this week zillow announced that it was going to stop buying homes and close down
its zillow offers division do they know something about our market that we don't know
we're going to break it all down for you up next
hi this is chris morton real estate broker with exp realty in raleigh north carolina
and we have some breaking news for you zillow is closing down their zillow offers division
laying off a quarter of their staff and they're going to stop buying homes
why is this happening what happened to zillow and are they the canary in the coal mine of
what's going to be happening to the housing market coming up well let's go through all the details
and let you know what exactly is going on so most people in the market to buy or sell a home have
heard of zillow they know that their website is really user friendly and a great place to go to
get information about homes what's on the market now what's recently sold all of that sort of thing
and a lot of people actually just go to zillow to look at the pretty pictures so it's a very very
popular website they've also created a technology they call a zestimate where they basically have an
algorithm a computer program that says this is what a home is worth based on what we're seeing
and it's become sort of the the word the bible of real estate going forward
in that people see that information and they think that is an accurate data point unfortunately they
used to call it an estimate but they had to stop doing that because it wasn't an estimate at all
so they coined the phrase zestimate so it's really just a computer program saying your
home is worth this that home is worth that et cetera et cetera the flaw in that is
it's not actually a human being looking at a home and determining the quality of the home
and so it has kind of gotten them into some hot water with people over the past years
well now about three and a half years ago they decided to start a division called zillow offers
that would go out and offer you money to buy your home they would give you an estimate a zestimate
about what the home was worth and they'd offer to buy your home for maybe even more than that so
let's say your home is really worth 350 that's what you're expecting to get they would offer you
360. sounds like a great deal right well yeah it is except they oftentimes would go in and charge
you a fee to do the processing all of that sort of thing to get some of their money back then
they would go in and they would fix up the home your home and put it back on the market for lay
say let's say 370 to make profit for themselves so while this has seemed to be pretty successful
for zillow in the past that they are making money and being profitable and getting a huge division
started it actually had some ramifications that were negative to both the company and to buyers on
the outside to the company the negative was it was really just a house of cards they were churning
houses all the time and it looked like they were making money or that they were moving towards
high profitability they were probably just making a little bit of profit and so it kept going and
going and going and unfortunately they got stuck with a stockpile of houses for the buyers the
negative was the that zillow was oftentimes going after those starter homes or anything
between zero dollars and let's say 400 000 in the raleigh market raleigh triangle market and
that was cutting out opportunities for a lot of first-time homebuyers that would normally have
gone in and bought that 350 home that we're talking about maybe they would have paid 360
for it and done work on it 10 000 worth of work and been happy instead they had to pay 370 maybe
even more for that house and then they were behind the eight ball so it was really cutting out a lot
of opportunity for first-time home buyers further in my opinion they really got themselves into a
conflict of interest by getting into this i buyer program which is what they're called i buyers they
are internet companies that will buy your home fix it up and then flip it to sell for a profit
to me they got into a conflict of interest because they were telling people your home is worth this
then they were selling it for that and they were kind of working both sides of the deal kind of in
an unfair way they were both the buyer and the estimator on the value of your home and that
unfortunately caused a lot of problems for the market and it definitely caused them to
have to overpay for houses and then in order to make a profit they had to charge even more
to the future homeowner so everything seemed to be going along pretty swimmingly for zillow until
this week when it all hit the fan they announced they were closing down their zillow offers program
unfortunately laying off a quarter of their staff and they were taking the 7 000 or so
remaining homes that they have on their books and sell them off to institutional investors
for somewhere in the neighborhood of 2.8 billion dollars i suspect anything that the investors
don't buy they're probably going to have to sell on the open market at a reduced rate which
one would think would cause a problem with our market where the market may start going
down because of that so in my mind zillow made a lot of mistakes when it came to
starting up this eye buyer program and investing in fixing up and flipping homes number one they
failed to understand that a computer program is not as savvy as a local real estate agent
you can run a computer program and it can tell you a home is worth this or that
but it doesn't understand the nuances of a market like a local real estate agent would
the nor the raleigh market is completely different from the chapel hill market and it's certainly
radically different from the charlotte market the washington dc market or the phoenix arizona market
their algorithm did not account for that further even in raleigh there's a radical difference
between one neighborhood versus another even one street versus another take bedford at falls
river for example a neighborhood i'm very very familiar with up in north raleigh you cannot say
that a bungalow house in this section is a good comparable house to a charleston style section
in this part of the neighborhood or a home that was built by drees homes a very big giant home
in the other part of the section of the neighborhood it just doesn't work out and for them
to take an algorithm and kind of chop it up that way and and be able to give zestimates it just
simply doesn't work and in the long run it failed them because they depended on that zestimate
to pay to decide what they were going to pay for a house and then
what they were going to sell that same house for and secondly they failed to
understand that in raleigh north carolina and the surrounding areas home buyers do not want
a fixer-upper home they want a move-in ready home fixer-upper home obviously means a
home that you buy that needs new countertops paint flooring yadda yadda you get the point
because of our shortage of labor in our market it has become very difficult for someone to hire
a painter hire a flooring company hire a renovator to come in and renovate a home zillow did not
understand that and beyond that obviously people a lot of people just want to move in they don't
have the time to do all that work or become an amateur general contractor themselves so zillow
didn't understand that they thought that the well the algorithm told them that this house was worth
this much money and all we have to do is buy it from someone maybe put in carpet or paint
put it right back on the market and it's going to sell and it didn't their homes sat and sat for
weeks or sometimes months which if you know anything about the housing market right now
a home that sits on the market for weeks or months is the kiss of death people automatically assume
that when your days on market starts start ratcheting up that there's something wrong
with that home and it doubled down on the fact that zillow was going to have to sit on the homes
because again overpriced and then long days on market less and less people are going to be
interested in seeing it so again as zillow would buy these homes they would claim that they were
fixing them up when really all they did was maybe paint maybe carpet sometimes they didn't do any
of that and so all of this was just a recipe for disaster homes sitting on the market a long time
homes overpriced homes not fixed up it was a recipe for disaster for zillow i know
myself personally going in and showing a zillow own home and in fact a lot of these i buyer homes
the yards are not kept up the the house has got issues um i had one client who bought
one that we had to terminate the contract because it was infested with termites so
these eye buyer companies are not even doing their due diligence by doing an inspection on the front
end to determine if there's anything wrong or at least it appears that way that they're not doing
that inspection a lot of the time the homes are dirty carpets need replacing paint is all
beat up countertops don't look good cabinet doors are off the whole nine yards it reminds me a lot
of a home that's been in foreclosure believe it or not or is in the foreclosure process and is trying
to be sold by a bank so as you can imagine this was a toxic stew that was doomed to fail a house
of cards that was doomed to fail right from the beginning so now what are they left with
they're now having to dump all of these homes on the market and sell them off and take a loss
in their company so it begs the question what is the impact going to be on our real estate
market or the nation's real estate market as a whole with zillow dumping all of these homes
so you might be thinking to yourself with zillow dumping all these homes on the market do they
know something we don't know is this a sign of an upcoming crash that's going to happen and they're
sort of the canary in the coal mine that's trying to get out early and save their butts well when
you look at it what actually happened was zillow made some really bad business decisions and they
got a little too big for their britches and now they're having to suffer for it the fact
is what's happening to zillow and the fact that they're getting out of the market is actually
going to be healthy for the real estate market first off because obviously it's going to mean
less eye buyer competition for those first-time home buyers out there to go out and buy the homes
and it's going to stop the ever increasing ratcheting up of zestimates that we're seeing
when zillow is buying and selling homes and increasing the price you're going to stop
seeing that as much not saying that prices in in the market are going to go down but the irrational
ratcheting up that we're seeing from zillow is likely to slow down a little bit or stop and
for the raleigh triangle real estate market the good news is zillow only owns 105 homes currently
in our market so that is really just a drop in the bucket about what our market has inventory wise
as i've talked about many many times the raleigh real estate market is in a massive shortage it has
been that way for a couple of years and if they were to even dump all 105 homes on the market
versus selling them off to some institutional investor it's not going to matter they would get
quickly absorbed and we would go right on with our business and to answer the question is this things
about to get really worse to the market know that zillow paid on average the median price they paid
for their homes i should say was 389 thousand they turned around and sold those zillow owned
homes from median price of 399. so on average zillow is still selling their homes for above
the asking price as by as much as 10 000 or more dollars and while this is not the case
in other markets like phoenix arizona it is the case here in raleigh and the surrounding areas
zillow homes are still selling for a profit or higher than you would expect and i think that
will continue to be the case here for quite a while and this just goes to show you how
much stronger the raleigh market is compared to most other markets in the country again i think
we're going to keep chugging along and despite the fact that we're now getting into the winter months
where you typically see real estate slow down we're still seeing it be very very competitive
for buyers out there trying to find a home and although it's better than it was a few months ago
you're still seeing buyers have to compete against other buyers and homes getting multiple offers
we have a ton of buyers that are in that 350 to 450 range and they still continue to find it
very very difficult to buy a home and we're still having to be very competitive go over asking price
and pay high due diligence fees in order to secure the home so at least from my perspective i'm not
seeing the market slow down even now here in the winter months and i don't think that zillow even
if they were to dump all 105 of those homes on the triangle market i don't see that being an issue
for our market i think we will continue to absorb and there's lots of people who are sitting on the
sidelines that i think would jump in if they knew there was a little bit more inventory out there
so with zillow pulling out of their eye buyer market i see it as nothing but a positive for
the industry and for the market i think it means one less competitor for first-time home buyers i
think it frees up a lot of inventory for people and in general makes things much much easier i
don't believe that they're the canary in the coal mine that is causing or that is showing that there
might be some increase in disaster going on in the marketplace for real estate and that real
estate prices are going to crash i think it's just a natural thing that happens when a business makes
a mistake they have to write it off their books and i think that's what's happening so hope this
has been helpful hope you've enjoyed this video we'd love you to watch this one i think you'll
enjoy it just as much like and subscribe below and we'll see you on the next one thanks a lot bye-bye