By: Jules Schultz | AHWD, ABR, CNE, CRP, GRI

November 16, 2021

Zillow Is Done Flipping Homes with iBuying Methods

Over the last two years, many U.S. states saw a large surge in their housing market. In some cases, those selling houses, condos, and townhomes were asking more than double what they originally paid. Those prices were met by a frenzy of buyers who were looking to buy anything they could as quickly as possible. In many cases, the typical home resulted in a bidding war. 2021 was a great year to sell a home, and for many investors, it was a great year to flip a home. 

Flipping homes has been a money maker for those who know what they’re doing for a long time now. Buy a property, put some money into repairs or upgrades, then sell the home six months later at a sizable profit. As the real estate market was so fierce this year, some real estate companies started buying up properties just for the sake of selling them. 

However, as markets across the country have shown signs of leveling out, some real estate organizations have been caught with an overstock of inventory. A major name making recent news on this front is Zillow Group Inc.

Better known as simply Zillow, the online home buying and selling site is looking to unload about 7,000 houses after buying too many properties to flip. Zillow is seeking about $2.8 million in total for all 7,000 homes, which are being shown to investors now. If all these houses can be sold, it would put a huge dent in Zillow’s overflow inventory. 

The company also stated that they will try to sell the houses to several different buyers instead of in a single bulk transaction. It is yet to be seen what this challenge could do to Zillow financially, but a report from KeyBanc Capital Markets noted that 650 of the homes for sale showed an asking price of about two-thirds what they were purchased for.

What is an iBuyer?

The premise of iBuying is to purchase low, renovate quickly, and sell for a profit. Zillow, along with competitors Opendoor and Offerpad, leads the real estate market in iBuying. iBuyers work directly with home sellers to offer an instant cash amount for the home with the idea that it removes the stress and hassle of home selling from the homeowner. Additionally, the homeowner no longer needs to deal with the traditional real estate process.

However, while an instant cash offer on your property sounds like a win, it should be noted that the seller does get stuck with some fees that can range up to 7 or 8 percent of the sale price. Additionally, as the iBuyer needs to remain profitable, their instant cash offers may be lower than what an independent sale might raise on the market. On average, iBuyer costs can be higher than the home sale costs from the typical home sale model that many are familiar with, resulting in less money in your pocket once all is said and done.

Housing Inventory Overstocked through iBuying

So how did Zillow get too many homes in their inventory? 

Zillow attempted to obtain as many properties as possible to take advantage of the inventory-starved real estate market that many states have been dealing with. In many of these markets, prices were rising quickly at record-breaking speeds. 

As iBuying can be a very quick home-sale process, Zillow quickly went beyond their limits as many people were more than happy with the cash offers that were being quoted during the high housing market spike. Zillow spokespeople have suggested that it was a faulty algorithmic model used for iBuying homes quickly and selling them even quicker, the reason why the company was so quick to purchase so many properties. 

Today, due to this overstock of properties and a loss of net dollars, Zillow has made multiple announcements that they will no longer partake in iBuying practices. This means no more home flipping for the company. It will take several business quarters for Zillow to fully step out of the iBuying markets. 

However, while an instant cash offer on your property sounds like a win, it should be noted that the seller does get stuck with some fees that can range up to 7 or 8 percent of the sale price. Additionally, as the iBuyer needs to remain profitable, their instant cash offers may be lower than what an independent sale might raise on the market. On average, iBuyer costs can be higher than the home sale costs from the typical home sale model that many are familiar with, resulting in less money in your pocket once all is said and done.

How Does Housing Inventory Affect Relocation?

When moving to a new city, housing market prices and inventory will have an impact on an employee’s ability to purchase a home. Due to the hot housing market, homes are still selling quickly and at industry high prices, causing some relocating employees to be either outbid or outpriced from purchasing a home. This is causing some buyers to spend longer periods of time finding a home that meets their needs and raises concerns about temporary living accommodations during the home finding process.

For those that receive relocation benefits from their employer, the option of short-term temporary/corporate housing can serve as an important stepping stone during the move. Industry best practice shows that providing temporary housing benefits for 30, 60, or 90 days is a critical benefit that allows your transferee to find a more permanent home. 

Global Mobility Solutions team of workforce mobility experts are ready to help analyze your relocation program and assist in the development of competitive policies. Our real estate program and comprehensive home-sale assistance programs provide a balance of excellent service quality and increased selling prices. Our trustworthy network of relocation real estate agents are relocation certified and are skilled in working with employees that are relocating for professional reasons. Contact us today with any questions you may have about real estate trends or relocation services.

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Director, Real Estate Services Jules has over 21 years of experience as a licensed Real Estate Agent and Broker with operational experience gained from areas throughout the United States. She has held leadership positions such as Broker of Record and Real Estate Specialist, Team Leader, and Branch Manager, and as well as owned her own real estate company, working on U.S. Domestic and Government accounts. As a Team Leader, Jules taught monthly classes in contract writing, and contract negotiating to hundreds of Real Estate Agents.

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