Why Zillow Stopping Buying and Flipping Homes Is Positive For The Consumer
Zillow is no longer in the real estate flipping game. The reason? They were terrible at it. Zillow needs to realize they are nothing more than a website. They shouldn’t be brokers or real estate agents. They also shouldn’t be in the home pricing game because my dog can price homes better than Zesimates. In short Zillow is a negative impact on the real estate market and that is why they fail at everything other than providing an MLS portal. Zillow is just terrible.
Section 1: Zillow Bought Homes And Flipped Them
Zillow made billions by buying up homes in metros where they advertised and then flipped them. This was the case for the most part in Phoenix, Las Vegas, Charlotte, Denver, Denver Mountains, Raleigh, Pittsburgh, Cleveland, Washington D.C., Tampa, Minneapolis, Houston, Atlanta, Minneapolis and Orlando.
From 2/2014 – 2/2015 Zillow owned over 3,300 homes in these markets. That is $470 million dollars. They put up for sale signs, ran ads and profited on the sale. Zillow was making money from the sales of their homes and then flipped the homes to a new buyer.
As a seller I would just give Zillow a listing to list and when they flipped the house they would send me a check. Then the person who bought my house would sell it for more money.
Zillow’s Inability To Price Homes Accurately
The housing market is based on the home buying experience. What you pay for a home is influenced by many factors including the price, condition and experience of the seller. Zillow doesn’t need to be involved in that process because it can’t. Most home sellers can price their home accurately and they will. The MLS is providing that technology. But Zillow is stuck chasing the millennial home buyer that is not interested in their website. And their data isn’t giving them any answers other than it’s too expensive and nobody wants to buy a house on the cheap.
Zillow is useless because they can’t give a fair value for a home that doesn’t have one. And since the majority of their business is based on marketing their website, they have no incentive to get it right.
Zillow Is Bad For The Real Estate Market
Zillow, by providing up to the minute information on housing prices, causes other real estate agencies to raise their rates too. Zillow makes their numbers look better than they are. There is no one more savvy about numbers in the real estate industry than real estate agents. Agents have historically been trained to know that listing agents have no power to devalue a home, you can’t lower the value of a home simply by taking it off the market.
An agent’s job is simply to get people to want to buy a home and negotiate a contract. And that is their superpower. Buyers and Sellers are the power brokers in the real estate industry and agents simply know the most about their client’s real estate needs.
Why Zillow Stopping Buying and Flipping Homes Is Positive For The Consumer
Most people realize Zillow as an advertising platform. It is a popular place to advertise houses for sale and short sales. That is no longer the case. Starting April 2nd, 2018, Zillow will no longer buy or flip homes. Zillow had been buying up property to flip it. What they were doing was leveraging banks with investor dollars to spend big money on properties at inflated prices. Zillow was trying to get rich off these properties without actually trying to sell them. It was a Ponzi scheme without the benefit of a large pool of investors to feed off of. When banks foreclosed on these properties Zillow moved on to the next bank-owned home to turn a quick buck on the upside.
Zillow tried to do this for years.
Zillow is only good for creating an MLS portal
Remember, Zillow is not the real estate brokerage. They are just an online directory that houses the listings for sale and for rent. If you have not noticed Zillow is now the directory to find commercial buildings, businesses, consumer-owned business’s, and any other business that wants their web address shown on the world. It’s all in Zillow’s favor right now. Unfortunately, they are the directory, the broker’s are not in the business of listing houses or apartments for rent. The broker’s are in the business of selling properties and making money.
Zillow has no understanding of inventory
While we are on the subject of Zillow, let’s talk about their inventory. Most people don’t realize, but Zillow has never had an inventory of homes for sale on their website.
Zillow has failed in real estate flipping Section
Zillow’s Home Selling Product Has Failed In All Categories
Zillow Home Selling Product Is In Disarray
Reaching Buyers Is Getting Toasted Because It Is A Difficult Strategy To Follow
With all the trouble in the business model Zillow has failed in all categories. Zillow’s model is very difficult to follow for any serious seller.
The Zillow model is filled with “How To” articles that sell $6 meals, $55 airline tickets, and gold for $3,999. This is what it takes to sell a home on Zillow. The concept of marketing and finding a buyer is at best a challenge and at worst a fantasy.
How To Sell Your Home On Zillow
Zillow is owned by eBay (EBAY) which is no position to be found in the index.
How Zillow is bad for consumers
It hurts competition and affects the market
Zillow has high fees
Overcharges consumers for MLS services
Drives housing prices up
See number 5 for more.
How Zillow is good for consumers
It provides a way to find homes
Gives consumers access to a unique demographic data
Expands the market
Increases home values
Yes Zillow and the high priced agent agents could get a commission from consumers going to the MLS and checking out homes, but that commission will then be used to build Zillow’s presence within the network. Consumers are not actively putting their money into Zillow and that could be detrimental to the network. Think of it like a gym that owns the equipment, but does not provide any personal training to members. Not very effective.
Conclusion on Why Agents and Consumers are Happy Zillow May Disappear
In conclusion it makes no sense to purchase a house from Zillow. When looking at sales prices over a year or even 6 months, Zillow’s Home Price Index (HPI) significantly understates the true sales price. In short, Zillow is an advertising company that creates false prices. So it would make no sense for agents to sell their listings to Zillow. Agents would make more money by selling to a higher quality competitor.
Another very simple reason Zillow should stop flipping homes: agents are making huge profits. Instead of helping agents, Zillow (via their CEO Spencer Rascoff) turns them into fat cats. Agents that flip do not care if they get zilch out of the deal, they just want to make a bunch of cash.
Zestimates are so far off it should scare everyone
Zestimates are way off. In fact Zestimates are made by estimators on their clients’ behalf and those estimators are known to have a very bad track record in estimating. Let me give you an example. According to the Washington Post, in 2011 an amortized value for a house listed for $257,000 by Wells Fargo had a Zestimate value of $345,000. In reality it sold for $125,000. In my next article I will explain why Zestimates are worthless. Zillow is just adding another negative to the real estate market and that is why they will never make a comeback in my eyes. Zillow is terrible.
If you want to make money in real estate, ignore Zillow and try this instead: Sell your property in the private market and that way you control the pricing and quality of your property.