To all the agents in the house,
Who's making the decisions at Zillow?
The company paused purchases on its Zillow Offers instant home buying program on Oct. 18, and there's evidence that the company threw money down the drain, at least in Phoenix and Atlanta.
Real estate industry consultant Mike Del Prete compiled purchase and resale listing prices of Zillow Offers' homes in those two markets, data that the Wall Street analysts and real estate academics that I talk to feel is generally trustworthy.
Atlanta homes are listed by Zillow at 1.9% above purchase price. But even if a home is resold for 2% more than it was bought for, Zillow is losing money on the transaction due to the costs of renovating, maintaining and showing the home — plus twice transferring the title deed.
Meanwhile, homes for sale by Zillow in Phoenix are listed for 6.2% less than what they were bought for. In my reporting, Zillow bought homes in the Phoenix area above listing price even after they sat on the Multiple Listings Service for weeks, and then shortly thereafter relisted the home for 10% less than the purchase price.
This phenomenon bears repeating. Zillow did the large-scale equivalent of buying a couch for $200, paying a mover $70 to bring the couch into their home, paying a cleaner $40 to shampoo the couch, only to list the couch a week later on OfferUp and Craigslist for $185.
Now, Zillow Offers is in 25 markets, and there's no evidence that the same calculus is happening in those other 23 markets. But that gets to the question of how the Zillow Offers' decision-making process works. Zillow Offers lost money in the second quarter, but not a "buy a couch for $200, and then try to flip it for $185" amount. The company lost $59 million on Zillow Offers, while generating over $772 million in revenue.
So, is there a regional manager in Phoenix, and a different one in Atlanta that started recently messing up? And, conversely, a manager in Dallas or Orlando that may bring more common sense to instant homebuying?
On Tuesday, Zillow CEO Rich Barton and Chief Financial Officer Allen Parker will wear the proverbial jacket during the company's earnings call. But I'm curious to know who made the day-to-day decisions of what to buy, and what, if any, directives Barton and Parker handed down.
Agents, many of you have stepped forward in the last week to share valuable information about your interactions with Zillow. One theory you've offered is Zillow's overreliance on flawed home price algorithms, but I'm curious to know more specifics about those interactions.
Please email me anonymously at mblake@housingwire.com.
Sincerely,
Matthew Blake
Senior Real Estate Reporter
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