What is Zillow’s strategy here? (Phoenix: sales, rental, mortgage)

[phx1205]

https://www.zillow.com/homedetails/5...ource=txtshare

Based on the history, Zillow bought this house for $540k on 9/9/21 (originally listed for $499k) then turned around and listed it on 10/1/21 for $537k ($3k less than price paid). And they have already lowered it to $520k. So how are they generating a profit when they list it lower than what they paid? I don’t understand their strategy here. Thoughts?

[DetroitN8V]

Weird for sure. That house is fugly but it seems like a good deal at $520k.

[asufan]

Originally Posted by phx1205

https://www.zillow.com/homedetails/5...ource=txtshare

Based on the history, Zillow bought this house for $540k on 9/9/21 (originally listed for $499k) then turned around and listed it on 10/1/21 for $537k ($3k less than price paid). And they have already lowered it to $520k. So how are they generating a profit when they list it lower than what they paid? I don’t understand their strategy here. Thoughts?

Like I mentioned in another thread, these companies charge a fee when they buy your property. If the fee was 7%, they made $37,800 on the purchase and the goal is to sell it for a little more than they purchased it for. I also mentioned in the other thread that Zillow is the one company I see appearing to make more bad deals than others, but without access to the fee information we can't determine if they are bad deals or not.

[phx1205]

So just guessing here since we don’t know all the details but they bought it for $540k, and then charged a $40k fee. So as long as they sell it for more than $500k they come out ahead. Which also means the sales price is artificially inflated by $40k.

[asufan]

Originally Posted by phx1205

So just guessing here since we don’t know all the details but they bought it for $540k, and then charged a $40k fee. So as long as they sell it for more than $500k they come out ahead. Which also means the sales price is artificially inflated by $40k.

They still have to pay 2-2.5% to a buyers agent as well as other closing costs and overhead so they probably need to sell it for quite a bit more than $500K to turn a profit. They also have an opportunity to make some money on the mortgage if they can convince the buyer to finance through Zillow. I'm sure there's some properties they lose some money on.

[rtloucks]

Originally Posted by asufan

Like I mentioned in another thread, these companies charge a fee when they buy your property. If the fee was 7%, they made $37,800 on the purchase and the goal is to sell it for a little more than they purchased it for. I also mentioned in the other thread that Zillow is the one company I see appearing to make more bad deals than others, but without access to the fee information we can't determine if they are bad deals or not.

This is correct. In addition to the 7% they also charge for repairs that they do not actually perform, they also charge what is called a 2-3% "Convenience Fee" - not sure for what...lol.. i believe that is for expediting the process to make sellers feel good about a quick transaction. They also have other menu type options that sellers can choose. Generally, these companies charge an up front cost that equals 10-12% of the sales price just to allow the sellers to sell quick. That is why they can list the home and loose money on paper but actually make plenty. Volume Volume Volume...

It just sucks for buyers that are actually looking for homes. Sad enough that buyers have to compete with the large rental companies, but not large corporate buyers are scooping up homes just to dump back on the market like Opendoor, OfferPad, Zillow Etc. You also have to compete with hedgefunds buying homes intsead of stocks now days....

[phx1205]

The most interesting thing to me that has broader implications is if they are taking those fees out at closing, then the sales price is artificially inflated. Then when that house is used as a comp, it artificially inflates other area home prices. If/when iBuyers slow down their buying, it could put some pressure on home prices in certain areas where they bought a lot of houses. Will be interesting to watch that. I’m not buying or selling, just an interested observer.

[asufan]

Originally Posted by phx1205

The most interesting thing to me that has broader implications is if they are taking those fees out at closing, then the sales price is artificially inflated. Then when that house is used as a comp, it artificially inflates other area home prices. If/when iBuyers slow down their buying, it could put some pressure on home prices in certain areas where they bought a lot of houses. Will be interesting to watch that. I’m not buying or selling, just an interested observer.

Appraisers do not use those sales as comps (when these companies purchase the properties) because they were not exposed to the market. When these companies sell the properties via MLS, those sales can be used.

[phx1205]

Originally Posted by asufan

Appraisers do not use those sales as comps (when these companies purchase the properties) because they were not exposed to the market. When these companies sell the properties via MLS, those sales can be used.

Oh that’s good to know.

[rtloucks]

Originally Posted by asufan

Appraisers do not use those sales as comps (when these companies purchase the properties) because they were not exposed to the market. When these companies sell the properties via MLS, those sales can be used.

Let rephrase this... Appraisers are not SUPPOSED to use those sales.....
They usually do not hit the MLS, however, if the home does hit the MLS then they might use it if they do not do their diligence.

Yes these artificially inflate the market sometimes, but the number of homes acquired is not enough to offset the whole market. They will however be noticed.