Zillow and the foibles of fast flipping

Zillow lists properties online like domain and realestate.com. Someone liked the idea of profiting from renovations so since 2018 they've been buying houses in bulk. In "only in America" scale they bought 7,000 houses. The purchase price based on their own price estimation tool.

But no one said it was easy. It's all come undone. The company lost $420 million in third quarter of 2021 They're accused of pushing up prices and now potentially flooding markets with fire sales.

Its noted their automated valuations may have over-emphasised values based on simple square foot rates. And their profit assessment over stated future price rises.

Its termed iBuying (instant buying). Apparently other businesses Opendoor and Offerpad are into the huge scale house-flipping and doing a bit better.

 

so was the problem was they got too big and saturated the market or they misled on their estimated values?
if it was the latter then they essentially did what every other BA, spruiker, investor story does

 

Drop in the ocean

 

I would say a case of mismanagement

As I said …..a drop in the ocean, considering there are 50 States and the population

This wont impact on boom cycle in US because there is not enough stock, 7000 zip in the scheme of things. Biden admin just pumped 1 trillion infrastructure…. Just keep printing money…..

Not many realise in US they can lock loans and interest rates for 30 years. Imagine if we could do this here

 

It looks like falling prices, inaccurate valuations and over optimistic end price estimations, more than the scale. But still its big numbers and would effect individual markets.

 

Well inaccurate valuations, over optimistic estimations = outright lying
So you reap what you sow comes to my mind

 

I think they've also been caught out with the material & trade shortages that the rest of the world is suffering from. You can't flip the properties if you can't get the resources to undertake the renos. They've probably just been left with heaps more inventory on the books for longer than anticipated. I know Redfin also do the same in select states. As MTR says, 7,000 properties is next to nothing in the US, and most regions are still booming, can't see this having any impact on the market, although it certainly smashed Zillows share price..!

 

This, but it has nothing to do with the market other then being too bullish. It is poor leadership by management. They bought too many houses bought something like 7000 while only selling like 3000 for the last quarter. 7000 properties a quarter is a lot when your bussiness model is to make 15% by flipping in 2 weeks and you are still paying inflated material costs and holding cost 6 months later . Got too greedy put crap into their algorythms so expected selling prices and volume cant be achieved. Opendoor and open offer didnt overeach purchases were in line with sales.

 

Yes, agree, crappy mismanagement as well if based on flawed algorythms. Although it wouldn't be the first time company directors have made decisions based on garbage info put forward by their allegedly expert managers. Garbage in, garbage out.....