A few articles are floating around about how Zillow threw in the towel on buying real estate to flip. Many of us in the real estate business knew this experiment of theirs would not last. Basically, for those of you who are unaware of their program, they would buy “low” and sell “high”, not. They were using computers in some large cities to make guesses about the housing market in some of the newer markets e.g. Phoenix.
You would call Zillow and they would make an offer to buy your house after sending over an inspector. Guess what? The inspectors usually found lots of things wrong and all of those things came with a price tag. By the time you received their offer, your house was essentially being purchased for under market. Of course not in every case but many cases. By the time they fixed it up and resold it often at a price lower than they bought it at, they made an impact on the market.
My experience with them was interesting. A few years ago I was selling a house in the Phoenix market. It was a rental property. Their inspector told me that I needed a new roof and more. The house was 12 years old and in good condition. My local real estate agent had his roof guy over to look at it. There were three broken tiles and that’s all. Zillow had taken several thousand dollars off what started to be a fair price.
By the time all of the other items were deducted, I would have lost about $20,000 on the deal. My local agent listed the property for me after I spent just over one thousand on the touch-up paint, the roof, and a few minor items. I sold the house at just above what Zillow had offered me before all of their charges.
My brother sold his house to Zillow. The offer started fair and by the time they were done, he lost his shirt. He made an offer on a new home and had to get out. Had he known what they were going to do, he would have waited on the purchase of the new house.
According to the few articles that I have read, Zillow made a mess of the market. They moved over one billion dollars of property and made no money. They ended up selling homes below market when they should have sold at higher prices. Other large corporations have tried this as well with similar results. There is simply no single mass market for electronics in real estate.
What is it about these tech companies that think everything can be solved with a computer and some young people in a boiler room in another country? They seem to invade most industries, sometimes they succeed but often they just waste investors’ capital in the effort. Zillow is a prime example, they have lost more than 200 million dollars and counting.
Perhaps Zillow helped some people get out of their homes but at what cost. In the markets, Zillow was operating in homes that were already selling fast. People just got caught up in their marketing. There are lots of local people who hang signs on power poles and at corners claiming to buy your home for cash. They are pretty much in the same category. Unless you are desperate, list with an agent to get it sold at the best price with all of the professional and legal safeguards.
Local agents deal with local problems every day. It is impossible to know what you are buying without the help of someone local. As I have said in the past, “real estate is local”. There is no national market, no state market, and even within a region, there can be large differences.
I for one am pleased that they have backed out of buying and selling. When Zillow sells a home on a street below market because they do not understand the market, it affects all of the property owners with similar properties in the area. Dumping a home can reduce selling prices for owners for months into the future.
