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Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

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Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#201

Post by mistrial9 »

AussieWog93 wrote: post #180
enlyth wrote: post #164

Earlier quoted context omitted.

I'm not saying Z is the cause of the crisis, it's more like them trying to capitalize on it. How bad you view this is based on your political quadrant, so fair enough to those who don't think it's a problem. What I'm trying to bring attention to is that our generation is frustrated, we are priced out of owning a home unless we have some massive help from our parents or inheritance, and being repeatedly told that we w…

>What I'm trying to bring attention to is that our generation is frustrated, we are priced out of owning a home unless we have some massive help from our parents or inheritance, and being repeatedly told that we will own nothing and it is for our own good is demoralizing. I don't disagree with you, and I'm in the same boat personally (young family currently renting, looks like we'll be able to afford a house but only…

the reward for your pacifist approach is that you now rent, with a young family.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#202

Post by pcwalton »

maxsilver wrote: post #190
lokar wrote: post #141

Earlier quoted context omitted.

They were trying to act as a market maker, providing liquidity for a price. Nothing wrong with that.

> Nothing wrong with that. Zillow was literally scalping housing , a basic human need that all people must buy. That's generally considered very immoral by most reasonable people. And they didn't just do it once or twice, they did it at ridiculous scale (tens of thousands of homes sold last quarter, was a sale to a scalper to artificially drive up all housing prices). Most reasonable people would consider this behavi…

I don't consider it evil. When you buy a house, fix it up, and resell it, you're essentially providing a renovation service to whoever will buy it next. There's no meaningful difference between you renovating a house and selling it and an owner-occupant buying the house and renovating it themselves.

In this case, Zillow bought houses too high and sold them too low. As a result, the market punished that irrational behavior.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#203

Post by anchpop »

iskander wrote: post #159
acchow wrote: post #147

Earlier quoted context omitted.

Zillow basically bought homes, repainted them, then sold them. Why is this so villainous?

Because they would outbid people who actually want to live in those homes, essentially front-running the middle class to earn a massive profit.

> Because they would outbid people who actually want to live in those homes

If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P

Buying things you think are underpriced and reselling them is not frontrunning. (Ever since GME, a lot of people learned the word frontrunning and started using it in every possible situation.)

Zillow's plan was to act as a market maker. Market makers make a profit by buying things and then reselling them for slightly more. The difference is called the spread, and it's how market makers make money. Another example of a market makers is used car dealerships. Despite maybe seeming like a useless middleman, the reason market makers can exist is because they provide a valuable service to the buyer and the seller. They provide liquidity: you can go to a used car dealership and buy or sell a car today, instead of having to find someone to trade with directly. (If finding someone without a middleman were just as easy, the buyer and the seller would both benefit from just trading with each other directly. But they don't, which indicates that used car dealerships are actually providing a useful service.)

Zillow wanted to be a market maker for homes. They have a lot of data and thought they could use it to find homes that were underpriced, make a cash offer (benefiting the purchaser by giving them more liquidity via the faster sale), then quickly resell it. Their pricing algorithm didn't work, though, and they lost money. C'est la vie.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#204

Post by __float »

pcwalton wrote: post #200
iskander wrote: post #159

Earlier quoted context omitted.

Because they would outbid people who actually want to live in those homes, essentially front-running the middle class to earn a massive profit.

The first part of this is correct; the second part isn't. Rather than earning a profit, Zillow's current situation is the result of the invisible hand of the market correcting its economically-irrational behavior.

Unfortunately those in charge at Zillow didn't feel the real pain -- that went to families trying to find homes, being outpriced by Zillow.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#205

Post by seanmcdirmid »

analyst74 wrote: post #151
_fat_santa wrote: post #80

Earlier quoted context omitted.

Other commenters on this and the previous thread pointed out, sometimes with first-hand experience, that Zillow would vastly overpay them for their home. I think this is less to do with the housing market in general and more to do with their tech. Zillow's iBuyer program hit the scene like a bull in a china shop. The real story is that they rushed into this space, had underdeveloped algorithms, overpaid for homes, an…

Overpaying for a house is not a problem in an appreciating housing market. If you overpaid for a house, just wait for its actual market value to catch up and voila, no loss. The reason you fire-sale that house at loss, is because you believe market value is unlikely to catch up.

> Overpaying for a house is not a problem in an appreciating housing market. If you overpaid for a house, just wait for its actual market value to catch up and voila, no loss.

The price you pay when entering the housing market is substantial. It corresponds inversely to the capital you'll have later to do other things. If you pay $900k for the same house your neighbor paid $600k for, your neighbor has an extra $300k to work with over 30 years, which is significant.

But inflation being as high as it is today...that $300k will be worth much less over time, and you aren't saving it all at once if the down payments are the same.

That isn't even to mention selling at a loss or close to it if you have a pressing need, which will hurt your chances of getting into the next house.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#206

Post by hnac12 »

nojito wrote: post #145
woeirua wrote: post #7

This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. There's no wa…

>They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. Only for flipping. The real value was buying during the pandemic and holding as housing supplies starts tightening up.

Supply has been tighter than ever throughout

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#207

Post by bogomipz »

muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

Is Opendoor an MLS/appraiser that also got into the flipping market? It looks like they are just another MLS service but the article states "It will be interesting to see how Opendoor reacts."

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#208

Post by danrocks »

AareyBaba wrote: post #16
muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

I suspect the 'AI software' running these companies is using linear regression to predict housing prices and one of the inputs is the price of similar houses nearby.

Maybe some reinforcement learning algorithm running as well, where the maximum reward is winning the bid. Hence the algorithm just goes and lays waste on other bidders. Gotta get that infinite reward!

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#209

Post by danrocks »

CaveTech wrote: post #179
iskander wrote: post #159

Earlier quoted context omitted.

Because they would outbid people who actually want to live in those homes, essentially front-running the middle class to earn a massive profit.

Except that massive profit is a ... massive loss.

Which is going to be a lot better for the middle class in the area then the situation pre-Zillow iBuyer (given the massive discounts). Zillow was a net-positive at least for the Phoenix market.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#210

Post by nsv »

holografix wrote: post #65

When will governments step in to stop historic low interest rates from preventing anyone not bathing in cash from buying a home? It’s a grotesque situation in Australia with property appreciating by exorbitant amounts every month to keep up with the rate of cash printing.

In the US at least, the fed plans to raise rates by 2023.
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