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Zillow seeks to sell 7k homes for $2.8B after flipping halt

301 points by lxm 5y ago

wayoutthere 5y ago
Turns out that mass flipping houses doesn’t work when you can’t hire contractors to do the work for a price that makes your budget assumptions hold. I am disappointed that they’re looking to offload them to institutional investors rather than individuals. Housing should probably not be an investment vehicle, but here we are.
- woah 5y ago
  We're on the tail end of 50 years of policy to make single family homes into a perpetually growing investment vehicle to finance baby boomer's retirements.
  - deleted 5y ago
    [deleted]
  - hncurious 5y ago
    I hope you're right, but what signs do you see that it's at the tail end? Home ownership rate is at 65%. They want their home value to keep increasing and I don't see evidence of millennials being any less self interested when the rubber meets the road. https://www.statista.com/statistics/184902/homeownership-rate-in-the-us-since-2003/ https://www.statista.com/statistics/184902/homeownership-rat...
    - JohnWhigham 5y ago
      Yup, milliennials are just doing what their parents did. Just shows how egregious boomers have been in fucking up this country with their own greed.
- sremani 5y ago
  Projected population of US in 2050 is 458 million from the current 330 million. Given that underlying reality, housing is going to be an investment.
  - jeffbee 5y ago
    Real-dollar home prices plunged continuously from 1950 to 1970 while the US population increased by one third. Home price inflation is a policy choice, not a law of physics.
    - epistasis 5y ago
      Exactly, and in that era the federal government financed massive amounts of new housing (for white people), with the intent of homeownership for nearly all white people. And once homeownership became the norm, those same people started massive downzoning projects to prevent new homes from being built. And shortly after that, funding for public housing was gutted. Which leaves us with the massive shortage we have now. We have plenty of money that is allowed to chase a smaller supply, as long as you can leverage your existing housing asset for a larger down payment. But all those people who didn't buy in the 1980s or earlier are at a massive disadvantage.
  - onion2k 5y ago
    Assuming that the additional 128m people need about 50m - 70m new homes it would make sense that there's going to be a boom in supply of homes in the near future. Without the ability to control or limit that growth it could easily result in an oversupply, especially in any given geographic region, which would lead to a contraction in prices. Unless you're also able to predict where these new citizens will live I'd suggest real estate investing could be quite risky.
    - mywittyname 5y ago
      >Unless you're also able to predict where these new citizens will live Larger cities, especially those in warmer regions, is a very good bet.
- throw123123123 5y ago
  Housing is an investment in the sense that you need a certain amount of capital to create one, and in that sense you want to allocate it the best way possible: the best value at the best prices. There's no better way to do that than with markets. Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal.
  - wayoutthere 5y ago
    > Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal. When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity. And housing doesn’t need to be expensive. Japan is a good example. It’s only expensive because we instituted policies that make it an effective investment vehicle when it’s a necessity in life. Many cities outside the US have policies in place making property taxes very expensive for an investor who doesn’t live in the house. In particular many countries prohibit foreign investors from purchasing real estate without a local intermediary who is legally responsible for any shenanigans. The free market works well for many things, but there are areas where the motive to create artificial scarcity create some dystopian outcomes (see also healthcare). We have to ask ourselves as a society if our belief in the free market is strong enough to accept the societal issues (crime, mental health, etc) that have been proven to come along with unstable housing.
    - throw123123123 5y ago
      > When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity. There are many ways to lobby that increase both the value of real estate and make the system better. For example, you could lobby for a visa for immigrant construction workers, which will reduce the cost to build. > And housing doesn’t need to be expensive. Definitions matter, but that's my original point. Construction companies in JApan also have a sweet ROI or they wouldn't build at all, you can achieve multiple goals. The current market structure is in good part a result of regulatory capture, but housing will remain profitable in multiple other structures. If it stopped being profitable, it would be impossible to build, and you wouldnt be able to improve or create new supply which is definitely the worst result long term. > dystopian outcomes (see also healthcare Healthcare is the **show it is precisely because it is NOT a free market by any practical or theoretical definition. I want to mention one more thing about the narrative that Nimbyism is an investment topic. It really isn't: it is in the landlords interest to get more construction going, because more people increase the value of land, it doesn't decrease it. That is why land in a city is worth more than in a rural town. A SFH owner turned into the low owner of an 8 appt complex is way richer, as in 10X. At the tokyo example, it is close to 10k per square meter of land! https://www.statista.com/statistics/875736/japan-average-land-price-tokyo/ https://www.statista.com/statistics/875736/japan-average-lan...
IAmGraydon 5y ago
When I heard that Zillow was buying in the middle of an extremely exuberant residential market, it surprised me and I thought they must know something I don’t. Surely they aren’t stupid enough buy and hold a fairly illiquid asset class during market all time highs. Guess I was wrong.
- ineedasername 5y ago
  Yes-- Also unless you're buying some type of financial vehicle, "buy & hold" doesn't encompass the full picture since they are physical assets with IRL needs. Unlike a security/stock/bond etc., in real estate unless you have tenants paying rent then even if the asset value remains the same, you're losing money due to costs like property taxes.
- bchris4 5y ago
  I find that every time I catch myself thinking this way I’m typically wrong- nobody knows anything, big orgs in particular are dumb, and a little common sense usually wins out.
rdudek 5y ago
They seem to be flipping the houses fast and hard around my neighborhood. One of my favorite things to do is walk around with the dog and see houses go up for sale. Lately, I noticed houses sold only to be relisted by Zillow like 30 days later at $50k+ the original price. And they actually seem to be able to sell them that high. My house is currently worth 3x what I paid for it back in summer of 2013.
- x86_64Ubuntu 5y ago
  I can't help but feel this is another bubble. I'm paid very well, in a not well paying region. So I'm wondering where all these folks are getting their money from. Even those new Ryan Homes which are cookie cutter and made out of pure vinyl are going for $250K. Maybe my doom-ish outlook is because I'm a millenial so I'm used to everything being bad.
  - strikelaserclaw 5y ago
    cheap loans for some, and inflated asset prices for those who own assets. Most people don't think "can i afford this house", they think "can i pay the monthly payment". Add to this the frenzy of asset prices increasing and FOMO, you get a real situation where people who were waiting to buy, buy now because they think they will miss out on cheap loans and increasing asset prices.
  - amotinga 5y ago
    same. even though I make good living, buying house seems difficult - it's a lot of money for many years. add closing costs and misc repairs, and owning appears to be quite expensive. I wouldn't know what to do if at any point within next 10 years I lost the job.
    - overview 5y ago
      Are there not any alternative employers where you live (including remote)? Do you have an emergency fund to cover living expenses if you lose your job? The reason I pry is 10 years is a long time to not be able to get together a 3-6 month emergency fund (if you don’t already have one).
htrp 5y ago
Zillow also getting out of the business entirely and taking a 200-300 million charge.
mrcarruthers 5y ago
That reporter had a lot of fun with that headline
api 5y ago
Best news I've seen all month. I hope anyone doing this kind of thing with residential real estate falls hard.
- IAmGraydon 5y ago
  Why?
  - xuki 5y ago
    Because houses are for people to live in not to make a profit.
- zip1234 5y ago
  They are not the problem with residential real estate prices. The real problem is people that prevent additional housing from being built.
  - justinph 5y ago
    Zillow's attempt at flipping was certainly not helping. Even if it doesn't improve things, at least it is not hurting anymore. The trend of big companies buying single family homes and attempting to flip them is demonstrably bad for individuals trying to purchase a home.
    - jdavis703 5y ago
      I don’t know what sort or homes Zillow buys, but I know locally a lot of flippers purchase homes that most banks wouldn’t lend to a regular consumer. Then they fix them up. These are hoarder homes, abandoned buildings, condemned housing, etc. In so far as they’re making homes more accessible to folks without contracting skills I don’t see a problem.
  - giantg2 5y ago
    "The real problem is people that prevent additional housing from being built." If you go deeper, it's about personal preferences and distribution of jobs. There are plenty of areas that allow houses to be built and have affordable houses. Many of those places may have limited job choices, although remote is becoming bigger. If companies didn't cluster as much, then overpopulation or constrained resources in specific areas wouldn't be as much of problem. But there's also the side of people wanting single family homes instead of apartments - both existing owners and many prospective buyers. It seems some companies and individuals are realizing this and moving to areas with lower density and lower cost of living (or cost of business). Sure, you could take the other way of removing many zoning regulations, but the regulations are the product of democracy. Nothing wrong with people in a community wanting to set standards for their area.
axxl 5y ago
I can't read the original article, but this appears to be an identical article at least from the start: https://www.eastbaytimes.com/2021/11/02/zillow-to-sell-7000-homes-for-2-8-billion-after-flipping-flop/ https://www.eastbaytimes.com/2021/11/02/zillow-to-sell-7000-... I don't know which is the original and which is the copy. Edit: It seems like they are both sites owned by the same company? But one has a more aggressive paywall? I don't know. The schadenfreude is real for me seeing this. A company like Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this. It's like when the realtor offers to buy your house... they obviously feel like they can make more than you, when they're supposed to represent you! Edit 2: What I'm surprised at as well is how short-term their forecasting seemed to be. They just started doing this and the market cooled a tiny bit (also, what? where?) and they're selling everything off? Were they incapable of sustaining anything but massive constant growth?
- JumpCrisscross 5y ago
  > Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this I'm currently looking to buy a house. Having a Zillow in between the seller and myself (as a dealer, not a broker) wouldn't be a slam dunk, but it would be worth some non-zero premium to me. (Just offering a counterpoint to the "uselessly driving up prices" narrative.)
  - arthurcolle 5y ago
    Not only that (it's true though) but what if they committed to a certain $ figure of upgrades/renovations for the house in question? Seems valuable in terms of property values even if it costs the seller/buyer some additional premium up front
    - judge2020 5y ago
      As someone selling to Zillow, they do retain a certain amount ($x thousands) from the seller for repairs and cleaning, at least for relatively new construction. I imagine it's a larger number depending on how old the house is and how much repair they think they need based on their appraisal/final walkthrough.
webinvest 5y ago
7k millennials will be happy to buy them up at affordable prices.
- ineedasername 5y ago
  Unfortunately, at an average price of about $400,000 most of them are not going to be affordable for a typical young first-time buyer.
  - jdavis703 5y ago
    $400k seems very affordable. I could easily buy a house today if that’s what FHA-grade (i.e. something more than a burned out shack) housing went for. In my county the median house goes for over $1 million.
    - Loughla 5y ago
      The median home price in Q3 2021 is $404,000. That is shockingly high, but definitely not close to the 1 million figure.
      - jdavis703 5y ago
        According to Zillow the median price is $1.018 million in Alameda County. I probably should’ve been more specific in my post since “my county” could be anywhere.
    - webinvest 5y ago
      What country is that?
      - kadomony 5y ago
        He said "county", not country.
      - jdavis703 5y ago
        USA.
cletus 5y ago
This is a good example of the fallacy of youth: buying too far into hype and being all "the sky is falling" with negative news. It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever. The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this. History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either. Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.
- valeness 5y ago
  But didn't they sell the houses to investors and/or established landlords? I'm not sure how this helps the youth or those otherwise disillusioned with the current housing market as that housing is still unavailable to them.
  - r3trohack3r 5y ago
    I think the ops point is that it will end, not that it has ended.
    - valeness 5y ago
      Yes, but this is not evidence of "it will end" to me.
      - r3trohack3r 5y ago
        I think the evidence presented was "history" > The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this. I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market. They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor. The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons. The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich. If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle. For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."
boringg 5y ago
Plot twist - competitor buys them for discount to flip them on an even better margin.
ashtonkem 5y ago
There was a lot of fear a few months ago that Zillow was manipulating the housing market to make a profit using all their data and cash. Guess they had the will, but not the capability.
- ClumsyPilot 5y ago
  I guess they were bad in more then one way
johnnyApplePRNG 5y ago
How on earth did a real estate analytics company lose money buying and selling homes in THIS market?
- roflc0ptic 5y ago
  Predicting the future is really hard
  - bchris4 5y ago
    Particularly if your time horizon is like 3 months. Seems like they’re making two huge mistakes now by selling. Home values will almost certainly rise from here over the next 10+ years, and even the most casual market watcher/Zillow user knows that their “zestimates” are crap, they weren’t going to nail it that precisely. Literally everyone intuitively knows that it was a bad time to buy and now an even worse time to sell… except for the analytics company with all of the data. They should just hold and rent the properties via their app, if they can’t make the math work otherwise.
    - keyboardCowBoy 5y ago
      Certainly rise? IF the market keeps going up nobody will ever be able to afford a home. Zillow is in the market of fast turn arounds, not holding. The market is already starting to go down. Were in a bubble.
- IAmGraydon 5y ago
  I think the simplest way to put it is they FOMOed into a very illiquid asset class in a very high risk market and now need to close the position quickly, which is going to cost them. I’m guessing they see a residential collapse on the near horizon.
- maxlamb 5y ago
  Seriously, that is the real question. Considering almost every other recent buyer in the U.S. has made money (on paper) on their property without having done any analysis.
ineedasername 5y ago
Sounds like they got in too close to the peak (not to mention delays & increased costs in refurb) and didn't factor increased carrying costs on the potential that these would sit on the market a bit longer if they wanted to sell at a higher premium. A hard lesson for them that listing aggregation & analysis of the market is far different than direct investments & flipping. Flippers take a big risk and offset inevitable losses on some homes with the profits on others. And generally if they do well it has a lot to due with deeper knowledge of the subtleties in the local housing market & partnerships with realtors that have customers in the pipeline already. There's a lot more to it than what might appear on the outside to "tech disruptors", or anyone else who thinks it looks easy from the outside.
- gitfan86 5y ago
  Maybe on paper it costs 10k to do cosmetic fixes on a house that will now sell for 80k more. But there is no guarantee that workers will be available and interested in doing that small budget work. More importantly to your point the local realtors and other people in the area are likely to pick up any really good deals before Zillow gets to them.
- deelowe 5y ago
  I think there's more going on here than simply RE speculation. Most importantly, Zillow is building capability. Capability to buy & sell quickly through processes, tooling, networking, and brand recognition. There is a long play here. Zillow's goal has always been to fully disrupt the real estate market. Why should this stop with brokerages and agents? Shouldn't investors also be on the list?
  - ineedasername 5y ago
    > Investors Sure, medium/large flippers may have investors putting up the money. And I agree that Zillow is not likely backing out of the game all together. They just had an expensive lesson learning what they don't know about how to go about this. But their current strategy was also only viable during rapid price increases. A completely different one is needed in other market condition. Making money flipping in a flat market is even harder: It takes more work to find depressed homes at below-market prices. There's no good algorithm that will do that without boots on the ground looking at the property in person, not to mention the surprises you get when you open up the walls or floors to start a refurb. That doesn't mean Zillow can't do it: what I'm saying is that it's very much not in the realm of their core competencies. Building out large scale logistics networks for this IRL is much different than their current line of business. I'm sure they'll try again, but I'm also almost as sure that they'll have a few more significant stumbles along the way.
PragmaticPulp 5y ago
On one hand I’m relieved to see that this business model isn’t working out. I didn’t want to see institutional players start putting even more upward pressure on home prices. On the other hand, this highlights just how insignificant their purchasing was. 7000 homes is nothing relative to the 1,200,000 homes they have listed for sale right now.
rayiner 5y ago
Classic example of not understanding the gap between theory and application. If your home is overvalued by Zillow, you’re much more likely to sell than if it’s valued correctly or undervalued. E.g. Zillow overvalues my house because it’s algorithm can’t factor in our weird parking situation. I’m much more likely to want to sell for a high valuation than someone whose house is valued correctly by the algorithm.
- asperous 5y ago
  This is called information asymmetry in economic theory
bedhead 5y ago
The business of iBuying is destined for the trash heap, its future so seemingly inevitable that I'm shocked anyone alive considers this a viable business with a real terminal value. Did we not learn real fast back in 08 that the financialization of people's homes is basically a non-starter? Being a glorified payday lender with people's homes is never going anywhere. It's one big Catch 22, if these companies ever even figure out how to make money from this (and so far they can't) they will inevitably just get shut down by local governments, which has already begun in Europe.
- rel2thr 5y ago
  i think it can work , but you need to expect pretty slim margins. You basically need to offer a very fair price on very safe houses and make your margins by cutting out the realtors fees.
specialp 5y ago
This is something like running a high end restaurant that is not easy to do or benefits from scale. You need a proprietor interested in it. Most people that "flip" homes successfully are personally involved in the projects. They have relationships with local subcontractors, know the area, and often professionally work in one of the trades or related fields such as law. The world is awash with cheap money now, so simply having deep pockets is not going to get you what you want. You can't just buy people that have the skill to manage the people involved and the projects at a large scale. The analogous restaurant situation is if you have a great chef that can run a location, why are they going to work for you? They will just open their own restaurant. Businesses where the only thing you can offer at scale is money don't work.
- disgruntledphd2 5y ago
  > Businesses where the only thing you can offer at scale is money don't work. Except for banks and VC's I guess.
samsolomon 5y ago
This isn't surprising to me. Early on in our home search we found a house that we loved, but was extremely overpriced—even in a hot market. The house was not owned by Zillow, but a similar company. When we asked for disclosures we did not receive them for almost a week. My agent warned me that there were going to be things wrong with the house and that they probably would not be disclosed. I found a thread on reddit about making purchases from this company, and one user who was an agent said that they always asks for the previous seller's disclosures—that's how they know where to look with the inspectors. Apparently the company frequently hired handymen to do specialized work. They did the bare minimum to make sure the house passed inspection. Anyways, we made what I thought was a reasonable offer, even though it was for about 10% less than the list price. It was rejected. Three months later it sold for almost the same price as our offer. We probably dodged a bullet though.
- edrxty 5y ago
  Wow I just had the exact same thing happen to me. Problem was they tried to wait me out through inspections to avoid agreeing to concessions. The place was nice but turned out to need a full roof and hvac replacement immediately.
pcurve 5y ago
Zillow is doing it at scale, but I also see smaller companies also advertising "Web buy your house!" online. I wonder if we're at a tipping point.
woeirua 5y ago
I think Zillow is facing a big potential loss on these properties. The homes that I've seen on the market in my area through Zillow/OpenDoor have been exceptionally poor quality and grossly overpriced. They've been steadily marking them down week after week and they're still not selling. Some are now more than $100k below what Zillow paid for them back in Aug/Sept (on a $600-700k home). Even with their fees, Zillow has to be taking a big hit on these properties. The end of this cycle is definitely going to scare a lot of companies and investors out of real estate for quite a long time. If you're looking to buy a house right now, make sure you're somewhere you want to live for a while. You're probably buying close to (if not at) the top.
- strikelaserclaw 5y ago
  AT the end of the day even if a home is an asset, it is fundamentally a place to live for a lot of people, a lot of people would much rather rent than put all their savings into an over priced dump.
SN76477 5y ago
I hope this bubble bursts. In less than 3 years the rent in our working class city went up 45%. Not to mention the absurd qualifications one needs to rent. 4 times the income to rent, very good credit and background checks. This is not sustainable for working class people.
- jdhn 5y ago
  >Not to mention the absurd qualifications one needs to rent. This was probably prompted by the Covid rent restrictions. Landlords (especially smaller ones) don't want to rent to someone who can avoid paying rent due to government decrees.
  - seanmcdirmid 5y ago
    Ya, you can’t restrict the market and still keep it capitalist. In Seattle, new regulations on price increases along with an indeterminate moratorium on evictions is definitely going to make landlords really careful on credit checks. I also wouldn’t be surprised if the low end rental markets disappear completely as they become too risky to operate in as landlords.
    - nradov 5y ago
      At the very low end there will still be a market for Section 8 housing.
      - seanmcdirmid 5y ago
        Ya, but it is going to suck for those who don't qualify for section 8 yet can't afford high end rents. Probably the government will come in fill those gaps long term.
  - fish_phrenology 5y ago
    Having rented in Seattle for 6+ years at essentially the lowest non-subsidized price point, these existed before, along with a variety of other problems.
rel2thr 5y ago
very tough to build a model like this to purchase homes cause you hit a really rough adverse selection problem even if your model is 99% great , the 1% that you overvalue are going to be the sellers that come to you and agree to sell you their homes because your offer is too good to be true
- foogazi 5y ago
  That’s the paradox of home buying / or any other bidding mechanism - did you get a good price ? No one else was willing to offer a better deal to the seller
- colinmhayes 5y ago
  Yea, I'm sure everyone with a lemon house was licking their lips when they heard Zillow would buy sight unseen.
neogodless 5y ago
Hard to tell because of the paywall, but I suspect this is related to this post from a bit over a day ago: https://news.ycombinator.com/item?id=29059785 https://news.ycombinator.com/item?id=29059785 "Zillow has listed 93% of the hundreds of Phoenix homes it owns at a loss" (229 comments)
deleted 5y ago
[deleted]
rossdavidh 5y ago
I have nothing of substance to add to the comments others have made, but would like to compliment whoever thought of the phrase "flipping flop" to describe Zillow's misstep here; Bloomberg should be kicking themselves for not using that as their headline.
DrBazza 5y ago
Did Zillow factor themselves into their algorithm telling them to buy/sell? We had the same thing in our ML trading system. The first few iterations worked well because the system was set to run on small positions and volumes, and then we increased that, the PnL in the market was completely different to our models. As soon as we added ourselves into the model, we ended up trading more much like our original predictions.
nikprasad 5y ago
So they thought they saw a market opportunity and it didn't pan out and now they're panic selling because they have too many houses on their balance sheet. Ain't nothing new about this and in any liquid market you will have people who think they can corner the market and make money. The markets see-saw between greed and fear and there will always be those who want to allocate capital to gain from it. If you're a value investor, you're actually waiting for something like what Zillow has managed to do i.e. over leverage themselves and now will have to rapidly get rid of assets as they're probably hemorrhaging money. They'll sell pennies on the dollar and I'm sure the likes of blackrock will swoop in and get those assets. Nothing new here guys!
skizm 5y ago
I'm actually excited for hedge funds and financial institutions nail this process down and houses are both 1) very liquid, and 2) priced "correctly". Moving when you own a house will be as easy as moving when you're renting.
- dragonwriter 5y ago
  > I'm actually excited for hedge funds and financial institutions nail this process down and houses are both 1) very liquid, and 2) priced "correctly". Moving when you own a house will be as easy as moving when you're renting Once financial institutions get it nailed down, they’ll be selling to each other in large tranches based on the strategies and target asset mixes of different funds, because the transaction costs are lower than doing piddling individual sales, interacting with the remaining individual owners only to buy inventory into the institutional system, and for individuals all that will be left is renting through management companies employed by the institutions.
tibiahurried 5y ago
Homes like stocks are way overvalued. Homes are fueled by the frenzy of ownership at all costs, and stocks keep pumping at absurd levels. Everything is extremely overpriced. Eventually, it will come down to common sense. My friend has put all his savings and stocks to buy a 2b apartment. Myself, on the other hand, did not sell any stock and have invested all my savings. I rent a much bigger place, my rent is way lower than his mortgage and at least for me it will be more convenient to rent at least for the next 10y. After that, I will retire and move to a cheaper area. Keep saying people have gone mad. Many fail and underestimate cost of ownership. Remember that a good chunk of your mortgage are taxes and interests, factor that when you compare rent vs buy. That said, I do own properties that I rent out. But I bought them at sane prices. And they generate cash flow that I use to pay for my rent and other expenses.
- jmrm 5y ago
  This happened in some European cities, and now, a mortage or a rent are equally expensive even to high wage people, like engineers and surgeons.
  - tibiahurried 5y ago
    It is a seller market, and it is probably gonna stay that way for some time. The only properties I am considering buy are those located in vacation places. You can still find good deals, and you can easily repay by renting them out for few months a year. I will only consider buying a property in a major urban city only if I had to live there basically for ever. Otherwise I will keep renting. Prices in major EU cities, like the rest of the world are insane compared to the level of income, even for wealthy engineers.
- WORMS_EAT_WORMS 5y ago
  Comments like this make it seem like it’s all figured out. Everyone’s situation is different based on income (sounds like you are high income too - which makes choosing where to deposit cash easier), location, family/living requirements, current net worth, job stability, partner income, etc... It is very possible too your friend made the better decision. There was a time where stocks and house prices going up was different and the world was not in a 10 year plus aggressive bull market. Ultimately, you do what’s right for you.
game_the0ry 5y ago
Former real estate finance professional, here. If you were hoping this was a sign of the real estate market falling and perhaps its your chance to get a bargain, think again. > The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Institutional investors (Blackstone, Blackrock, Colony, et al) will be being in bulk, in cash, and at a steep discount before they even hit the market. Zillow's loss will be the institutional investor's gain. Of course, they will happily rent to you since that is the the plan all along - own all the assets, and every generation after X gets to rent [1]. I wish this would anger people more, but enough home owners will benefit from this dynamic - it will likely keep home prices elevated for longer, and set up an ugly conflict between those who do not have (and aspire to have) homes and those who currently own homes. [1] https://www.ocregister.com/2021/09/30/in-a-hot-market-companies-compete-with-would-be-homeowners/ https://www.ocregister.com/2021/09/30/in-a-hot-market-compan...
- cwkoss 5y ago
  Every person or corporation that owns more than one residential dwelling should pay increased property taxes based on the number of residential dwellings they own. This is an easy problem to legislate away, our politicians are just too cowardly to decommodify housing.
  - MrKristopher 5y ago
    In California this would be framed as a repeal of Prop 13. Not sure why you think that is easy to legislate away.
  - JeremyNT 5y ago
    That's a good stick, yep. They could also add in a carrot, to reduce capital gains on sale of non-primary residences. There are too many incentives currently to hoard properties like the damn monopoly man, so you need to start clawing away at them. Taxing the eventual sale just encourages people to not ever sell, so tax them for hoarding directly.
  - shiohime 5y ago
34679 5y ago
We need a property tax rate multiplier for entities and individuals who own multiple properties. The more you own beyond 2 or maybe 3, the higher your rate is. Imagine being a single parent who was outbid for a home in Phoenix by a faceless algorithm - 300 times.
ineedasername 5y ago
Since this is unlikely to be the end of Zillow's ambitions in this area, I foresee an arms race between Zillow and local sellers & their agents: Just like with SEO, algorithmic home buying will open up the opportunity for people to infer from the algorithms behavior which metrics or keywords it's triggered off of and respond accordingly.
- t-writescode 5y ago
  How do you see that? Zillow uses local agents and their sellers to sell houses. There's no battle there. In fact, the sellers get more money from this transition because the artificial price increase positively impacts them.
  - ineedasername 5y ago
    I don't think Zillow points their agents at it without their own analysis first: I'm assuming Zillow leverages their data set to identify a large portion of opportunities. A local agent on the ground can sort through things with some judgement, but if a lot of their leads are directed to them by Zillow's algorithm for identifying worthy investments then there could be room to game that system.
josh_today 5y ago
You will own nothing and be happy
neonate 5y ago
https://archive.md/gND5q https://archive.md/gND5q
sam0x17 5y ago
Recall that they recently said they would never do something like this after that tik tok "conspiracy" calling them out for this behavior
ChrisLomont 5y ago
Zillow is selling 7000 homes into a market that moves 800,000 homes annually, and (apparently) for a loss to Zillow. Zillow has approx $6B in total assets, and this anchor is big enough to tank them if they screw it up enough. This is not some secret cabal of market manipulators - it's a company trying to leverage their knowledge of the housing market into an investment, and they did not do well.
nemo44x 5y ago
According to their call tonight they say they are out of that business permanently. I wonder if they plan on pivoting it to something less speculative? FWIW, I'd love a system where you could "sell" a home to a broker and "buy" one without the musical chairs game of contingency offers, etc. I think there's real value in a space that completes the sale of properties based on some window of expected return for a property. Something where I could use a broker to buy a place cash for me and then I arrange the loan and the bank buys it off of them and starts a mortgage with me. And do the same for my property where they buy it from me at the same time and sell it and I get the difference minus a fee.
- smsm42 5y ago
  I'm not sure what you look for is realistic. As a seller, I'd surely prefer to avoid all those contingencies, inspections, etc. - just give me the money, take the property and be done with it! As a buyer, though, I surely want something that I pay multiples of my annual income for to be thoroughly inspected, and be absolutely sure everything is ok (or at least if something is not OK I know it and it's priced in). Risking this kind of money is not something I could afford. I'm not sure anybody - maybe except US federal government - could afford risks of this magnitude without covering oneself somehow. So there would be a process. You could pay somebody to undergo this process instead of yourself, but I don't think you could get rid of it entirely. That said, intermediaries like you describe exist, afaik. E.g. Flyhomes do something like that.
  - nemo44x 5y ago
    I get it but I’d imagine there’s an actuary table that could be put together to insure against issues in most cases. I mean the entire process today is so dated, isn’t it? A bunch of people submit offers and then 1 gets picked and then a variety of inspectors come by to make sure nothing glaring is broken. What if the intermediary scaled the inspection part (pro services are hard to scale, yes) and when you buy from them it’s “guaranteed”? Like a certified used car.
    - smsm42 5y ago
epa 5y ago
Just announced they will layoff 25% of their staff (zillow offers).
dang 5y ago
Ongoing related thread: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff - https://news.ycombinator.com/item?id=29087479 https://news.ycombinator.com/item?id=29087479
mdale 5y ago
The old machine leaning algorithms running a muck.
waynesonfire 5y ago
such a greedy narcissistic company. hope you had fun weaponizing your data, asshats.
fennecfoxy 5y ago
Property market could be easily fixed by banning buying residential property for investments. Easiest thing in the world to do, but it won't be done until a certain generation is dead and buried.
bbsteve 5y ago
[flagged]

301 points by lxm 5y ago

Turns out that mass flipping houses doesn’t work when you can’t hire contractors to do the work for a price that makes your budget assumptions hold. I am disappointed that they’re looking to offload them to institutional investors rather than individuals. Housing should probably not be an investment vehicle, but here we are.

woah 5y ago
We're on the tail end of 50 years of policy to make single family homes into a perpetually growing investment vehicle to finance baby boomer's retirements.
- deleted 5y ago
  [deleted]
- hncurious 5y ago
  I hope you're right, but what signs do you see that it's at the tail end? Home ownership rate is at 65%. They want their home value to keep increasing and I don't see evidence of millennials being any less self interested when the rubber meets the road. https://www.statista.com/statistics/184902/homeownership-rate-in-the-us-since-2003/ https://www.statista.com/statistics/184902/homeownership-rat...
  - JohnWhigham 5y ago
    Yup, milliennials are just doing what their parents did. Just shows how egregious boomers have been in fucking up this country with their own greed.
sremani 5y ago
Projected population of US in 2050 is 458 million from the current 330 million. Given that underlying reality, housing is going to be an investment.
- jeffbee 5y ago
  Real-dollar home prices plunged continuously from 1950 to 1970 while the US population increased by one third. Home price inflation is a policy choice, not a law of physics.
  - epistasis 5y ago
    Exactly, and in that era the federal government financed massive amounts of new housing (for white people), with the intent of homeownership for nearly all white people. And once homeownership became the norm, those same people started massive downzoning projects to prevent new homes from being built. And shortly after that, funding for public housing was gutted. Which leaves us with the massive shortage we have now. We have plenty of money that is allowed to chase a smaller supply, as long as you can leverage your existing housing asset for a larger down payment. But all those people who didn't buy in the 1980s or earlier are at a massive disadvantage.
- onion2k 5y ago
  Assuming that the additional 128m people need about 50m - 70m new homes it would make sense that there's going to be a boom in supply of homes in the near future. Without the ability to control or limit that growth it could easily result in an oversupply, especially in any given geographic region, which would lead to a contraction in prices. Unless you're also able to predict where these new citizens will live I'd suggest real estate investing could be quite risky.
  - mywittyname 5y ago
    >Unless you're also able to predict where these new citizens will live Larger cities, especially those in warmer regions, is a very good bet.
throw123123123 5y ago
Housing is an investment in the sense that you need a certain amount of capital to create one, and in that sense you want to allocate it the best way possible: the best value at the best prices. There's no better way to do that than with markets. Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal.
- wayoutthere 5y ago
  > Housing will always be expensive in one way or the other, but you can make it cheaper and more plentiful. And that should be the goal. When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity. And housing doesn’t need to be expensive. Japan is a good example. It’s only expensive because we instituted policies that make it an effective investment vehicle when it’s a necessity in life. Many cities outside the US have policies in place making property taxes very expensive for an investor who doesn’t live in the house. In particular many countries prohibit foreign investors from purchasing real estate without a local intermediary who is legally responsible for any shenanigans. The free market works well for many things, but there are areas where the motive to create artificial scarcity create some dystopian outcomes (see also healthcare). We have to ask ourselves as a society if our belief in the free market is strong enough to accept the societal issues (crime, mental health, etc) that have been proven to come along with unstable housing.
  - throw123123123 5y ago
    > When housing becomes an investment, the goal is to get that sweet ROI which generally means working to restrict the supply of housing to make prices rise. Lobbying is a high-ROI activity. There are many ways to lobby that increase both the value of real estate and make the system better. For example, you could lobby for a visa for immigrant construction workers, which will reduce the cost to build. > And housing doesn’t need to be expensive. Definitions matter, but that's my original point. Construction companies in JApan also have a sweet ROI or they wouldn't build at all, you can achieve multiple goals. The current market structure is in good part a result of regulatory capture, but housing will remain profitable in multiple other structures. If it stopped being profitable, it would be impossible to build, and you wouldnt be able to improve or create new supply which is definitely the worst result long term. > dystopian outcomes (see also healthcare Healthcare is the **show it is precisely because it is NOT a free market by any practical or theoretical definition. I want to mention one more thing about the narrative that Nimbyism is an investment topic. It really isn't: it is in the landlords interest to get more construction going, because more people increase the value of land, it doesn't decrease it. That is why land in a city is worth more than in a rural town. A SFH owner turned into the low owner of an 8 appt complex is way richer, as in 10X. At the tokyo example, it is close to 10k per square meter of land! https://www.statista.com/statistics/875736/japan-average-land-price-tokyo/ https://www.statista.com/statistics/875736/japan-average-lan...

IAmGraydon 5y ago

When I heard that Zillow was buying in the middle of an extremely exuberant residential market, it surprised me and I thought they must know something I don’t. Surely they aren’t stupid enough buy and hold a fairly illiquid asset class during market all time highs. Guess I was wrong.

ineedasername 5y ago
Yes-- Also unless you're buying some type of financial vehicle, "buy & hold" doesn't encompass the full picture since they are physical assets with IRL needs. Unlike a security/stock/bond etc., in real estate unless you have tenants paying rent then even if the asset value remains the same, you're losing money due to costs like property taxes.
bchris4 5y ago
I find that every time I catch myself thinking this way I’m typically wrong- nobody knows anything, big orgs in particular are dumb, and a little common sense usually wins out.

rdudek 5y ago

They seem to be flipping the houses fast and hard around my neighborhood. One of my favorite things to do is walk around with the dog and see houses go up for sale. Lately, I noticed houses sold only to be relisted by Zillow like 30 days later at $50k+ the original price. And they actually seem to be able to sell them that high. My house is currently worth 3x what I paid for it back in summer of 2013.

x86_64Ubuntu 5y ago
I can't help but feel this is another bubble. I'm paid very well, in a not well paying region. So I'm wondering where all these folks are getting their money from. Even those new Ryan Homes which are cookie cutter and made out of pure vinyl are going for $250K. Maybe my doom-ish outlook is because I'm a millenial so I'm used to everything being bad.
- strikelaserclaw 5y ago
  cheap loans for some, and inflated asset prices for those who own assets. Most people don't think "can i afford this house", they think "can i pay the monthly payment". Add to this the frenzy of asset prices increasing and FOMO, you get a real situation where people who were waiting to buy, buy now because they think they will miss out on cheap loans and increasing asset prices.
- amotinga 5y ago
  same. even though I make good living, buying house seems difficult - it's a lot of money for many years. add closing costs and misc repairs, and owning appears to be quite expensive. I wouldn't know what to do if at any point within next 10 years I lost the job.
  - overview 5y ago
    Are there not any alternative employers where you live (including remote)? Do you have an emergency fund to cover living expenses if you lose your job? The reason I pry is 10 years is a long time to not be able to get together a 3-6 month emergency fund (if you don’t already have one).

htrp 5y ago

Zillow also getting out of the business entirely and taking a 200-300 million charge.

mrcarruthers 5y ago

That reporter had a lot of fun with that headline

api 5y ago

Best news I've seen all month. I hope anyone doing this kind of thing with residential real estate falls hard.

IAmGraydon 5y ago
Why?
- xuki 5y ago
  Because houses are for people to live in not to make a profit.
zip1234 5y ago
They are not the problem with residential real estate prices. The real problem is people that prevent additional housing from being built.
- justinph 5y ago
  Zillow's attempt at flipping was certainly not helping. Even if it doesn't improve things, at least it is not hurting anymore. The trend of big companies buying single family homes and attempting to flip them is demonstrably bad for individuals trying to purchase a home.
  - jdavis703 5y ago
    I don’t know what sort or homes Zillow buys, but I know locally a lot of flippers purchase homes that most banks wouldn’t lend to a regular consumer. Then they fix them up. These are hoarder homes, abandoned buildings, condemned housing, etc. In so far as they’re making homes more accessible to folks without contracting skills I don’t see a problem.
- giantg2 5y ago
  "The real problem is people that prevent additional housing from being built." If you go deeper, it's about personal preferences and distribution of jobs. There are plenty of areas that allow houses to be built and have affordable houses. Many of those places may have limited job choices, although remote is becoming bigger. If companies didn't cluster as much, then overpopulation or constrained resources in specific areas wouldn't be as much of problem. But there's also the side of people wanting single family homes instead of apartments - both existing owners and many prospective buyers. It seems some companies and individuals are realizing this and moving to areas with lower density and lower cost of living (or cost of business). Sure, you could take the other way of removing many zoning regulations, but the regulations are the product of democracy. Nothing wrong with people in a community wanting to set standards for their area.

axxl 5y ago

I can't read the original article, but this appears to be an identical article at least from the start: https://www.eastbaytimes.com/2021/11/02/zillow-to-sell-7000-homes-for-2-8-billion-after-flipping-flop/ https://www.eastbaytimes.com/2021/11/02/zillow-to-sell-7000-... I don't know which is the original and which is the copy. Edit: It seems like they are both sites owned by the same company? But one has a more aggressive paywall? I don't know. The schadenfreude is real for me seeing this. A company like Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this. It's like when the realtor offers to buy your house... they obviously feel like they can make more than you, when they're supposed to represent you! Edit 2: What I'm surprised at as well is how short-term their forecasting seemed to be. They just started doing this and the market cooled a tiny bit (also, what? where?) and they're selling everything off? Were they incapable of sustaining anything but massive constant growth?

JumpCrisscross 5y ago
> Zillow getting into flipping seems questionable to me. The customers are no longer aligned with the company on goals with something like this I'm currently looking to buy a house. Having a Zillow in between the seller and myself (as a dealer, not a broker) wouldn't be a slam dunk, but it would be worth some non-zero premium to me. (Just offering a counterpoint to the "uselessly driving up prices" narrative.)
- arthurcolle 5y ago
  Not only that (it's true though) but what if they committed to a certain $ figure of upgrades/renovations for the house in question? Seems valuable in terms of property values even if it costs the seller/buyer some additional premium up front
  - judge2020 5y ago
    As someone selling to Zillow, they do retain a certain amount ($x thousands) from the seller for repairs and cleaning, at least for relatively new construction. I imagine it's a larger number depending on how old the house is and how much repair they think they need based on their appraisal/final walkthrough.

webinvest 5y ago

7k millennials will be happy to buy them up at affordable prices.

ineedasername 5y ago
Unfortunately, at an average price of about $400,000 most of them are not going to be affordable for a typical young first-time buyer.
- jdavis703 5y ago
  $400k seems very affordable. I could easily buy a house today if that’s what FHA-grade (i.e. something more than a burned out shack) housing went for. In my county the median house goes for over $1 million.
  - Loughla 5y ago
    The median home price in Q3 2021 is $404,000. That is shockingly high, but definitely not close to the 1 million figure.
    - jdavis703 5y ago
      According to Zillow the median price is $1.018 million in Alameda County. I probably should’ve been more specific in my post since “my county” could be anywhere.
  - webinvest 5y ago
    What country is that?
    - kadomony 5y ago
      He said "county", not country.
    - jdavis703 5y ago
      USA.

cletus 5y ago

This is a good example of the fallacy of youth: buying too far into hype and being all "the sky is falling" with negative news. It wasn't long ago that we were reading how Zillow et al were going to buy up all the housing stock and keep millenials and Zoomers homeless forever. The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this. History is littered with the corpses of those who tried and failed to corner a market. Real estate is no different. That's not to say we can't make the system better. We can and we need to. But serfdom isn't imminent either. Zillow shouldn't be taking real estate positions as it's going to end badly and will likely hurt their core business (ie transactions). I'd love to know who signed off on this idea. They need to be fired.

valeness 5y ago
But didn't they sell the houses to investors and/or established landlords? I'm not sure how this helps the youth or those otherwise disillusioned with the current housing market as that housing is still unavailable to them.
- r3trohack3r 5y ago
  I think the ops point is that it will end, not that it has ended.
  - valeness 5y ago
    Yes, but this is not evidence of "it will end" to me.
    - r3trohack3r 5y ago
      I think the evidence presented was "history" > The people saying this have obviously never gone through a "bust" cycle. This is unsurprising as we've now been in the longest bull market in modern history. It's not always like this. It won't always be like this. I once heard someone who ran an investment floor say, paraphrased: During a bull market, I want my floor staffed with people too young to have lived the last bull market. They didn't want the risk aversion - drilled into people by the last bust cycle - on their trading floor. The cycle will repeat itself, folks will go from being unbelievably wealthy to bankrupt overnight (overnight as a figure of speech speaking, the crash will come but might drag out). Folks who bet it all will have their lives ruined. We will have another generation of market participants who are risk averse from hard earned lessons. The flip side of this is that _everything will go on sale_ for those who had stable investments and those who are income rich. If everything doesn't go on sale soon (soon might mean many years) it'll be the first time in history we broke out of the boom/bust cycle. For me, personally, I track my net worth and check in monthly. For the past year I've excluded my home's valuation from my net worth, it's monopoly money; by the time I'm willing to liquidate my house we will be on the other side of a bust cycle. I'm mentally prepared for my home to lose 50% of its value "overnight."

boringg 5y ago

Plot twist - competitor buys them for discount to flip them on an even better margin.

ashtonkem 5y ago

There was a lot of fear a few months ago that Zillow was manipulating the housing market to make a profit using all their data and cash. Guess they had the will, but not the capability.

ClumsyPilot 5y ago
I guess they were bad in more then one way

johnnyApplePRNG 5y ago

How on earth did a real estate analytics company lose money buying and selling homes in THIS market?

roflc0ptic 5y ago
Predicting the future is really hard
- bchris4 5y ago
  Particularly if your time horizon is like 3 months. Seems like they’re making two huge mistakes now by selling. Home values will almost certainly rise from here over the next 10+ years, and even the most casual market watcher/Zillow user knows that their “zestimates” are crap, they weren’t going to nail it that precisely. Literally everyone intuitively knows that it was a bad time to buy and now an even worse time to sell… except for the analytics company with all of the data. They should just hold and rent the properties via their app, if they can’t make the math work otherwise.
  - keyboardCowBoy 5y ago
    Certainly rise? IF the market keeps going up nobody will ever be able to afford a home. Zillow is in the market of fast turn arounds, not holding. The market is already starting to go down. Were in a bubble.
IAmGraydon 5y ago
I think the simplest way to put it is they FOMOed into a very illiquid asset class in a very high risk market and now need to close the position quickly, which is going to cost them. I’m guessing they see a residential collapse on the near horizon.
maxlamb 5y ago
Seriously, that is the real question. Considering almost every other recent buyer in the U.S. has made money (on paper) on their property without having done any analysis.

ineedasername 5y ago

Sounds like they got in too close to the peak (not to mention delays & increased costs in refurb) and didn't factor increased carrying costs on the potential that these would sit on the market a bit longer if they wanted to sell at a higher premium. A hard lesson for them that listing aggregation & analysis of the market is far different than direct investments & flipping. Flippers take a big risk and offset inevitable losses on some homes with the profits on others. And generally if they do well it has a lot to due with deeper knowledge of the subtleties in the local housing market & partnerships with realtors that have customers in the pipeline already. There's a lot more to it than what might appear on the outside to "tech disruptors", or anyone else who thinks it looks easy from the outside.

gitfan86 5y ago
Maybe on paper it costs 10k to do cosmetic fixes on a house that will now sell for 80k more. But there is no guarantee that workers will be available and interested in doing that small budget work. More importantly to your point the local realtors and other people in the area are likely to pick up any really good deals before Zillow gets to them.
deelowe 5y ago
I think there's more going on here than simply RE speculation. Most importantly, Zillow is building capability. Capability to buy & sell quickly through processes, tooling, networking, and brand recognition. There is a long play here. Zillow's goal has always been to fully disrupt the real estate market. Why should this stop with brokerages and agents? Shouldn't investors also be on the list?
- ineedasername 5y ago
  > Investors Sure, medium/large flippers may have investors putting up the money. And I agree that Zillow is not likely backing out of the game all together. They just had an expensive lesson learning what they don't know about how to go about this. But their current strategy was also only viable during rapid price increases. A completely different one is needed in other market condition. Making money flipping in a flat market is even harder: It takes more work to find depressed homes at below-market prices. There's no good algorithm that will do that without boots on the ground looking at the property in person, not to mention the surprises you get when you open up the walls or floors to start a refurb. That doesn't mean Zillow can't do it: what I'm saying is that it's very much not in the realm of their core competencies. Building out large scale logistics networks for this IRL is much different than their current line of business. I'm sure they'll try again, but I'm also almost as sure that they'll have a few more significant stumbles along the way.

PragmaticPulp 5y ago

On one hand I’m relieved to see that this business model isn’t working out. I didn’t want to see institutional players start putting even more upward pressure on home prices. On the other hand, this highlights just how insignificant their purchasing was. 7000 homes is nothing relative to the 1,200,000 homes they have listed for sale right now.

rayiner 5y ago

Classic example of not understanding the gap between theory and application. If your home is overvalued by Zillow, you’re much more likely to sell than if it’s valued correctly or undervalued. E.g. Zillow overvalues my house because it’s algorithm can’t factor in our weird parking situation. I’m much more likely to want to sell for a high valuation than someone whose house is valued correctly by the algorithm.

asperous 5y ago
This is called information asymmetry in economic theory

bedhead 5y ago

The business of iBuying is destined for the trash heap, its future so seemingly inevitable that I'm shocked anyone alive considers this a viable business with a real terminal value. Did we not learn real fast back in 08 that the financialization of people's homes is basically a non-starter? Being a glorified payday lender with people's homes is never going anywhere. It's one big Catch 22, if these companies ever even figure out how to make money from this (and so far they can't) they will inevitably just get shut down by local governments, which has already begun in Europe.

rel2thr 5y ago
i think it can work , but you need to expect pretty slim margins. You basically need to offer a very fair price on very safe houses and make your margins by cutting out the realtors fees.

specialp 5y ago

This is something like running a high end restaurant that is not easy to do or benefits from scale. You need a proprietor interested in it. Most people that "flip" homes successfully are personally involved in the projects. They have relationships with local subcontractors, know the area, and often professionally work in one of the trades or related fields such as law. The world is awash with cheap money now, so simply having deep pockets is not going to get you what you want. You can't just buy people that have the skill to manage the people involved and the projects at a large scale. The analogous restaurant situation is if you have a great chef that can run a location, why are they going to work for you? They will just open their own restaurant. Businesses where the only thing you can offer at scale is money don't work.

disgruntledphd2 5y ago
> Businesses where the only thing you can offer at scale is money don't work. Except for banks and VC's I guess.

samsolomon 5y ago

This isn't surprising to me. Early on in our home search we found a house that we loved, but was extremely overpriced—even in a hot market. The house was not owned by Zillow, but a similar company. When we asked for disclosures we did not receive them for almost a week. My agent warned me that there were going to be things wrong with the house and that they probably would not be disclosed. I found a thread on reddit about making purchases from this company, and one user who was an agent said that they always asks for the previous seller's disclosures—that's how they know where to look with the inspectors. Apparently the company frequently hired handymen to do specialized work. They did the bare minimum to make sure the house passed inspection. Anyways, we made what I thought was a reasonable offer, even though it was for about 10% less than the list price. It was rejected. Three months later it sold for almost the same price as our offer. We probably dodged a bullet though.

edrxty 5y ago
Wow I just had the exact same thing happen to me. Problem was they tried to wait me out through inspections to avoid agreeing to concessions. The place was nice but turned out to need a full roof and hvac replacement immediately.

pcurve 5y ago

Zillow is doing it at scale, but I also see smaller companies also advertising "Web buy your house!" online. I wonder if we're at a tipping point.

woeirua 5y ago

I think Zillow is facing a big potential loss on these properties. The homes that I've seen on the market in my area through Zillow/OpenDoor have been exceptionally poor quality and grossly overpriced. They've been steadily marking them down week after week and they're still not selling. Some are now more than $100k below what Zillow paid for them back in Aug/Sept (on a $600-700k home). Even with their fees, Zillow has to be taking a big hit on these properties. The end of this cycle is definitely going to scare a lot of companies and investors out of real estate for quite a long time. If you're looking to buy a house right now, make sure you're somewhere you want to live for a while. You're probably buying close to (if not at) the top.

strikelaserclaw 5y ago
AT the end of the day even if a home is an asset, it is fundamentally a place to live for a lot of people, a lot of people would much rather rent than put all their savings into an over priced dump.

SN76477 5y ago

I hope this bubble bursts. In less than 3 years the rent in our working class city went up 45%. Not to mention the absurd qualifications one needs to rent. 4 times the income to rent, very good credit and background checks. This is not sustainable for working class people.

jdhn 5y ago
>Not to mention the absurd qualifications one needs to rent. This was probably prompted by the Covid rent restrictions. Landlords (especially smaller ones) don't want to rent to someone who can avoid paying rent due to government decrees.
- seanmcdirmid 5y ago
  Ya, you can’t restrict the market and still keep it capitalist. In Seattle, new regulations on price increases along with an indeterminate moratorium on evictions is definitely going to make landlords really careful on credit checks. I also wouldn’t be surprised if the low end rental markets disappear completely as they become too risky to operate in as landlords.
  - nradov 5y ago
    At the very low end there will still be a market for Section 8 housing.
    - seanmcdirmid 5y ago
      Ya, but it is going to suck for those who don't qualify for section 8 yet can't afford high end rents. Probably the government will come in fill those gaps long term.
- fish_phrenology 5y ago
  Having rented in Seattle for 6+ years at essentially the lowest non-subsidized price point, these existed before, along with a variety of other problems.

rel2thr 5y ago

very tough to build a model like this to purchase homes cause you hit a really rough adverse selection problem even if your model is 99% great , the 1% that you overvalue are going to be the sellers that come to you and agree to sell you their homes because your offer is too good to be true

foogazi 5y ago
That’s the paradox of home buying / or any other bidding mechanism - did you get a good price ? No one else was willing to offer a better deal to the seller
colinmhayes 5y ago
Yea, I'm sure everyone with a lemon house was licking their lips when they heard Zillow would buy sight unseen.

neogodless 5y ago

Hard to tell because of the paywall, but I suspect this is related to this post from a bit over a day ago: https://news.ycombinator.com/item?id=29059785 https://news.ycombinator.com/item?id=29059785 "Zillow has listed 93% of the hundreds of Phoenix homes it owns at a loss" (229 comments)

deleted 5y ago

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rossdavidh 5y ago

I have nothing of substance to add to the comments others have made, but would like to compliment whoever thought of the phrase "flipping flop" to describe Zillow's misstep here; Bloomberg should be kicking themselves for not using that as their headline.

DrBazza 5y ago

Did Zillow factor themselves into their algorithm telling them to buy/sell? We had the same thing in our ML trading system. The first few iterations worked well because the system was set to run on small positions and volumes, and then we increased that, the PnL in the market was completely different to our models. As soon as we added ourselves into the model, we ended up trading more much like our original predictions.

nikprasad 5y ago

So they thought they saw a market opportunity and it didn't pan out and now they're panic selling because they have too many houses on their balance sheet. Ain't nothing new about this and in any liquid market you will have people who think they can corner the market and make money. The markets see-saw between greed and fear and there will always be those who want to allocate capital to gain from it. If you're a value investor, you're actually waiting for something like what Zillow has managed to do i.e. over leverage themselves and now will have to rapidly get rid of assets as they're probably hemorrhaging money. They'll sell pennies on the dollar and I'm sure the likes of blackrock will swoop in and get those assets. Nothing new here guys!

skizm 5y ago

I'm actually excited for hedge funds and financial institutions nail this process down and houses are both 1) very liquid, and 2) priced "correctly". Moving when you own a house will be as easy as moving when you're renting.

dragonwriter 5y ago
> I'm actually excited for hedge funds and financial institutions nail this process down and houses are both 1) very liquid, and 2) priced "correctly". Moving when you own a house will be as easy as moving when you're renting Once financial institutions get it nailed down, they’ll be selling to each other in large tranches based on the strategies and target asset mixes of different funds, because the transaction costs are lower than doing piddling individual sales, interacting with the remaining individual owners only to buy inventory into the institutional system, and for individuals all that will be left is renting through management companies employed by the institutions.

tibiahurried 5y ago

Homes like stocks are way overvalued. Homes are fueled by the frenzy of ownership at all costs, and stocks keep pumping at absurd levels. Everything is extremely overpriced. Eventually, it will come down to common sense. My friend has put all his savings and stocks to buy a 2b apartment. Myself, on the other hand, did not sell any stock and have invested all my savings. I rent a much bigger place, my rent is way lower than his mortgage and at least for me it will be more convenient to rent at least for the next 10y. After that, I will retire and move to a cheaper area. Keep saying people have gone mad. Many fail and underestimate cost of ownership. Remember that a good chunk of your mortgage are taxes and interests, factor that when you compare rent vs buy. That said, I do own properties that I rent out. But I bought them at sane prices. And they generate cash flow that I use to pay for my rent and other expenses.

jmrm 5y ago
This happened in some European cities, and now, a mortage or a rent are equally expensive even to high wage people, like engineers and surgeons.
- tibiahurried 5y ago
  It is a seller market, and it is probably gonna stay that way for some time. The only properties I am considering buy are those located in vacation places. You can still find good deals, and you can easily repay by renting them out for few months a year. I will only consider buying a property in a major urban city only if I had to live there basically for ever. Otherwise I will keep renting. Prices in major EU cities, like the rest of the world are insane compared to the level of income, even for wealthy engineers.
WORMS_EAT_WORMS 5y ago
Comments like this make it seem like it’s all figured out. Everyone’s situation is different based on income (sounds like you are high income too - which makes choosing where to deposit cash easier), location, family/living requirements, current net worth, job stability, partner income, etc... It is very possible too your friend made the better decision. There was a time where stocks and house prices going up was different and the world was not in a 10 year plus aggressive bull market. Ultimately, you do what’s right for you.

game_the0ry 5y ago

Former real estate finance professional, here. If you were hoping this was a sign of the real estate market falling and perhaps its your chance to get a bargain, think again. > The company is seeking roughly $2.8 billion for the houses, which are being pitched to institutional investors, according to people familiar with the matter. Institutional investors (Blackstone, Blackrock, Colony, et al) will be being in bulk, in cash, and at a steep discount before they even hit the market. Zillow's loss will be the institutional investor's gain. Of course, they will happily rent to you since that is the the plan all along - own all the assets, and every generation after X gets to rent [1]. I wish this would anger people more, but enough home owners will benefit from this dynamic - it will likely keep home prices elevated for longer, and set up an ugly conflict between those who do not have (and aspire to have) homes and those who currently own homes. [1] https://www.ocregister.com/2021/09/30/in-a-hot-market-companies-compete-with-would-be-homeowners/ https://www.ocregister.com/2021/09/30/in-a-hot-market-compan...

cwkoss 5y ago
Every person or corporation that owns more than one residential dwelling should pay increased property taxes based on the number of residential dwellings they own. This is an easy problem to legislate away, our politicians are just too cowardly to decommodify housing.
- MrKristopher 5y ago
  In California this would be framed as a repeal of Prop 13. Not sure why you think that is easy to legislate away.
- JeremyNT 5y ago
  That's a good stick, yep. They could also add in a carrot, to reduce capital gains on sale of non-primary residences. There are too many incentives currently to hoard properties like the damn monopoly man, so you need to start clawing away at them. Taxing the eventual sale just encourages people to not ever sell, so tax them for hoarding directly.
- shiohime 5y ago

34679 5y ago

We need a property tax rate multiplier for entities and individuals who own multiple properties. The more you own beyond 2 or maybe 3, the higher your rate is. Imagine being a single parent who was outbid for a home in Phoenix by a faceless algorithm - 300 times.

ineedasername 5y ago

Since this is unlikely to be the end of Zillow's ambitions in this area, I foresee an arms race between Zillow and local sellers & their agents: Just like with SEO, algorithmic home buying will open up the opportunity for people to infer from the algorithms behavior which metrics or keywords it's triggered off of and respond accordingly.

t-writescode 5y ago
How do you see that? Zillow uses local agents and their sellers to sell houses. There's no battle there. In fact, the sellers get more money from this transition because the artificial price increase positively impacts them.
- ineedasername 5y ago
  I don't think Zillow points their agents at it without their own analysis first: I'm assuming Zillow leverages their data set to identify a large portion of opportunities. A local agent on the ground can sort through things with some judgement, but if a lot of their leads are directed to them by Zillow's algorithm for identifying worthy investments then there could be room to game that system.

josh_today 5y ago

You will own nothing and be happy

neonate 5y ago

https://archive.md/gND5q https://archive.md/gND5q

sam0x17 5y ago

Recall that they recently said they would never do something like this after that tik tok "conspiracy" calling them out for this behavior

ChrisLomont 5y ago

Zillow is selling 7000 homes into a market that moves 800,000 homes annually, and (apparently) for a loss to Zillow. Zillow has approx $6B in total assets, and this anchor is big enough to tank them if they screw it up enough. This is not some secret cabal of market manipulators - it's a company trying to leverage their knowledge of the housing market into an investment, and they did not do well.

nemo44x 5y ago

According to their call tonight they say they are out of that business permanently. I wonder if they plan on pivoting it to something less speculative? FWIW, I'd love a system where you could "sell" a home to a broker and "buy" one without the musical chairs game of contingency offers, etc. I think there's real value in a space that completes the sale of properties based on some window of expected return for a property. Something where I could use a broker to buy a place cash for me and then I arrange the loan and the bank buys it off of them and starts a mortgage with me. And do the same for my property where they buy it from me at the same time and sell it and I get the difference minus a fee.

smsm42 5y ago
I'm not sure what you look for is realistic. As a seller, I'd surely prefer to avoid all those contingencies, inspections, etc. - just give me the money, take the property and be done with it! As a buyer, though, I surely want something that I pay multiples of my annual income for to be thoroughly inspected, and be absolutely sure everything is ok (or at least if something is not OK I know it and it's priced in). Risking this kind of money is not something I could afford. I'm not sure anybody - maybe except US federal government - could afford risks of this magnitude without covering oneself somehow. So there would be a process. You could pay somebody to undergo this process instead of yourself, but I don't think you could get rid of it entirely. That said, intermediaries like you describe exist, afaik. E.g. Flyhomes do something like that.
- nemo44x 5y ago
  I get it but I’d imagine there’s an actuary table that could be put together to insure against issues in most cases. I mean the entire process today is so dated, isn’t it? A bunch of people submit offers and then 1 gets picked and then a variety of inspectors come by to make sure nothing glaring is broken. What if the intermediary scaled the inspection part (pro services are hard to scale, yes) and when you buy from them it’s “guaranteed”? Like a certified used car.
  - smsm42 5y ago

epa 5y ago

Just announced they will layoff 25% of their staff (zillow offers).

dang 5y ago

Ongoing related thread: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff - https://news.ycombinator.com/item?id=29087479 https://news.ycombinator.com/item?id=29087479

mdale 5y ago

The old machine leaning algorithms running a muck.

waynesonfire 5y ago

such a greedy narcissistic company. hope you had fun weaponizing your data, asshats.

fennecfoxy 5y ago

Property market could be easily fixed by banning buying residential property for investments. Easiest thing in the world to do, but it won't be done until a certain generation is dead and buried.

bbsteve 5y ago

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