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> 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 t

> 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
    Chalk up another point for that rule.
  - dogman144 5y ago
    Framing Zillow v residential buyers as some efficient market where Zillow is competing like anyone else and not only that, providing critical liquidity via DMM capabilities (designated market maker) is absurd on multiple levels. DMMs operate on exchanges with membership licenses and a galaxy of exchange regulations, especially around price moves. Zillow and the open real estate market has none of that. Similarly, a DMM would not outbid and market capture the way Zillow does. Another one you wouldn’t see on an exchange with DMMs is the army of debt financing behind Zillow vs what’s behind retail purchasers. Explaining beyond that how framing Zillow as a DMM is a cherrypicked approach with no basis in real estate market reality is not worth the time. It’s really a nothingburger of an approach that comes off as a quote from a Rand book. At its core, a DMM provides liquidity. Zillow buying real estate, taking it off the market for a month to renovate and flip at a higher price, is not that.
justinpombrio 5y ago
> 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. Well, and also because it's illegal in some states to buy directly from a car manufacturer, so you're forced to go to a dealership whether they provide value or not. Would eBay and Amazon be considered market makers, as they pair up buyers and sellers?
- Erik816 5y ago
  The example was used car dealerships. You can always buy/sell your vehicle in a private sale without requiring a used car dealership.
- anchpop 5y ago
  I don't think so. Market makers normally buy before having a specific seller in mind. I think eBay and Amazon's 3rd party sellers transact directly to customers, and just pay those sites a cut of each sale. eBay only is able to charge that fee (really, it's an economic rent) due to a monopoly enforced by network effects. A classic market failure. (I'm not as sure about Amazon but I wouldn't be surprised if a similar effect was at play.) New car dealerships really don't many any sense and regulated into existence haha. I was referring to used car dealerships
- KennyBlanken 5y ago
  You're not forced to buy a car from a dealer; manufacturers are forced to sell new cars through dealers in order to guarantee owners have somewhere to go for service and parts. Back in the early days of the auto industry car companies sometimes existed just long enough to sell some crappy cars and fold before angry customers with defective cars came calling. That's why the laws around manufacturers having dealers exist, no matter what Elon Musk tells you. Ever notice that bodywork, parts, and repairs for Teslas are very expensive and difficult to come by? Plenty of Teslas with relatively minor body damage end up in limbo for months or more even though the insurance company is ready to pay for repairs. Why? Tesla's bodyshops have long backlogs because there are no parts, because Musk is desperate to get as many cars out of his factory as he can. Lots of Teslas also get totaled because Tesla charges outrageous pricing for replacement parts. Musk is exploiting the insurance industry. Insult to injury is that Tesla can decide one day that your vehicle is too damaged for their tastes, and refuse to sell you parts. No other manufacturer does that, not even Ferrari, and that's really saying something.
whimsicalism 5y ago
> If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P I mean, exactly - they lost $550 million. Didn't stop them from burning massive capital reserves to outbid tons of people and fuck up the market a bit for them on a bad bet.
- anchpop 5y ago
  So they basically gave $550 million to UMC homeowners by overpaying for houses, while making it slightly harder for other UMC wanna-be homeowners to buy homes for a couple months. Not the worst outcome I can imagine
  - mikewarot 5y ago
    What does United Methodist Church have to do with this? UMC?
    - jachee 5y ago
      “Upwardly Mobile Consumer” seems to fit, but I’ll admit it’s a guess.
    - anchpop 5y ago
      Upper Middle Class
  - raducu 5y ago
    Is it 100% guaranteee the $550 million won't be a bailout of some sorts?
  - whimsicalism 5y ago
    Is the threshold for being "UMC" owning a home now? Most of these homes were not uber pricey.
    - prawn 5y ago
      I think it was more shorthand for "someone at least able to be in the housing market".
notatoad 5y ago
>If they outbid everyone who actually wanted to live there, who were they planning to sell to? other investors. housing is only "underpriced" because it's become a commodity market that investors play in. the people who want to live in the houses have no hope of affording them when they have to compete with all the various capital funds that are buying houses and hoping to flip them to other capital funds using a slightly different algorithm to calculate value.
- JakeTheAndroid 5y ago
  Why would other investors buy an overpriced home? They are also looking for the deals that Zillow is hoping to find. Owners wanting to live in a home are the ones willing to buy a turnkey home above asking.
- anchpop 5y ago
  Your thinking is that there is a hierarchy of capital funds, each one willing to pay more than the last for the same house? And they all hold the houses, pay property tax, etc. despite the houses never generating any revenue due to no one living in them? That doesn't seem like a very realistic perspective on the housing market
forgotmyoldname 5y ago
> Market makers make a profit by buying things and then reselling them for slightly more. When a lower middle class guy in your town does this, he’s called a scalper and seen as a villain. When rich elites do this with life essentials, they’re market makers doing a useful service.
- anchpop 5y ago
  Scalpers don't provide liquidity, market makers do
  - AgentOrange1234 5y ago
    Why don’t scalpers provide liquidity? If Alice has season tickets to a basketball team, and Bob buys some of them to scalp later, isn’t he adding liquidity? I know nothing.
    - tehnub 5y ago
      I don't know how to frame this in economic terms, but here's an observation. It's no easier buying a GPU from a scalper on eBay than it is buying that GPU from Bestbuy. In fact, it's probably harder. So, they seem to be making it harder to obtain the item.
    - rsj_hn 5y ago
      Of course they provide liquidity. But the whole point is that the entertainer doesn't want liquidity, they want illiquidity, for two reasons: 1. The marketing value of a ticket being impossible to obtain. The best way to do this is to sell the ticket below the market clearing price. Then you get rows of people sleeping before the day they go on sale, etc. A lot of people want that image as they believe long term the marketing will generate more revenue. 2. They want fanatical fans rather than rich fans. They may feed off the worship or cheering and want those who go through a lot of hoops to get the tickets, rather than a salesman using the company expense account to wine some client who might not throw their bras on the stage or paint their face green and scream for their team. In this sense, you can think of the money the entertainer gives up by selling below market as the purchase price of audience enthusiasm. Now if the scalper steps in, and instead of having the underwear tosser you get the businessman, then many entertainers/performers would be pretty upset as the scalper took for themselves the enthusiasm payment and left the entertainer with the market-rate fans.
iskander 5y ago
>If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy. >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.) You're missing that this is Zillow, not a neutral market actor. They have unique information about demand for houses and even get to influence prices upward through Zestimates.
- pas 5y ago
  > They have unique information about demand for houses and even get to influence prices upward through Zestimates. And that's the same shit booking.com tried to pull, that got them in trouble with the EU market authority. (If I remember correctly.) The trading department should be separate from the affiliate department. Otherwise it's LIBOR scandal all over again. :| > The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy. If they have a few months. Sitting on empty houses is not free. Though the whole problem with Zillow seems to be that they disrupt the local markets, because due to their sheer volume they effectively corner each local market where they operate, which makes them able to set prices. (But then why have they stopped? Probably they realized they'd need more money to do that effectively, or that they'd get a huge asswhoop eventually. Or that they were unable to hedge their risks.)
teclordphrack2 5y ago
But there is already a market and for the cost of a home people don't JUST check facebook market place. Right?
ca01an 5y ago
How does this benefit purchasers in any way? Did you mean to say it benefits the seller?

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
  Chalk up another point for that rule.
- dogman144 5y ago
  Framing Zillow v residential buyers as some efficient market where Zillow is competing like anyone else and not only that, providing critical liquidity via DMM capabilities (designated market maker) is absurd on multiple levels. DMMs operate on exchanges with membership licenses and a galaxy of exchange regulations, especially around price moves. Zillow and the open real estate market has none of that. Similarly, a DMM would not outbid and market capture the way Zillow does. Another one you wouldn’t see on an exchange with DMMs is the army of debt financing behind Zillow vs what’s behind retail purchasers. Explaining beyond that how framing Zillow as a DMM is a cherrypicked approach with no basis in real estate market reality is not worth the time. It’s really a nothingburger of an approach that comes off as a quote from a Rand book. At its core, a DMM provides liquidity. Zillow buying real estate, taking it off the market for a month to renovate and flip at a higher price, is not that.

justinpombrio 5y ago

> 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. Well, and also because it's illegal in some states to buy directly from a car manufacturer, so you're forced to go to a dealership whether they provide value or not. Would eBay and Amazon be considered market makers, as they pair up buyers and sellers?

Erik816 5y ago
The example was used car dealerships. You can always buy/sell your vehicle in a private sale without requiring a used car dealership.
anchpop 5y ago
I don't think so. Market makers normally buy before having a specific seller in mind. I think eBay and Amazon's 3rd party sellers transact directly to customers, and just pay those sites a cut of each sale. eBay only is able to charge that fee (really, it's an economic rent) due to a monopoly enforced by network effects. A classic market failure. (I'm not as sure about Amazon but I wouldn't be surprised if a similar effect was at play.) New car dealerships really don't many any sense and regulated into existence haha. I was referring to used car dealerships
KennyBlanken 5y ago
You're not forced to buy a car from a dealer; manufacturers are forced to sell new cars through dealers in order to guarantee owners have somewhere to go for service and parts. Back in the early days of the auto industry car companies sometimes existed just long enough to sell some crappy cars and fold before angry customers with defective cars came calling. That's why the laws around manufacturers having dealers exist, no matter what Elon Musk tells you. Ever notice that bodywork, parts, and repairs for Teslas are very expensive and difficult to come by? Plenty of Teslas with relatively minor body damage end up in limbo for months or more even though the insurance company is ready to pay for repairs. Why? Tesla's bodyshops have long backlogs because there are no parts, because Musk is desperate to get as many cars out of his factory as he can. Lots of Teslas also get totaled because Tesla charges outrageous pricing for replacement parts. Musk is exploiting the insurance industry. Insult to injury is that Tesla can decide one day that your vehicle is too damaged for their tastes, and refuse to sell you parts. No other manufacturer does that, not even Ferrari, and that's really saying something.

whimsicalism 5y ago

> If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P I mean, exactly - they lost $550 million. Didn't stop them from burning massive capital reserves to outbid tons of people and fuck up the market a bit for them on a bad bet.

anchpop 5y ago
So they basically gave $550 million to UMC homeowners by overpaying for houses, while making it slightly harder for other UMC wanna-be homeowners to buy homes for a couple months. Not the worst outcome I can imagine
- mikewarot 5y ago
  What does United Methodist Church have to do with this? UMC?
  - jachee 5y ago
    “Upwardly Mobile Consumer” seems to fit, but I’ll admit it’s a guess.
  - anchpop 5y ago
    Upper Middle Class
- raducu 5y ago
  Is it 100% guaranteee the $550 million won't be a bailout of some sorts?
- whimsicalism 5y ago
  Is the threshold for being "UMC" owning a home now? Most of these homes were not uber pricey.
  - prawn 5y ago
    I think it was more shorthand for "someone at least able to be in the housing market".

notatoad 5y ago

>If they outbid everyone who actually wanted to live there, who were they planning to sell to? other investors. housing is only "underpriced" because it's become a commodity market that investors play in. the people who want to live in the houses have no hope of affording them when they have to compete with all the various capital funds that are buying houses and hoping to flip them to other capital funds using a slightly different algorithm to calculate value.

JakeTheAndroid 5y ago
Why would other investors buy an overpriced home? They are also looking for the deals that Zillow is hoping to find. Owners wanting to live in a home are the ones willing to buy a turnkey home above asking.
anchpop 5y ago
Your thinking is that there is a hierarchy of capital funds, each one willing to pay more than the last for the same house? And they all hold the houses, pay property tax, etc. despite the houses never generating any revenue due to no one living in them? That doesn't seem like a very realistic perspective on the housing market

forgotmyoldname 5y ago

> Market makers make a profit by buying things and then reselling them for slightly more. When a lower middle class guy in your town does this, he’s called a scalper and seen as a villain. When rich elites do this with life essentials, they’re market makers doing a useful service.

anchpop 5y ago
Scalpers don't provide liquidity, market makers do
- AgentOrange1234 5y ago
  Why don’t scalpers provide liquidity? If Alice has season tickets to a basketball team, and Bob buys some of them to scalp later, isn’t he adding liquidity? I know nothing.
  - tehnub 5y ago
    I don't know how to frame this in economic terms, but here's an observation. It's no easier buying a GPU from a scalper on eBay than it is buying that GPU from Bestbuy. In fact, it's probably harder. So, they seem to be making it harder to obtain the item.
  - rsj_hn 5y ago
    Of course they provide liquidity. But the whole point is that the entertainer doesn't want liquidity, they want illiquidity, for two reasons: 1. The marketing value of a ticket being impossible to obtain. The best way to do this is to sell the ticket below the market clearing price. Then you get rows of people sleeping before the day they go on sale, etc. A lot of people want that image as they believe long term the marketing will generate more revenue. 2. They want fanatical fans rather than rich fans. They may feed off the worship or cheering and want those who go through a lot of hoops to get the tickets, rather than a salesman using the company expense account to wine some client who might not throw their bras on the stage or paint their face green and scream for their team. In this sense, you can think of the money the entertainer gives up by selling below market as the purchase price of audience enthusiasm. Now if the scalper steps in, and instead of having the underwear tosser you get the businessman, then many entertainers/performers would be pretty upset as the scalper took for themselves the enthusiasm payment and left the entertainer with the market-rate fans.

iskander 5y ago

>If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy. >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.) You're missing that this is Zillow, not a neutral market actor. They have unique information about demand for houses and even get to influence prices upward through Zestimates.

pas 5y ago
> They have unique information about demand for houses and even get to influence prices upward through Zestimates. And that's the same shit booking.com tried to pull, that got them in trouble with the EU market authority. (If I remember correctly.) The trading department should be separate from the affiliate department. Otherwise it's LIBOR scandal all over again. :| > The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy. If they have a few months. Sitting on empty houses is not free. Though the whole problem with Zillow seems to be that they disrupt the local markets, because due to their sheer volume they effectively corner each local market where they operate, which makes them able to set prices. (But then why have they stopped? Probably they realized they'd need more money to do that effectively, or that they'd get a huge asswhoop eventually. Or that they were unable to hedge their risks.)

teclordphrack2 5y ago

But there is already a market and for the cost of a home people don't JUST check facebook market place. Right?

ca01an 5y ago

How does this benefit purchasers in any way? Did you mean to say it benefits the seller?