Does Trouble at Zillow Mean Trouble in the Market? 3 Things Homeowners Need to Know
When one door closes, another one opens for homeowners. Zillow shut down its iBuying program, but it’s an opportunity if you look deeper.
It all started two weeks ago. Zillow declared that it was going to pause its iBuying program for the rest of 2021. Fast forward and now this branch of the business is closing for good.
So much has changed in a short period of time, leaving homeowners without clear answers. Despite this feeling of uncertainty, there’s a silver lining. Zillow Offers may be gone, but there are better opportunities on the horizon. This article highlights key reasons you should feel confident selling your home.
1. It’s a Zillow problem
When a real estate behemoth suddenly shuts down a branch of its business, it raises some major red flags. This is not an indicator that there is a market problem or that Zillow sees something that others don’t. Instead, it’s a sign of internal problems. Sundae CEO, Josh Stech explained that:
“We know why this happened to Zillow in particular – they underestimated the operational intensity of the business and overestimated their ability to algorithmically value homes. Simply put, they bought homes for too much money, held them too long, and invested too much in construction.”
The business model for Zillow Offers was a losing proposition. In the time spanning from July to September, this program lost more than $420 million. This was during a time span where the market began cooling, as it tends to do in the summer months. Operationally, it failed to adjust its buying model to reflect the market change. September numbers show that Zillow paid $65,000 higher than the market median.
Meanwhile, competitors in the space adapted. These companies began to make internal changes that improved their bottom lines. Inman reported that Zillow reported net losses while other iBuyers saw profits. It still remains to be seen if iBuying is destined to fall flat.
2. Is iBuying here for the long term?
The collapse of Zillow’s iBuying business raises concern for this type of home buying. It’s worth posing the question: is iBuying here for the long term?
When asked this question, Stech who is a seasoned property investor, and has worked in the real estate space for 12 years, replied:
“Because iBuying focuses on homes that don’t require much renovation, they are banking on instant and market appreciation. Their version of instant appreciation is charging you a fee for their service. Historically that fee was as much as 12%, and is now closer to 7-9%. As home price appreciation slows and the market flattens or goes sideways, iBuyers will have to increase their fees. At some level of fee, sellers will no longer see the value.”
Over the long term, this is not sustainable. Unlike flipping houses, which adds value (forced appreciation) to homes, they are hoping that house values will always go up on their own. It seems that the iBuying model relies on good economic times where home prices always go up (high appreciation). They are also relying on charging sellers fees to make a profit when there are other options available that don’t.
3. Sellers still have a lot to be excited about
There’s no doubt about it: we’re in a seller’s market. As a homeowner, you have a lot of things working in your favor.
High demand, low supply
With the onset of COVID-19, a clear demand for more space emerged. People now work from home, workout from home, and spend more time at home in general. There’s still a great desire for housing, but supply remains low.
It will take years of construction for developers to build more houses. While building permit filings have increased, this doesn’t translate to construction starts or completions. Another thing to remember is that there are supply chain shortages across the country, delaying these efforts. Simply put, sellers are still in the driver’s seat with high demand for housing and a low supply of properties.
Low interest rates
Right now, interest rates are historically low. Buyers are taking advantage so that they can lock in lower monthly payments. Since there are talks of raising interest rates as early as 2022, buyers are pouncing. That’s great news for sellers.
Real estate hedges against inflation
Inflation continues to be a topic of discussion as the price of goods increases (take gas prices for example). People fear that the cost of goods will continue to rise and that the value of a dollar will decrease. This may sound bad, but for those selling houses there’s reason to be optimistic.
The good news is that real estate is a hedge against inflation. It’s something that people can touch and has actual value, so even when money is worth less it still holds value. As a result, investors of all kinds are buying houses as safe investments. This increased competition to buy houses means that homeowners don’t need to settle for less. Now’s the time to get multiple offers on your house.
A Selling experience that focuses on homeowners
Homeowners sell to iBuyers like Zillow because they want a fast, guaranteed sale. The problem is that when you sell to an iBuyer, you only have one offer. What if you could have multiple offers instead? Stech noted that:
“Having one iBuyer make you one offer is not the way to get the best price. Nor is calling two or three. You need multiple offers. At the same time, you need the convenience that iBuyers offer — speed and closing timeline flexibility.”
At Sundae, we’re streamlining the selling process to make life easier for homeowners like you. Our marketplace brings thousands of property investors from around the country to compete for your house without any showings, cleanings, or repairs. We’ve engineered a way for you to have:
- A higher sale price
- No contingencies and a quick sale
- No fees
- And flexible move out timelines