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There was a great episode of The Indicator from Planet Money about this. One aspect not mentioned in this article is that when you offer an average price for a

There was a great episode of The Indicator from Planet Money about this. One aspect not mentioned in this article is that when you offer an average price for a home, you are only going to get the owners of below-average homes taking you up on the offer, i.e. the Lemons. This is a tricky problem for Zillow to resolve given the mismatch in knowledge between the existing owner and the iBuyer. https://www.npr.org/2021/11/08/1053689886/ibuyers-zillow-and-the-lemons-problem https://www.npr.org/2021/11/08/1053689886/ibuyers-zillow-and...

maxerickson 5y ago
Doesn't that beg the question? Zillow can have better information on the market value of a house that it has worse access to information about than the owner.
sjg007 5y ago
I disagree. Real estate lemons are quickly identified by home inspectors which is why there is a variable % in the offer to buy. There are plenty of people that want to sell quickly for various reasons if not at market and at a reasonable discount. This is not the problem.
- deleted 5y ago
  [deleted]
- auntienomen 5y ago
  Home inspectors, in my experience, are pretty useless. They're running through a checklist, not actually thinking much.
  - oarabbus_ 5y ago
    They don't need to be thinking much, they need to be doing exactly that; running through a checklist of _major_ structural (foundation, roof, walls) or infrastructural (pipes, HVAC, electrical) issues with a house.
    - brianwawok 5y ago
      Not sure what kind of inspector you got? * No general inspector I have gotten was qualified or willing to touch the roof. If I wanted to look at the roof condition, I needed to pay a roofing company separately to come out. * The electrical inspection consisted of taking the lid off the electric box, and looking for loose wires, and putting a "does this have ground" meter in all of the power outlets. Most of the interesting electrical issues that could exist are burred in walls and not accessible. * General inspectors are not HVAC techs, and can't really say much about HVAC beyond "The furnace is 14 years old based on the install sticker, and appears to turn on" * Structural issues were like.. look for visible cracks in foundation, but much is likely behind drywall and unable to be seen. Maybe put a marble on the floor and see if it rolls.
      - treeman79 5y ago
        Thanks for this. I’m looking at starting a campaign to force mega rental companies to get home inspections and provide results to tenants. A large apartment building with a known history is very different then random houses where incompetent people did who knows what to the internals. Sounds like I may need to push more then a standard home inspection.
      - duped 5y ago
        This might depend on where you live, in my area every inspector will check the roof (unless for some reason it's unreasonably dangerous to get up there). Obviously they can't see hidden problems but the really bad stuff (cracked foundation with seepage issues, water damage, mold, etc) is worth looking into. My inspector pointed out a number of things like old cast iron plumbing, some unidentified venting, electrical that wasn't to code, insufficient ventilation to the attic, etc. It didn't affect the price but it did give me a good checklist for what to fix in what order.
      - quickthrowman 5y ago
        > Most of the interesting electrical issues that could exist are burred in walls and not accessible Assuming the electrical work was done by electricians and not total amateurs, there should be absolutely no issues inside walls/ceilings, every splice or termination must be ‘accessible’, which means in a junction box that is not buried in a wall. If a box is inside a ceiling or wall, an access panel would make it accessible. Electrical issues are almost always at the point of termination, unless you have animals chewing on your romex insulation. Bad splices and terminations cause arcs, which cause fires, which is why AFCI breakers are now mandatory for almost (unsure if it’s all or not, I work on the commercial side) every receptacle circuit inside a residence. Aluminum wiring caused fires because aluminum expands and contracts with heat faster than the terminal screws that were used in the wiring devices of the time. Now we have AL-CU devices that eliminate this problem. You can’t always count of electrical work being done properly though.
  - david38 5y ago
    A checklist is precisely what inspectors use when verifying a rocket for launch. It is far and away the best system to ensure consistency and thoroughness. It might be a poor checklist, but that's another story. I suspect there are good checklists you can download that you can use yourself and give to an inspector who is well meaning but inexperienced. No list will fix dishonesty however. They can simply check off boxes.
    - exsmelliarmus 5y ago
      Inspectors can’t rip apart the walls. A fresh coat of paint can hide a lot of damage. I would know because this happened to me, and I had two inspections done. If you’re slightly decent with houses and construction, you’d see most of the things they see anyway. Sadly, I’d place home inspections closer to useless to useful for me because I am familiar enough with housing codes to do a visual inspection.
    - quartesixte 5y ago
      Verifying rocket launches involve multi-million dollars worth of equipment run by technicians and engineers (hopefully) intimately aware of the rocket about to be lifted up into space. As the sibling post said, most inspectors aren’t using NDT tools to check if there is wood rot behind that fresh coat of paint
- imtringued 5y ago
  The algorithm doesn't care. Realtors bought houses only to flip them to zillow a few weeks later for an instant 10% profit while doing no work on the property.
more_corn 5y ago
I'm not sure there's such a thing as a housing lemon (except maybe a house so infested with mold it has to be torn down, or something built in a place where nothing should have been built in the first place). There are houses that require massive investments (foundation, roof, plumbing, sewer) but those are all knowable. The simpler answer is probably that your models don't work if your model causes you to take action that changes the market. See the SciFi paradox of predicting the future causing you to take actions that change the prediction of the future. For example what happens to prices when you add an algorithm that is REQUIRED to make a certain number of purchases a month? (I'll give you that one for free. Prices go up A LOT) What happens to the cost and availability of contractors when demand increases by 20% (same answer as above) Now feed those things back into the model. Add in the fact that market rate changes based on the number of aggressive algorithmic buyers operating in the area and that you're not going to bid on your own sale (I hope!) CRAP! Now those actions we took before are predicted not to be cost-effective! Obviously. Remember the first lesson of thinking ahead, kids. If I do X, Y will likely happen.
kcplate 5y ago
I think you are only going to get highly motivated sellers and that in of itself is a red flag in a sellers market. The trick is understanding why they are so motivated. Why would someone want to sell a home fast? Generally due to a relocation urgency or financial challenge. If it’s financial, there is a decent likelihood that proper care and maintenance may have been missed and that could lead to a lipstick on a pig kind of situation.

maxerickson 5y ago

Doesn't that beg the question? Zillow can have better information on the market value of a house that it has worse access to information about than the owner.

sjg007 5y ago

I disagree. Real estate lemons are quickly identified by home inspectors which is why there is a variable % in the offer to buy. There are plenty of people that want to sell quickly for various reasons if not at market and at a reasonable discount. This is not the problem.

deleted 5y ago
[deleted]
auntienomen 5y ago
Home inspectors, in my experience, are pretty useless. They're running through a checklist, not actually thinking much.
- oarabbus_ 5y ago
  They don't need to be thinking much, they need to be doing exactly that; running through a checklist of _major_ structural (foundation, roof, walls) or infrastructural (pipes, HVAC, electrical) issues with a house.
  - brianwawok 5y ago
    Not sure what kind of inspector you got? * No general inspector I have gotten was qualified or willing to touch the roof. If I wanted to look at the roof condition, I needed to pay a roofing company separately to come out. * The electrical inspection consisted of taking the lid off the electric box, and looking for loose wires, and putting a "does this have ground" meter in all of the power outlets. Most of the interesting electrical issues that could exist are burred in walls and not accessible. * General inspectors are not HVAC techs, and can't really say much about HVAC beyond "The furnace is 14 years old based on the install sticker, and appears to turn on" * Structural issues were like.. look for visible cracks in foundation, but much is likely behind drywall and unable to be seen. Maybe put a marble on the floor and see if it rolls.
    - treeman79 5y ago
      Thanks for this. I’m looking at starting a campaign to force mega rental companies to get home inspections and provide results to tenants. A large apartment building with a known history is very different then random houses where incompetent people did who knows what to the internals. Sounds like I may need to push more then a standard home inspection.
    - duped 5y ago
      This might depend on where you live, in my area every inspector will check the roof (unless for some reason it's unreasonably dangerous to get up there). Obviously they can't see hidden problems but the really bad stuff (cracked foundation with seepage issues, water damage, mold, etc) is worth looking into. My inspector pointed out a number of things like old cast iron plumbing, some unidentified venting, electrical that wasn't to code, insufficient ventilation to the attic, etc. It didn't affect the price but it did give me a good checklist for what to fix in what order.
    - quickthrowman 5y ago
      > Most of the interesting electrical issues that could exist are burred in walls and not accessible Assuming the electrical work was done by electricians and not total amateurs, there should be absolutely no issues inside walls/ceilings, every splice or termination must be ‘accessible’, which means in a junction box that is not buried in a wall. If a box is inside a ceiling or wall, an access panel would make it accessible. Electrical issues are almost always at the point of termination, unless you have animals chewing on your romex insulation. Bad splices and terminations cause arcs, which cause fires, which is why AFCI breakers are now mandatory for almost (unsure if it’s all or not, I work on the commercial side) every receptacle circuit inside a residence. Aluminum wiring caused fires because aluminum expands and contracts with heat faster than the terminal screws that were used in the wiring devices of the time. Now we have AL-CU devices that eliminate this problem. You can’t always count of electrical work being done properly though.
- david38 5y ago
  A checklist is precisely what inspectors use when verifying a rocket for launch. It is far and away the best system to ensure consistency and thoroughness. It might be a poor checklist, but that's another story. I suspect there are good checklists you can download that you can use yourself and give to an inspector who is well meaning but inexperienced. No list will fix dishonesty however. They can simply check off boxes.
  - exsmelliarmus 5y ago
    Inspectors can’t rip apart the walls. A fresh coat of paint can hide a lot of damage. I would know because this happened to me, and I had two inspections done. If you’re slightly decent with houses and construction, you’d see most of the things they see anyway. Sadly, I’d place home inspections closer to useless to useful for me because I am familiar enough with housing codes to do a visual inspection.
  - quartesixte 5y ago
    Verifying rocket launches involve multi-million dollars worth of equipment run by technicians and engineers (hopefully) intimately aware of the rocket about to be lifted up into space. As the sibling post said, most inspectors aren’t using NDT tools to check if there is wood rot behind that fresh coat of paint
imtringued 5y ago
The algorithm doesn't care. Realtors bought houses only to flip them to zillow a few weeks later for an instant 10% profit while doing no work on the property.

more_corn 5y ago

I'm not sure there's such a thing as a housing lemon (except maybe a house so infested with mold it has to be torn down, or something built in a place where nothing should have been built in the first place). There are houses that require massive investments (foundation, roof, plumbing, sewer) but those are all knowable. The simpler answer is probably that your models don't work if your model causes you to take action that changes the market. See the SciFi paradox of predicting the future causing you to take actions that change the prediction of the future. For example what happens to prices when you add an algorithm that is REQUIRED to make a certain number of purchases a month? (I'll give you that one for free. Prices go up A LOT) What happens to the cost and availability of contractors when demand increases by 20% (same answer as above) Now feed those things back into the model. Add in the fact that market rate changes based on the number of aggressive algorithmic buyers operating in the area and that you're not going to bid on your own sale (I hope!) CRAP! Now those actions we took before are predicted not to be cost-effective! Obviously. Remember the first lesson of thinking ahead, kids. If I do X, Y will likely happen.

kcplate 5y ago

I think you are only going to get highly motivated sellers and that in of itself is a red flag in a sellers market. The trick is understanding why they are so motivated. Why would someone want to sell a home fast? Generally due to a relocation urgency or financial challenge. If it’s financial, there is a decent likelihood that proper care and maintenance may have been missed and that could lead to a lipstick on a pig kind of situation.