Why did Zillow end their iBuying program? How does that affect us?
As you probably know, Zillow—along with other iBuyers like Opendoor, OfferPad, and Redfin—was buying homes in our area, but they’ve ceased all their buying activities. What went wrong, and how does this affect us?
As it turns out, there were several factors at play. Zillow apparently wanted to dominate the iBuying market as quickly as possible. In their opinion, that meant buying as many homes as quickly as possible. Doing so would weed out the competition and lead to a quicker path for success. And why not? Especially here in the Triangle with home values increasing by approximately 1% per month, how could they screw it up?
To say that Zillow screwed it up would be an understatement. Rather than have professionals visit the homes to determine the values for these properties, Zillow used their own algorithms and valuations that we know as Zestimates to make the offers. Many times, they would bid significantly over their Zestimates to ensure they’d outbid their competition and acquire more homes.
“The Zillow iBuying program lost more than $1 billion in total over the last three years.”
Let me share an example. I had a listing that needed no work done to it, but the seller wanted a very ambitious price for the home. I reluctantly agreed, but cautioned him about the challenges of pricing it high. Sure enough, after a few weeks and many showings, the market simply wasn’t willing to pay his list price. But guess who was? We reached out to Zillow, and they paid the list price for the home. If their goal was to take that home and resell it, how could they possibly succeed in making a profit when the buyer’s market wouldn’t even pay the price that Zillow just paid?
Another factor is that many of the homes that Zillow bought need improvements. Due to the labor shortage, they couldn’t find enough contractors and struggled to find materials due to the supply shortage. That meant their homes simply sat unsold on the market; the longer they sat unsold, the more money Zillow lost. According to reports, 66% of their homes sold for an average loss of 4.5% per home. The Zillow iBuying program lost more than $1 billion over the last three years.
Those numbers are staggering, but does any of that affect us? For the most part, no. Zillow is apparently selling a large group of homes to certain investors for discounted prices. If one of those homes is a comparable sale for your home, it might ding your value a little bit, but it also might not.
In the end, there are no signs of the market slowing down in the Triangle area. Are you prepared for another strong market this year?
We’re always here to help you if you have any questions or would like to know how your home fits in this current market.
