patrick.net

I get hard every time I hear about Zillow listing a house for sale at a loss.

EBGuy says

Macolm, thanks for bringing this to our attention. And I thought all we had to worry about was small time, local syndicates flipping.

CA is a different animal I don't understand, but I'd avoid most real estate nationwide if you can unless you know it's a deal or a rehab you can handle.

My ranch in rural IL, is worth of $300k now. Bought for $81k in 2013/14ish. Super high property taxes here (not mine). I'd sell, but I'd be buying into an inflated market and taking on $10k/yr property taxes for a $400-500k property.

Oldest is 11. Youngest 8. I'm 6-7 years from not needing the extra space for the kids and we manage now. And yes, they will move out. I'm saying fuck it. We'll be home 2 weeks for October as is, so what's the point? I'd rather suck it up and move out of state once the kids are gone. 7 years in a new to me home seems stupid when we'll likely pay this one off in that time. I'm sick of debt I can't pay off monthly and I have minimal. It's more lucrative to invest it though than to pay the debt off.

HunterTits says

..except Zillow is not constrained by REO regulations like bank foreclosed properties are. They can rehab them and then rent them out. They can even create a REIT and IPO it.

Yes, they could, they could do anything that makes business sense. No, they don't have a regulator telling them they have to sell a certain number to keep to some ratio like a bank, but in their case, the market will force it. Consider all the debt servicing and whether it makes sense to rent a million dollar house out.

HunterTits says

How do you know how they are financing that operation? :)

Besides, all they need is cash flow to stay afloat to operate for a while.

Financing or not is irrelevant. It is still a losing proposition.

Exactly, all they need is cash flow to stay afloat, not a good situation when it is a cash drain.

"Last year, according to Zillow’s public reports, its home flipping business lost $66.6 million. Independent analysis indicates it’s a lot more. A study of Zillow’s fourth-quarter reports by the Real Estate Technology Center at the University of Colorado shows, after operational expenses, Zillow lost $72,000 for every home it purchased and sold. That’s an improvement according to Mike DelPret, a resident scholar at the Technology Center, who estimates Zillow lost $129,000 per house in the third quarter."

Wow! this year will probably be even worse.

https://www.mtdemocrat.com/business-real-estate/zillow-looses-millions-on-house-flipping-venture/

Malcolm says

Real Estate Technology Center at the University of Colorado

Exactly what is Real Estate "Technology?" Stuff like profit/loss and investments falls well within the scope of plain old Accounting.

"Technology?" - heard that they are using "AI" to extract every last$ from every shack.

Malcolm says

Wow! this year will probably be even worse.

Maybe they're gong with the Change Bank model.
“How do you make money doing this?”
The answer is simple: Volume. That’s what we do.
Innovation never sleeps...

How can they’re Zestimate model be anymore than a steaming pile of horseshit than when they continuously adjust previous historical values that are 10 years old??? Fuck these assholes.

Is it possible that Zillow doesn’t care if they lose money on their real estate transactions? They make their money on advertising (monetizing web traffic) so their footprint in the real world, even if they lose money, probably still drives revenue to their web presence.

MisdemeanorRebellionNoCoupForYou says

Some still have the original cabinets and kitchen appliances

In avocado green and harvest gold with orange shag carpet.

Zillow, like Amazon when it was starting out, does not care about making money off buying/selling houses. They simply want the top line to show improvement. ie continuously increasing sales. That is what Wall Street is focused on --- a growing business. As long as they are selling more houses than the quarter before then their sales are increasing and so should their stock price.

Amazon supposedly loses money on its merchandise sales, but it has always increased these sales so its stock price has soared. If you look at its market cap compared to its earnings people would giggle.

stfu says

The process is (or was) : ... Zillow agrees to proceed and informs buyer of the rehab discount. ... If the buyer proceeds the sales price stays at the original number and the rehab discount is not deducted from the selling price so it doesn't show up in the county data.

How does that work out with seller's capital gains on the house? Is the rehab cost a selling cost for the seller and thus a deduction from capital gains? Are those costs somehow reflected in the sales history of the house or is Zillow magically able to record the inflated purchase price, which will help them get a good sale price in the future.

Just checked Zillow and they aren't offering to purchase anything in 94087. Maybe they figure they can flip 2 or more houses elsewhere for the price of 94087. I tried RedFin and ... ha ha ha ... they somehow think my house is worth over $2.58MM (the big Z gives my "only" $2.1MM). Alas, Redfin isn't offering to buy my shack either.

I'll note for others that last decade I used Zillow to find my mortgage refinance agent. That really was helpful, and I felt I got better deals than I could find elsewhere (2.875% 5/1 ARM with negative costs to cover inspection). As noted by others on this thread, homeowners and homebuyers are the "product." But that sure seemed to work out great with respect to refinaning.

SunnyvaleCA says

How does that work out with seller's capital gains on the house?

My understanding is that is it no different than "cash back at closing". The seller pays capital gains on the sales price, NOT NET of the rehab fee.

I've used this when selling into a slow market before. I offered $10,000 cash back at closing in order to bring in motivated buyers that didn't have enough liquid cash to close on a house in the price range I was at. You may also see this described as "carpet allowance" or "paint allowance" but it's really just a technique to entice buyers with little liquid assets into the contract. In my case (not Zillows) I didn't pay any capital gains because it was a primary residence for the required time and I was still under my lifetime exemption. It was not a taxable event.

I get that people in California would scoff at the notion that you can't sell a house for whatever number you can dream up but in many parts of the country people are broke ass and have never had the $30,000 liquid it takes to qualify for a loan and close on a modest home. In fact, my gut feeling is that the current craziness is a combination of two primary things :

1) Investors like Blackrock have no other productive outlet for all of the excess liquidity that the FED has injected so they've decided to buy up all available real estate
2) For the first time in their lives, broke ass couples have $20,000 in the bank from the Stimi checks (no joke, I know a couple w/ 4 kids who've received over $35k in stimi checks).

Misc says

Zillow, like Amazon when it was starting out, does not care about making money off buying/selling houses. They simply want the top line to show improvement. ie continuously increasing sales. That is what Wall Street is focused on --- a growing business. As long as they are selling more houses than the quarter before then their sales are increasing and so should their stock price.

Amazon supposedly loses money on its merchandise sales, but it has always increased these sales so its stock price has soared. If you look at its market cap compared to its earnings people would giggle.

I think in the short term it appears like this, but I disagree. The fundamental valuation is on actual earnings. I still believe in the FANG bubble, but there is no telling how far wreckless investors will go when a stock is sexy. Yes, penetrating into a new market calls for investor patience through initial losses, but it is not a growth strategy to simply have high sales with negative margins. I used the example of MoviePass earlier. I think it was appropriate to compare to Zillow and what you are describing. I still have no idea WTF MoviePass was trying to do. I suspect their real goal was to market the viewer data. That is different than just trying to blow up sales to seem impressive, they simply miscalculated the value of the data and treated the net loss on admission prices and member subscriptions as the cost of that knowledge. So yes, investors need to understand that it costs money to find a new revenue stream, but they don't stand for continuous losses. There is usually a plan in place with expected milestones in new business development.

stfu says

My understanding is that is it no different than "cash back at closing". The seller pays capital gains on the sales price, NOT NET of the rehab fee

Capital gains are paid on the difference between total purchase price and any costs then subtracted from the net proceeds of a sale. Accumulated depreciation is added back into the equation. It also has the same effect of lowering the cost basis. Cash back lowers the cost basis unless it is actually spent on something like a carpet allowance. It I buy a $100,000 property and I get $10,000 back, my cost basis is $90,000. If I spend the $10,000 on carpeting and appliances, my cost basis is back to $100,000. The MLS will show the sale price as $100,000 regardless. The agent's commission will be on the $100,000 regardless as well.

One other interesting note I can share from experience, in California the assessed price is the market value of the home at the time of the sale, not just the sales price, though it is usually the same. We bought a condo for $45,000 from the VA, but the assessor said I had bought below market and they assessed it at $55,000.

I hope this will one day become an MBA course topic to not do things just because a competitor starts doing it. I can't believe what I just read here.

https://www.cnn.com/2020/02/21/business/zillow-rich-barton-risk-takers/index.html

I found the article funny. I was right it is all about increasing sales profits be damned.

The CEO stated that in 3-5 years he wants the sales from homes to be about 9 times the current revenues of the company.

https://www.youtube.com/watch?v=GTm0qV5lb7o

Recommends buying puts on Zillow and others. I don't necessarily agree with his time frame, but the rest is spot on.

Stuff to keep in mind, Zillow is already more than 50% below their February high. Zillow has $4.5 billion in cash, which is quite a war chest.

EBGuy says

Stuff to keep in mind, Zillow is already more than 50% below their February high. Zillow has $4.5 billion in cash, which is quite a war chest.

Good stuff to keep in mind.
So if they lose $78,000 per house, then their whole war chest is used up after 57,700 homes. Sounds like a lot of homes but that averages to just over 1,000 per state. The other thing to keep in mind is that $78,000 was the average when the articles I quoted were written. The prices had only been going up until that point. Wait until they start taking $250,000 baths on these really high end homes, which I think is where they were really investing heavily as those had the most upside.

EBGuy says

Stuff to keep in mind, Zillow is already more than 50% below their February high.

That alone would make me want to look elsewhere for shorting / buying puts opportunities.

Malcolm says

The other thing to keep in mind is that $78,000 was the average when the articles I quoted were written. The prices had only been going up until that point. Wait until they start taking $250,000 baths on these really high end homes, which I think is where they were really investing heavily as those had the most upside.

Just glancing at their balance sheet on Yahoo Finance, it looks like they went from $135 million of inventory (being worked on and ready to be sold, I'm guessing) one year ago and grew the "flipping business" to almost $1,170 billion of inventory this past quarter. If the market goes south, that is, as they say, a lot of pergranteel. At the same time, a ten percent loss in the market would be vaporize a little over a $100 million.

EBGuy says

pergranteel

Lol, didn't know this term:

Pergraniteel™: Pergo fake wood floors, granite countertops, and steel appliances. It is an amalgamation of flipper’s most popular home improvements when improvements were made at all.

Example:

I also know house, where Zillow lost money. However it is not that tragic as someone thinks.

This is how Zillow offer looks like (true offer):

Market value
This is a starting estimate based on comparable homes in your area and list-ready condition. Your offer will be finalized after the evaluation.
Market value
$317,300
SELLING COSTS AND FEES
Zillow service chargeHelp
0.3%
Buyer agent commission and selling costsHelp
5%
Est. closing costsHelp
$2,466
RepairsHelp
Pending
Est. cash proceeds
$298,018
before repair costs

Zillow from published sales price deduct everything, including overpriced repair/upgrade costs. You are getting on hand much less.
Zillow is trying do not put any money into transaction. Even they will sell at same price as published purchase price, they still make some money.

Patrick says

Lol, didn't know this term:

I swear I learned it on Patnet at the time of the last crash.

EBGuy says

Patrick says

Lol, didn't know this term:

I swear I learned it on Patnet at the time of the last crash.

Same here.

HeadSet says

Same here.

That's crazy; we joined Patnet within 5 days of each other. What a long strange trip it's been...

EBGuy says

That's crazy; we joined Patnet within 5 days of each other.

Yep, back when Patrick was an Obama supporting lib.

REpro says

I also know house, where Zillow lost money. However it is not that tragic as someone thinks.

This is how Zillow offer looks like (true offer):

Market value
This is a starting estimate based on comparable homes in your area and list-ready condition. Your offer will be finalized after the evaluation.
Market value
$317,300
SELLING COSTS AND FEES
Zillow service chargeHelp
0.3%
Buyer agent commission and selling costsHelp
5%
Est. closing costsHelp
$2,466
RepairsHelp
Pending
Est. cash proceeds
$298,018
before repair costs

Zillow from published sales price deduct everything, including overpriced repair/upgrade costs. You are getting on hand much less.
Zillow is trying do not put any money into transaction. Even they will sell at same price as published purchase price, they still make some money.

That's actually a really good deal for that seller.

HeadSet says

EBGuy says

That's crazy; we joined Patnet within 5 days of each other.

Yep, back when Patrick was an Obama supporting lib.

Well, it's true, I was.

I think I have a much better understanding of reality now.

Patrick says

I think I have a much better understanding of reality now.

I had been a lifelong conservative Republican, but I too voted for Obama, and I still believe it was the best choice at the time, plus, it is nice to be on the right side of history as far as the whole first black President thing.

Malcolm says

Patrick says

I think I have a much better understanding of reality now.

I had been a lifelong conservative Republican, but I too voted for Obama, and I still believe it was the best choice at the time, plus, it is nice to be on the right side of history as far as the whole first black President thing.

Boooooo!

Who ran against Obama?

Oh, I remember, it was Hillary.

HunterTits says

Since when is voting for affirmative action preferences 'the right side of history'?

He won pretty handily because he had a clear vision and if you remember back to 2008, Republicans all of a sudden became very Socialist and revealed a privileged class who can never lose their wealth, no matter what they did. McCain, decent person, definitely a fan, had absolutely no direction.

Then 2012, while I feel Romney is also a decent person, and I respect him even more now, Obama seemed like the better choice, and the irony was his healthcare plan was based on Romney's model.

But yes, Biden has pushed me way back over to the right side.

Malcolm says

while I feel Romney is also a decent person, and I respect him even more now,

Romney voted to impeach Trump for looking in to the Biden corruption in Ukraine. Romney, like all the other bribe takers, think it is a crime for anyone to look into any politician's graft, payola, and other corrupt fringe benefits.

HeadSet says

Romney voted to impeach Trump for looking in to the Biden corruption in Ukraine. Romney, like all the other bribe takers, think it is a crime for anyone to look into any politician's graft, payola, and other corrupt fringe benefits.

That's one point of view. While I like the accomplishments of the Trump administration, I don't accept the whitewashing of his personal actions. He wasn't looking for an objective review, he simply wanted an announcement so that it would raise a cloud of doubt. I don't like people who operate that way, regardless of party affiliation.

Cloud of suspicion? Jesus, did you hear about all of the fake scandals like Russia gate?

He should have forced an investigation.

As of today 10.18.2021

"Zillow slid 6.4% in premarket trading, following a Bloomberg report that the company has temporarily stopped its home-buying service due to overwhelming demand."


RIIIIIIGGGHHHHTTTT! "Overwhelming Demand". Yeah you always stop offering a product when it's greeted with "overwhelming demand". This is newspeak for "we can't sustain the losses we are incurring".

Yup, it's been a loss leader for them. Paying $1.50 for $1.00 in revenue like a typical Harvard MBA grad. "We lose money on every transaction but we'll make it up in volume".

Morons.