Zillow Announces plans to flip properties

Buffalo, NY · Member since 2017 · 4 posts · 2 votes

Zillow announced today it's intent to buy and flip properties in the Vegas and Phoenix markets. What are your thoughts on bigger, brand name movers coming in to an already active market? Obviously, big investors are everywhere throughout the country, but I am curious how some of the more seasoned investors view it

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Patrick Hale

Investor · San Diego, CA · Member since 2017 · 19 posts · 18 votes

My contact at Zillow mentioned this a mainly a play to try to get Seller leads to zillow agents. 97%+ of the sellers that click the button to sell their home ended up not wanting to go through with the zillow instant offer....they then know that the owner wants to sell and send that lead to an advertiser to try to take the listing....

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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
After Zesti,, taking ads from other agent listings, escrow, closing records, and also in lending business. They come up with another one. Until the data gets breached or info gets sold. Wall Street reactions today is stocks tumbled ~10%, analysts feel they can not focus on their business model well.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
8y
So what, they’re adding Phoenix to something they’ve been doing in Vegas and Orlando for more than year? More people want to buy our houses? Great. Opendoor and Offerpad have been doing it for more than a year here as well. We all agree that a $20-40,000 commission is a little silly on a mid-priced home right?
If the commission was a flat $5-10,000 do you think any of these companies would be jumping in? I can believe that there aren’t websites connecting buyers and sellers for a flat 1-2% yet.
I don't see a downside to the consumer to more competition. As a consumer I hate monopolies like the MLS system.
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
8y
I think wholesalers will be the ones most impacted by this. Zillow has the credibility.
I wonder how hard it would be to simply click "I own this house" and get Zillow's number, without actually owning it.
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Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
I did it before. Zillow will call your phone number the next 3 days to verify the ownership and speak with you over the phone before they present an offer to you.
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Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
8y
Last month I tried Opendoor on a property I have in North Phoenix to see how they work. I wanted to see if they are competition. I used a property I sold on a Lease Option a few months ago so it stills shows as being owned by me. My comps put the property at about $270k to $275k. I Lease Optioned it for $275,000 with a very large Option amount down and I cash flow (clear) $1,000 a month on it.
Redfin says it is valued at $301,000 and Zillow says $275,000. Opendoor's offer was $229,000 and Opendoor wanted to charge me 7% on top of that for "processing fees". Opendoor was $46,000 less and 7% fees on top of that. Not a winning strategy I'd say. I suspect Zillow will try to imitate Opendoor since Opendoor just got a huge round of funding from a Hedge Fund. Zillow probably thinks that validates the business plan. What a joke. I know the Phoenix market pretty well. It's hot and rising right now.
But when the market cools in the slightest, Opendoor will have to seriously adjust to make any money. According to a study I saw, when everything thing is said and done, Opendoor makes about $7,000 per house. It's embarrassing to study. Zillow will probably follow the same strategy since they have to think in terms of high quantities to make share holders any money. And as I've said, to me $7,000 a house when you are investing $200,000 to $300,000 per house and holding for 4 - 5 months is chicken feed.
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Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
The price they offered me was pretty close to the market price, by comp. However #1, the technical and other misc fee are way too expensive, more than 6% fee. Using Realtor, it is somewhere between 3% to 6% commissions, why should I pay more than 6% fee to Zillow to sell my house. However #2, in this red-hot market, Seller can easily get offers way way above last comp and the asking price (won’t be able to comp for certain). Why would I sell my properties to Zillow at such “low price” that is close to most recent comp house. In this red-hot market, if I list my house for sale, I will not sell my house based on last comp. I will list it way above last comp. I see other people houses in the market listed way way above last comp still get sold. I spoke to my Realtor friend. Agents, stop telling the sellers, cannot comp the listing price (buyer Realtor try to bargain to last comp price). Most houses in this red-hot market won’t be able to comp. Either you buy it or don’t bother making offer. I am not really want to sell my house. I was just curious about the numbers Zillow offer me. Of course I turned down Zillow offer after they gave me offers.
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Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
8y
Originally posted by @John Hatton:

Zillow announced today it's intent to buy and flip properties in the Vegas and Phoenix markets. What are your thoughts on bigger, brand name movers coming in to an already active market? Obviously, big investors are everywhere throughout the country, but I am curious how some of the more seasoned investors view it
The market has spoken . . .
Zillow stock sinks on company's plan to start flipping homes
https://www.msn.com/en-us/money/topstocks/zillow-s...
Zillow shares closed 6.5 percent lower Friday after the online real estate database company announced it will begin buying and selling homes, a capital-intensive endeavor.
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John Hatton
OP
Buffalo, NY · Member since 2017 · 4 posts · 2 votes
8y
Could that be a short-term correction given the current market fluctuation we are seeing? I didn't even look to see what their stocks were doing and who the management was, so i appreciate the feedback!
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Nick Rutkowski
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
8y
Maybe Zillow wants to be the next Blackstone Group. Good for them, they should have done this years ago. Bad for you flippers, now you’re out gunned on all fronts: advertising, popularity, and billions of dollars.
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Patrick Hale
Investor · San Diego, CA · Member since 2017 · 19 posts · 18 votes
8y
My contact at Zillow mentioned this a mainly a play to try to get Seller leads to zillow agents. 97%+ of the sellers that click the button to sell their home ended up not wanting to go through with the zillow instant offer....they then know that the owner wants to sell and send that lead to an advertiser to try to take the listing....
7 Reply
Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
8y
Originally posted by @Chris Mason:

I think wholesalers will be the ones most impacted by this. Zillow has the credibility.
I wonder how hard it would be to simply click "I own this house" and get Zillow's number, without actually owning it.
I agree, Chris. Wholesalers' business model is to exploit the inefficiencies in the market. Phoenix already has Open Door and Offer Pad doing this, as well as a bunch of smaller players. Zillow has the muscle to throw some big punches, should they choose to. Not only that, but they can, if they want to, make their own market.
Finally, if you look at the biggest producers (realtors) in Phoenix, there are a lot of people in the top 50 who work for/with Offer pad and Open Door. If Zillow wanted to, and I think it does, this could be the beginning of a move against the brokerage model. While I don't think realtors are going anywhere, the brokerage model might...It's already under assult from EXP, and for a lot of good reasons. My wife, @Patrisha Leybovich moved, and the cloud broker model is for real. Zillow can take it up 5 notches...
This'll be interesting to see...
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
8y
Mike,
You say that A) Opendoor offered you $100k less than your house was worth. B) they only make $7k per house? How do they pull that off? especially after they make commissions again selling it.
Opendoor and offerpad both offered me within 3% of of realtors net after commissions. Maybe they just do Vegas better. If you wanted to do a 1031 exchange of 3-5-10 sfrs into a new project this could be the ultimate setup. They offered 3-90 day closing as is (there are rental pictures available across the net and I promised it to be in as photo’d condition.
No giving the buyer 3% closing assistance or fighting repair requests, financing falling through, or appraisal shortages. They’ll offer sellers a good value or they’ll go away. After a year I still get open door and offerpad postcards for my vegas properties.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
If they price them as accurately as their regular zestimates I'm all over that!!!!!
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Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
8y
i have a duplex that they're evaluating at 120k. It has drug dealers next door and I'd sell it to them in a heartbeat for that price.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
Originally posted by @Bill B.:

So what, they’re adding Phoenix to something they’ve been doing in Vegas and Orlando for more than year? More people want to buy our houses? Great. Opendoor and Offerpad have been doing it for more than a year here as well. We all agree that a $20-40,000 commission is a little silly on a mid-priced home right?
If the commission was a flat $5-10,000 do you think any of these companies would be jumping in? I can believe that there aren’t websites connecting buyers and sellers for a flat 1-2% yet.
I don't see a downside to the consumer to more competition. As a consumer I hate monopolies like the MLS system.
The MLS is not a monopoly. You are free to start your own competitor to it. You probably underestimate the cost of creating and maintaining an MLS, and the man power associated with doing so though. Tens of millions of dollars and tens of thousands of volunteer hours to maintain it each year. And there are what, 800 or so mls systems in the country. So multiply those numbers by 800 to get the cost that you would have to come up with to start your own.
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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Account Closed:

Last month I tried Opendoor on a property I have in North Phoenix to see how they work. I wanted to see if they are competition. I used a property I sold on a Lease Option a few months ago so it stills shows as being owned by me. My comps put the property at about $270k to $275k. I Lease Optioned it for $275,000 with a very large Option amount down and I cash flow (clear) $1,000 a month on it.
Redfin says it is valued at $301,000 and Zillow says $275,000. Opendoor's offer was $229,000 and Opendoor wanted to charge me 7% on top of that for "processing fees". Opendoor was $46,000 less and 7% fees on top of that. Not a winning strategy I'd say. I suspect Zillow will try to imitate Opendoor since Opendoor just got a huge round of funding from a Hedge Fund. Zillow probably thinks that validates the business plan. What a joke. I know the Phoenix market pretty well. It's hot and rising right now.
But when the market cools in the slightest, Opendoor will have to seriously adjust to make any money. According to a study I saw, when everything thing is said and done, Opendoor makes about $7,000 per house. It's embarrassing to study. Zillow will probably follow the same strategy since they have to think in terms of high quantities to make share holders any money. And as I've said, to me $7,000 a house when you are investing $200,000 to $300,000 per house and holding for 4 - 5 months is chicken feed.
THANK YOU! Finally someone else gets it.
I have been following Opendoor in the Phx market as well. It is not all that it is sold to be. They are basically flippers, but don't do any work. They clean up the houses as best they can. They may slap some paint on it, but no real upgrades to speak of. Then they charge the Seller an extreme fee to do the transaction (you say 7%, but I have seen it as much as 10%!) HELLO! What's sad about this is that they bury it in the closing settlement as regular closing costs. Anyone not savvy enough to point it out, let alone know what it is, just thinks it's the cost of selling a home. They don't realize that they just totally undersold their home AND paid more than a Realtor would cost for full representation. It's unfortunate.
I have also noticed that Opendoor's spread isn't always that much. They must be cost averaging. I have seen properties that they acquired in the $170Ks, now listed in the $180Ks or early $190Ks. So, they are really depending on that 7-10% fee as their profit.
They offer convenience. They will buy your house on your time table without all the showings and hassle of getting your house ready to show. Is that really worth such a deep discount on your home? My answer would be no, but there are so many Owners out there who fall for it as a benefit to them. It's so sad.
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Tim G.
Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
8y
Technology is going to eliminate so many jobs.
1 Reply
Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
8y
Originally posted by @Bill B.:
Mike,
You say that A) Opendoor offered you $100k less than your house was worth. B) they only make $7k per house? How do they pull that off? especially after they make commissions again selling it.
Opendoor and offerpad both offered me within 3% of of realtors net after commissions. Maybe they just do Vegas better. If you wanted to do a 1031 exchange of 3-5-10 sfrs into a new project this could be the ultimate setup. They offered 3-90 day closing as is (there are rental pictures available across the net and I promised it to be in as photo’d condition.
No giving the buyer 3% closing assistance or fighting repair requests, financing falling through, or appraisal shortages. They’ll offer sellers a good value or they’ll go away. After a year I still get open door and offerpad postcards for my vegas properties.
Bill, I'm not sure where you get "You say that A) Opendoor offered you $100k less than your house was worth".
I said they offered $46,000 less, plus they wanted to charge me 7%.
I'm just speaking from what they offered me on a high demand property. I had already "sold" it on a Lease Option for a lot more than what they offered. Plus I cash flow it for $1,000 a month.
Anyway, the point is that their numbers don't work for the long run, especially at volume. I just don't think there are enough naive people willing to take their offer once the word gets out. And once the market slows, and eventually it will slow, they fall apart.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
8y
@Russell Brazil are you saying google, amazon and Facebook will never be called a monopoly, since anyone is free to create a competitor, almost for free? Maybe I should have said "virtual monopoly" since estimates range from 85-95% of all real estate is sold through the MLS. But either way it seems like these companies are trying to create a competitor to the MLS. If it's not a monopoly we should welcome them.
@Cara Lonsdale I agree Cara. It was refreshing to see the emails from offerpad and open door. They broke sales price minus all costs and the net I would receive on one half of one page in an email within 24 hours of my request. Clearly broken out what each fee was and who would receive it. Can you imagine asking a realtor, give me a guaranteed net for my house, tomorrow.
Compared to wholesalers who’s plan it is to pay 70% of the value minus repairs it does appear they are way overpaying if they are wholesalers. Plus I assume they wont back out of deals when they can’t find a real buyer. As long as everyone who’s bad mouthing their plans is also badmouthing other wholesalers I guess it’s a wash. They’ll help more people than they hurt or they’ll quit doing it.
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Matt M.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
8y
I'm not concerned. Once there is a change in the market, all of them will disappear. They always do.
2 Reply
Bob E.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
8y
My wife had clients that had bought a house through her and their old house was slow in selling so she had OpenDoor price it. Their offer was 20k less than the listed price and they wanted over 40k in fees. Not long after that the house was purchased close to list and at a much better net to the sellers.
OpenDoor offers convenance but it comes at a price.
1 Reply
Bob E.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Matt M. but this time it's different......
0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
8y
I see that they are planning on working WITH Realtors to flip these homes. That's interesting because people have been saying that that Zillow was going to be putting Realtors out of business ever since they opened up shop in 2004. This is probably due to the fact that 14% of homes were sold FSBO in 2003, the year before Zillow launched. However only 8% of homes were FSBO in 2017..........13 years into their disruption of the industry.....
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Allan Smith
Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
8y
I watched a video of the Zillow rep discussing this change, and it sort of seemed like he wasn't quite on the reality train. His very last sentence was something to the effect of "there are tons of buyers and not very many sellers, so by purchasing houses straight from sellers we will bring value to the market."
I'm not sure Zillow understands the reality of how competitive it is to find houses that make a profit. But then again it's zillow, so maybe they are happy making $10k on a flip.
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Sam Josh
Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
8y
Zillow is a tech company so I am surprised why they would get into asset flipping turning themselves more into an investment company. That said no one can or should ignore that there are 90 million millennials in the US. Zero of them have reached the age of 35, which is typically the start of “high income/ wealth accumulation” period. I feel the prognosis for the housing market based on demographics alone is solid as the millennials mature, get married and buy homes. I can see why Zillow wants to own hard assets and flip.
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