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

CaveTech 5y ago
Except that massive profit is a ... massive loss.
- danrocks 5y ago
  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.
- iskander 5y ago
  ...last quarter. They ran the housing market up 2x, took profits along the way, and dismantled the operation when banks put a cap on mortgages.
yanderekko 5y ago
So if the previous owners moved out and then repainted the house and sold it for 20% additional value, would they be villains too? Or is it okay because they're "middle class" and Zillow's shareholders presumably are just yacht-owning billionaires?
- _vertigo 5y ago
  I think there’s a difference between a company with enormous amounts of capital buying a bunch of houses to flip, intentionally trying to drive a trend of increasing home prices to profit, and a single homeowner improving a single house and profiting primarily because of the improvements and not because he’s driving the market up massively..
  - gruez 5y ago
    >intentionally trying to drive a trend of increasing home prices to profit was that their goal? it's possible to be a market maker without cornering/manipulating the market. see: market makers on stock markets.
- boopboopbadoop 5y ago
  You’re talking about one owner and one house. Zillow was attempting to do it at an industrial scale.
  - stickfigure 5y ago
    There is already a gigantic industry of people who buy houses, fix them up, and sell them. Doesn't seem very evil.
    - jachee 5y ago
      Zillow wasn’t fixing them up, though. They were putting minimal-effort, superficial changes with zero care or actual investment, and then resisting for a higher price. They were scalping housing.
      - stickfigure 5y ago
        People who flip houses don't put in more money than they need to, that's a tautology. It still adds value to the market. "Scalping" makes zero sense in this context. Scalping exploits ticket mispricing and asymmetrical access to the market (waiting in line). Houses are bought at auction; you can't "scalp" at an auction. Try it at Christie's sometime.
        jachee 5y ago
        To further your auction analogy, Zillow was doing the equivalent of offering Buy it Now prices above asking and owners were selling immediately. They had asymmetrical access to the market because they had asymmetrical capital. They were literally scalping properties. And, like a scalper who has too much inventory, they’re now selling at a loss.
pcwalton 5y ago
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.
- __float 5y ago
  Unfortunately those in charge at Zillow didn't feel the real pain -- that went to families trying to find homes, being outpriced by Zillow.
  - Erik816 5y ago
    Real pain would be buying an overpriced house that was bid up by Zillow or other similar companies and then needing to move. Missing out on that overpriced sale would actually be great!
anchpop 5y ago
> 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.
- dogman144 5y ago
  Lol at trying to explain these practices as some sort of Randian perfectly functioning market.
  - 93po 5y ago
    It's really fucking gross
  - anchpop 5y ago
    I find I'm most likely to be right when people are responding to me with thought-terminating buzzwords rather than actual arguments
    - somewhat_drunk 5y ago

CaveTech 5y ago

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

danrocks 5y ago
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.
iskander 5y ago
...last quarter. They ran the housing market up 2x, took profits along the way, and dismantled the operation when banks put a cap on mortgages.

yanderekko 5y ago

So if the previous owners moved out and then repainted the house and sold it for 20% additional value, would they be villains too? Or is it okay because they're "middle class" and Zillow's shareholders presumably are just yacht-owning billionaires?

_vertigo 5y ago
I think there’s a difference between a company with enormous amounts of capital buying a bunch of houses to flip, intentionally trying to drive a trend of increasing home prices to profit, and a single homeowner improving a single house and profiting primarily because of the improvements and not because he’s driving the market up massively..
- gruez 5y ago
  >intentionally trying to drive a trend of increasing home prices to profit was that their goal? it's possible to be a market maker without cornering/manipulating the market. see: market makers on stock markets.
boopboopbadoop 5y ago
You’re talking about one owner and one house. Zillow was attempting to do it at an industrial scale.
- stickfigure 5y ago
  There is already a gigantic industry of people who buy houses, fix them up, and sell them. Doesn't seem very evil.
  - jachee 5y ago
    Zillow wasn’t fixing them up, though. They were putting minimal-effort, superficial changes with zero care or actual investment, and then resisting for a higher price. They were scalping housing.
    - stickfigure 5y ago
      People who flip houses don't put in more money than they need to, that's a tautology. It still adds value to the market. "Scalping" makes zero sense in this context. Scalping exploits ticket mispricing and asymmetrical access to the market (waiting in line). Houses are bought at auction; you can't "scalp" at an auction. Try it at Christie's sometime.
      - jachee 5y ago
        To further your auction analogy, Zillow was doing the equivalent of offering Buy it Now prices above asking and owners were selling immediately. They had asymmetrical access to the market because they had asymmetrical capital. They were literally scalping properties. And, like a scalper who has too much inventory, they’re now selling at a loss.

pcwalton 5y ago

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.

__float 5y ago
Unfortunately those in charge at Zillow didn't feel the real pain -- that went to families trying to find homes, being outpriced by Zillow.
- Erik816 5y ago
  Real pain would be buying an overpriced house that was bid up by Zillow or other similar companies and then needing to move. Missing out on that overpriced sale would actually be great!

anchpop 5y ago

> 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.

dogman144 5y ago
Lol at trying to explain these practices as some sort of Randian perfectly functioning market.
- 93po 5y ago
  It's really fucking gross
- anchpop 5y ago
  I find I'm most likely to be right when people are responding to me with thought-terminating buzzwords rather than actual arguments
  - somewhat_drunk 5y ago