Zillow Flipped Its Plans to Buy & Sell Homes!

Zillow the on-line Home-Listing Platform, said on Monday October 18th, it would pause its automated House-Flipping operations for the rest of the year!  Instead Zillow said it would close existing purchase contracts and selling the homes it has on hand.  Zillow further said, it was experiencing back logs related to to renovating the homes.   Constraints for on-the-ground workers created back logs.

To further detail the announcement I have gone to the Wall Street Journal for Tuesday October 19, 2021;  Zillow stated the practice of buying refurbishing and selling homes using its database 3 years ago.  The WSJ article further opines that sales volume has recently begun to cool.  This was a profitable business for Zillow as they obtained fees on both the buy and sell side.  We call that DOUBLE ENDING.  While most realtors and agents have mixed opinions on the practice as it puts to question Agency, whose interest do you represent, the buyer or the seller?  

Zillow Offers, the house flipping unit accounted for more than 1/2 Zillow's revenue last year, some $772 million.  This was a 70% increase over the same period in 2020.

The article stated unsold units at the end of the second quarter totaled 3,142 units for a total value of $1.17 billion.  This does not include the 3rd quarter which it is believed it purchased more homes, notes RBC Capital Markets.

When I consider the inventory of homes for sale the Fix & Flip inventory appears to be an iceberg that sunk the Titanic.  More is below water than above.  Opendoor Technologies, another I-Buyer or Flipper, bought 8500 homes in the second quarter with another 8200 in the 3rd quarter.

How do we know what the inventory is and how much risk banks have made in funding these projects?

Further on in the October 19th issue in "Heard On The Street column, "ZILLOW GETS OUTPLAYED AT ITS OWN GAME", The article warns investors to start asking some broader questions.   Zillow, who has prided itself on technology to replace human work is now faced with human work to refurbish, and to sell their properties through their Premier Agent Network.  

Is it poor planning for the 17 year old company where many buyers, sellers and agents have gone to for a "Zestimate" of the value of a property.  Was it truly a :"Zestimate" or a price that moves their inventory.  Conflict of Interest certainly comes to mind!

Zillow's action points to other I-Buyers; such as, Opendoor  previously mention but also Offerpad Solutions a public company that has sold 4.7 times that of Zillow last year, stated the article.

The article cautions investors, and I warn buyers and sellers, to tread more lightly around what has been a banner year for real estate.  

The article further states, Opendoor has a 15% profit margin from flipping.  Where they not suppose to save sellers 5 & 6% commissions?

Mike Del-Prete, a real estate tech strategist and scholar in residence at the University of Colorado Boulder, "given that it is unusual that Zillow's pause happened so suddenly and across all of it markets".

"The real estate market has finally started to cool a bit", states the article in quoting Redfin reports on comparative home sales and prices to 2020.  7% drop in sale versus list is becoming common in certain parts of our area.  Of course we do get over bids when agents and seller decide not to test tops but to allow the market to price the house and under price a property.  There are no shortages of buyers at the moment.

Per the recent report Zillow has $8.77 billion in real estate inventory, how much now?  That is a good jump from the $1.17 billion previously quoted above.  Technology was supposed to create deflation , not inflation.  They maybe getting high on their own inventory!

Let me not forget to comment that technology companies are not the only players in the market of "Fix & Flip". Real Estate Brokerage firms have their own "I-Buyer" programs.  Some have teamed up with outside sources to help supplement their business and some have teamed up with income buyers.

Locally, I am still getting emails and texts from Flippers asking for my lead in properties not listed.  There will be a time when those communications end, if the Home-Price Growth continues to decelerate.  

As I look at the MLS reports on sales I see prices soften and list prices sell at lower prices.  That still mens we have buyers, but they are not being fed higher prices.

That could be the reason is that Home Price Growth Decelerated for the first time in more than a year.

I begin to wonder if the Fat Lady is singing when "Flipping 101" is a hot reality TV show?

The caution I bring to the table is the work performed in this Flipped House.  The demand on workers and supplies can push to the use of unskilled /semi-skilled, or fully experienced labor and poor quality parts.  Home inspections are very much needed.

As a final note that makes me lean toward softer prices is a comment a mortgage broker for a well known bank told me.  The bank has a special program for "Flipper". special in Terms?  The only issue is DUE DATE.  Once the property is "fixed" and certified, the note is due.  Then it becomes a "sell or we will" option.

As a closing comment there is the Friday, October 22, 2021 Wall Street Journal front page article, "More Chinese Developers Default".  Read into that as you wish.