Understanding the housing market requires in-depth knowledge about the participants. Each year, Zillow surveys more than 10,000 market participants — homeowners, buyers, sellers and renters — to learn more about them and gauge their attitudes and behavior. Here’s a small slice of what we know in 2019 about home buyers, defined as households who have purchased and moved in the past year.
We ended up with 12 offers on my listing in Rancho Penasquitos, with SIX of them over $900,000. Donna and I did some expert maneuvering to coach the buyer-agents higher on price, and we may have gotten an assist from Zillow too.
This was their zestimate before the listing hit the market:
This was their zestimate after the listing went on the MLS for $869,000. Zillow has no shame – they just hit the number. At least Redfin tries to hide it by changing their estimate to within 1%:
Then we RAISED our list price to $899,000 because we were getting such good action, and Zillow rasied their zestimate right back up:
They have no qualms about manipulating the zestimates right before your eyes.
Think of what they will do to you when they try to buy your house.
It’s conclusive – the Zillow Offers program is only good for sellers who want/need BOTH quick cash and max convenience, because the cost is heavy.
TIPS TO HOME SELLERS:
Don’t find yourself in a position where you NEED to cash out in a week.
If you want max convenience, hire me and we’ll handle everything.
Don’t get suckered by the bait-and-switch.
The word on the street is that they are pushing down the zestimates to help convince sellers to take less – and they have already bought 31 properties in San Diego. Keep a record of your zestimates!
Zillow will likely be successful, however, because they don’t mind spending $100 million per year on advertising to promote their brand – and it works.
The path forward is becoming more clear. Zillow is rapidly expanding their ibuying enterprise, and because they are so well-known, they have a shot at a major disruption.
In the video below, Mike describes how homeowners who used to rely on their zestimate for a home valuation are now getting a written quote from ibuyers – for free. In Phoenix, the center of the ibuying universe, 40% of homeowners get a quote from an ibuyer before selling their home.
In effect, ibuying is the new zestimate, and more tangible because if you like the number, you could sell your house instantly.
Sure, Zillow is losing money, but their first-year volume is remarkable:
Since launching Zillow Offers in April 2018, more than 170,000 homeowners have requested an offer through the program. In the second quarter alone, there were 70,000 requests.
Zillow reported that it made $1,578 on each home it sold in the second quarter before interest expenses are calculated. After interest expenses, the company, on average, lost $2,916 per home. Barton believes that, eventually, the company will earn 400-500 basis points of return before interest expenses on homes it sells.
It’s an improvement, however, over the company’s first-quarter numbers, where it lost, on average, $3,268 per home it sold, after interest expenses.
“Over time, our unit economics should benefit more from other adjacent services, like mortgage origination, title and escrow,” Barton said in a letter to shareholders. “We expect to be able to leverage these services to support Zillow Offers and improve the consumer’s overall transaction experience, while also generating cost savings for Zillow and our customers.”
They are the only real estate company that has been willing to spend $100 million per year in advertising, and it’s what made them who they are today. It won’t matter if they charge 7% to 13% for their service, all that matters is that they advertise it – which may not be that costly.
Because many or most homeowners have saved their home on Zillow (giving up their email address), they will get regular solicitations to sell their house to Zillow.
Look how easy it is – one click and you get a cash offer…….just like 500+ others near you:
If you have 18 minutes to spare, Mike’s presentation below is a full examination:
Mike mentions that he thinks the companies who position themselves at the start of the consumer journey will win. Stay tuned for a Compass announcement shortly!
One of our favorite doomers says the tide is rolling out because inventory is up 37% in L.A.
There are 11.5% more San Diego homes for sale, year-over-year. But in an area of 3.3 million people, having less than 10,000 homes for sale doesn’t sound like panic time – and other metros have more:
Currently we have 1,029 NSDCC houses for sale, and last year at this time the count was 978, or 5% lower.
The tide rolls out at the end of summer- let’s see how many sellers stay on the market in 4Q19.
Sure, they offer convenience, but the reason it works is because it’s so vague – sellers will never know the money difference between selling to an ibuyer or an open-market sale. The trendy-hip, sell-with-a-click factor could lure sellers into giving up an extra 5% or so without ever realizing it.
(pay 3% more in ibuyer fees and then sell for less than open-market sale)
Hat tip to reader ‘just some guy’ for sending in the article:
When Dora Cagnetto decided to sell her townhouse in Phoenix this year, a real estate agent told her that she could get around $375,000 for it. Maybe $390,000. But she would have to replace the carpet and paint the walls. At 68 years old and recently retired, she thought it sounded like a lot of work.
One evening, after the carpet had been ripped up, Ms. Cagnetto saw an online ad for Zillow Offers. Zillow, better known for telling people what their homes are worth, would buy her home itself. She uploaded some photos and got back an offer: $382,000, minus a fee for Zillow. No repair work or open houses necessary. And Zillow paid cash.
Ms. Cagnetto estimated she effectively paid $10,000 to $15,000 for the privilege of turning over to Zillow the job of replacing the carpet and the bathroom countertops and doing other light repair work.
“My son, he’s like, ‘Well, oh, I could have done that,’ and maybe he would have saved a little money,” Ms. Cagnetto said. “But to me it was like, I don’t want to do that. I don’t want to hire somebody to do that, I don’t want to put carpeting in, I don’t want to paint these walls.”
The Phoenix area has become a hub of the iBuying phenomenon. With its relatively new housing stock and miles of buff-colored subdivisions, the market is affordable, uniform in look and steadily growing.
Whether iBuying works outside markets like Phoenix and Las Vegas is an open question. The model has yet to break into the Northeast, where the housing stock is older, the weather drives up maintenance costs and there are fewer of the kind of cookie-cutter subdivisions that the industry’s algorithms assess best. Prices are higher, too, making mistakes costlier for the companies.
A good article with evidence here by Ryan discussing the accuracy of the zestimates, and how Zillow calculates their success rate based on their updated zestimates once a property sells.
His comment section is full of examples where Zillow adjusts their zestimate to the list price once a property comes on the market, which is a practice Spencer denied on twitter below when discussing their prize winner for best algorithm improvement:
Ryan’s comment section will make you think that it is still an on-going practice for zestimates:
While the old tradition of broker cooperation via the MLS is slowly eroding, there is an opening for others to intrude. Two quotes seen this week in different articles:
Founder and CEO Rich Barton said in a radio interview on April 1st that he sees Zillow Offers as an evolution of Zestimates. In fact, at some point in the future, a Zestimate and a cash offer may be the same thing, he said in an appearance on National Public Radio.
“Ideally, I would like to have the Zestimate be a live offer on every home in the country,” said Barton, adding, “It will take quite some time to get there.”
Glenn Kelman, CEO of Redfin, a real-estate brokerage that has also got into the home-flipping business, said he still believes the endgame for Opendoor, as well as his own company, is to get buyers to purchase homes without necessarily using an agent.
“A large number of these companies, Redfin included, are going to be selling direct to consumers,” he said.
Will consumers trust them enough to buy and sell houses based on their fabricated estimates of value, without a realtor on their side? All that needs to happen is for these ibuyer companies to overwhelm the public with advertising, and convince you that their value estimates are close enough.
The advertising is the key. Consumers don’t have much real estate experience and education, and it’s not easy finding helpful resources (how many real estate blogs are there?). They just want to click and go!
It will be like TrueCar, where they advertise that their valuation system gives you an advantage, and to go down to one of their dealers to buy the car for that amount. TrueCar has sold over 2 million vehicles!
It’s out in the open now – Zillow intends to change the game. An excerpt from an interview with Rich Barton where he admits Zillow used agents to get big, and is now deciding how to use that power:
An excerpt from I-News:
Barton also indicated there could be major changes coming to the way that Zillow deals with agents. Thus far, Zillow has derived profits from charging agents to appear on the site, with the idea being that would-be homebuyers will find those agents and end up working with them.
But that’s changing.
Barton told Stratechery that he wants to move away from a subscription based model and toward “a success-based compensation scheme that is around what happens when consumers actually close a transaction.” That will delay Zillow’s revenue but should whittle down the number or people the company is working with and improve the consumer experience.
“It enables us to move from a system of huge floors of people dialing for dollars for advertisers, which is what’s happening right now, to a group of people where we are actually interviewing and selecting partners we think can do the best job for our collective consumers,” Barton said. “It’s a complete mindset switch in the way we are thinking about things.”
The comment appears to reference Zillow’s Premier Broker Flex Pricing program, which debuted last year.
J.D. Ross, another cofounder at Opendoor, picked up on Barton’s comments and opined that Zillow appears to be acknowledging it will ultimately displace real estate agents.
A Zillow spokesperson noted that Ross’ comment was merely his interpretation and pointed to another part of the interview where Barton discussed the importance of agents for the company’s future business. Barton described Offers as a “fast lane,” but added that most consumers will still choose a more conventional “right-hand lane.”
“So we see both of these lanes as critical because we want to serve everybody, we want to get everybody to a better place,” Barton said, referring to both Offers and the company’s agent-based business.
