ryandrake wrote: post #123
a1pulley wrote: post #62

Earlier quoted context omitted.

> It's honestly quite scary how I'm in the top 2% of income earners in my generation and yet I could barely afford to buy a small place in a semi-desirable area. I can easily see myself not being able to compete in algorithmically dominated markets flush with venture cash in the future and I earn more than just about everybody I know today. A thought exercise: suppose that no new houses are ever built and that housin…

> > It's honestly quite scary how I'm in the top 2% of income earners in my generation and yet I could barely afford to buy a small place > I live in Los Angeles, where a "small place in semi-desirable area" gets listed for 1.5M and goes for nearly 2M. I'm somewhere in the top 5% of earners in California, but that $2M 1950s tract housing would be >50% of my post-tax income. I think the obvious answer here is that peo…

I'm under the impression that 'cash offer' just means that whoever is buying has already secured their financing. That means there's almost no risk of the deal falling through and the sale can go from contingent to pending immediately. This is better for the buyer because they sell faster. Senior software eng at microsoft can pull this off no problem (no one is buying a house with cash in their bank, not even rich people).

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

#158

Post by setr »

scruple wrote: post #113
paxys wrote: post #57

Earlier quoted context omitted.

Agreed. Heck I know several people who prefer to keep their condos/houses empty rather than rent them out at market rate because of 100% tenant friendly city and state laws. Someone can move in and refuse to pay rent, refuse to leave, use your house as a drug den, destroy your property and lots more, and you can do nothing about it. At that point the city is just incentivizing homeowners to contribute to the housing…

A home 2 doors down from myself had been empty since the neighborhood was built in 2016 until 2020 when rental prices in our neighborhood blew through the ceiling. I always assumed their financial calculus was such that the appreciation alone, on an empty home, was a better prospect to them than what they could've gotten in rent in those earlier years (weighted against upkeep/maintenance vs. leaving the place empty a…

For someone renting out a single home, I think it’s the risk of a bad tenant much more than the basic calculations — as GP said, there’s really nothing you can do about it.

I personally know a case of a misbehaving tenant not paying rent beyond the first two months pre-payment, submitted a fraudulent check for the first actual payment, had neighbor complaints endlessly with repeat HoA fines (fines given to owner, of course) — and 1.5 years to evict..

It also turned out he had started subletting it out for the same rent that he himself wasn’t paying.

That kind of thing can get you into a deep hole pretty quickly, and there’s not even much filtering you can do ahead of time, even with third party verification

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

#159

Post by ridaj »

Re opendoor etc

> A less competitive market is less dynamic and worse for sellers, but it is better for the iBuyers that remain.

If they can avoid taking on the bad deals that Zillow was previously shielding them from. I've seen how in some markets the disappearance of a provider that falls victim to this kind of adverse customer selection merely moves the problem to other providers in a cascading fashion. It's not clear that there are that many profitable deals to be made on the iBuying model

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

#160

Post by dlp211 »

judge2020 wrote: post #29
bastawhiz wrote: post #6

I recently bought a home. We toured a Zillow home, and I can understand what they were going for and where they failed. We were able to pull up to the driveway, book a tour for that minute, and walk in the front door. It was almost a magical experience compared to the process of finding and going to showings. The listings were clear and thorough. The experience was extremely compelling. The downside: the homes were a…

> The downside If this wasn’t another house in the same neighborhood then the differentiator most certainly wasn’t Zillow or their pricing.

Why is this being downvoted. It's completely correct. The value of a home purchase is not just the building, but the land it sits on.

OP got a bigger, more modern house, with a larger yard for less, but it's meaningless until we understand the market circumstances of both homes for sale.

It could be that Zillow is overpriced here, or it could be that Zillow is properly priced, we have no idea from the information provided here.

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