Zillow Ends i-Buying Program "Zillow Offers"

Today Zillow announced it was scrapping its i-buyer program, Zillow Offers, after Bloomberg recently revealed that Zillow is looking to sell about 7,000 homes for around $2.8 billion as it seeks to recover from a fumble in its i-buyer business. It is likely to sell the houses to a multitude of buyers rather than packaging them in a single transaction. Chances are they could sell at a loss as they aggressively bought to gain marketshare, possibly over-paying in some markets. These potential losses will be offset because usually they refer the re-sales of these house to agents - for a big fee - so ultimately the consumer will pay the price. There is no free lunch in the i-buyer programs!

Gravity basically says that what goes up must come down. In real estate, luckily, when things do come down - unlike many other things - they almost never go to zero. In fact, most times pricing dips a wee bit or stagnates and then continues its upward trajectory. In the past 18 months we have witnessed extreme price escalation in many part of the world and U.S. We should expect those extremes to subside. We don't have to be rocket scientists to know this. But, like all things real-estate-related, EVERYTHING is hyper-localized and mass averages are distorting at best.

I recall meeting with Rob Lehman, COMPASS' Chief Business officer many years ago to discuss the concept of relieving the stress of homeowners in the midst of a move and the idea of buying their homes from them and taking on the burden of re-selling them, yes, years before Zillow Offers and other i-buyer programs. The big difference? We were considering what might be in the best interest of the CONSUMER. That was our priority. We concluded that this was a wonderful concept......when markets are stable or rising, but would impose too great a risk if markets dipped. Even a 3% drop could cost COMPASS a fortune in the expensive markets we were mostly focused on. 3% on $300,000 is a lot less money than 3% of $2 million....$51,000 more! Instead we pioneered the COMPASS Concierge program that provides financing for homeowners to repair/stage/decorate their homes to make them more marketable and valuable......and reap the rewards upon resale.

Is Zillow abandoning this program because their algorithm-driven Zestimating for future valuation was inaccurate? Are they ending this program because the consumer perceived Zillow as new competition for homes they wished to buy, potentially artificially escalating pricing, or competing with all-cash offers when most consumers need financing, thereby leaving them at a disadvantage? Were consumers frustrated that the homes Zillow as buying would have to be bought later for more? Were real estate agents - Zillows primary source of income - becoming angry for helping build Zillow and now, left out of the process and disadvantaged, pulling back?

Some say Zillow is pulling out of the i-Buyer business as they fear a decline in home prices as interest rates rise. Dramatic - and not-so-drastic - price gains sometimes happen for reasons unrelated to 'hyper inflation' trends:

1.?An area that had gone through an unrealistic de-valuation or stagnation re-discovered, may simply be experiencing pricing RECOVERY, not simply escalation.

2.?An area with a new audience - possibly fueled by a new industry, employer, remote-working trends, etc - may experience a new valuation based on its audience familiarity with higher home valuations and supply-demand imbalance.

3.?Longterm under-supply issues and potential land restrictions. If all lots on the lakefront are built, they take on collector value. Pricing rises.

4.?We have witnessed the ripple effects of an economic shutdown in 2020. This continues many, many months after the fact.Two months out of twelve can impact markets for years.

Twenty percent annualized price escalations are unsustainable. Will these sharply elevated prices drop 30% next week? NO! Usually there are very, very good reasons for dramatic price jumps. Often these massive escalations simply scale back - sometimes dramatically to please the media seeking a headline - but mostly they do not plummet, or even drop, in value. A 3-5% annual price escalation is not a bad thing at all! The consumer will always be best served by highly curated insightful, real-time data, specific to their home provided by a professional real estate agent who can not only help navigate a transaction, but also provide non-Google-able advisory before, during and after the process. And the ability to do home improvements that benefit them.