When Jed (not his real name) sold his Central Florida home to Zillow, the real estate website, the whole process seemed odd.
Prior to the sale, the Zestimate – the value Zillow placed on the property – was significantly lower than it was previously. But Jed wasn’t too worried when Zillow offered him a price for the property: it was slightly higher than the Zestimate, and Jed thought it was a good deal.
But after the sale was closed, something strange happened. The Zestimate of the property immediately increased by 14%. Within two days it was on sale at the new higher price.
Jed also thought it was unusual for the list to receive thousands of views within a day of signing up – a sign, he thought, that she had been promoted internally by Zillow. One of those browsers ended up buying the house, and once Zillow accepted his offer, Jed noticed that the price had gone up an additional 3%.
Listen to the reps for the range of real estate websites snapping up homes, and that’s exactly how the market works. But for a growing number of skeptical homeowners and those excluded from the real estate market, this is another sign of manipulation by iBuyers: websites that use data to price and place bids on properties for resale in a spin. tomorrow. For opponents, this is a baseless conspiracy theory. But who is right?
âIt’s something that every real estate agent in every office has been discussing for years,â says Sean Gotcher, a Las Vegas-based real estate agent. In mid-September, he published a TikTok in which he alleged that a “billion dollar” anonymous real estate company had used the data it had collected from users to buy houses in order to manipulate the price. real estate in areas known to be high. interest.
This video has been viewed three million times on TikTok, while a replay on Twitter has 2.1 million more views. Gotcher says he was “very, very surprised” at the attention paid to the video.
In the clip, Gotcher offers a hypothetical situation where a real estate technology company could buy 30 homes in an area of ââhigh interest to buyers at $ 300,000, then buy a 31st home at $ 340,000. This would reset the list price of homes in a given area to a higher level – including the 30 previously purchased – potentially neting the company an additional $ 1.2 million.
The video is shy, but tries to get a point across. The housing market is at a tipping point – and real estate websites have the power to move the markets to their advantage and to the detriment of buyers. âIn our world, we’ve been crying out about this – and the possibility of it becoming a reality – for years,â Gotcher said. Grab. “And no one did anything about it.”
“Intentionally overpay for houses would be a terrible business model. “
The real estate agent first noticed that iBuyers were entering the Las Vegas market a few years ago, before the pandemic hit. They then start offering incentives in certain zip codes that they have considered hot areas. âThey use all the data they have accumulated to focus on one area,â he says. “In any negotiation, the person with the most data is always going to win the negotiation.”
Gotcher is eager to sound the alarm bells before the market gets out of hand, he says. âThey know from their data how many people can potentially buy this home, how many deals they can get, and how they can maximize their profits,â he says. “It’s too much power.”
But the companies he hints behind the practice, even if he doesn’t name them directly, say the long-running scam is not activated.
âWe don’t have the share to manipulate the market and we don’t want to,â says Alina Ptaszynski, communications manager at Redfin, a full-service real estate brokerage firm. âIntentionally overpaying for homes would be a terrible business model. “
Ptaszynski points out that RedfinNow, the iBuyer arm of Redfin, only sold 292 homes in the second quarter of 2021, or 0.01% of all homes sold in the United States during that time. (The company declined to share the number of homes it purchased.) âAs a brokerage firm that employs local real estate agents who help consumers buy and sell homes, we give homeowners a choice transparent: sign up with one of our agents for a low price or take a cash offer from RedfinNow, âshe says.
âWe’re honest with sellers, they’ll likely earn more by listing in the marketplace with an agent,â she adds. “Sometimes they’d rather take the convenience and certainty of the cash offer and let us take the risk of selling it to the end buyer.”
“I don’t think the stories about TIC Tac are an accurate representation of the current business model. “
Zillow has also denied Gotcher’s claims. âWe pay the market value of every house we buy,â a Zillow spokesperson said. Grab. Sellers who turned down an offer from Zillow Offer, Zillow’s iBuyer arm, and then sold through traditional means would have gotten only 0.09% more than Zillow’s offer. âWith Zillow offers, our goal is to buy at market rate and then sell quickly at market rate. The business model is designed to generate our profit margins from the convenience fees we charge sellers – typically around five percent today, âthe spokesperson said.
This is something that industry analysts also believe is more likely. âI don’t think the stories on TikTok are an accurate representation of the current business model and what we should be worried about,â says Tomasz Piskorski, a real estate professor at Columbia Business School who has analyzed millions of data points on housing transactions in the United States with colleagues at Stanford and Northwestern universities. (Piskorski is also a member of the National Bureau of Economic Research.) âIBuyers still have a fairly low share of the US transaction market,â he says, estimating that about one percent of all transactions are mediated by them.
Piskorski admits that market share can fluctuate wildly depending on where you are in the world. In Phoenix, not far from where Gotcher operates his real estate business, the share is significantly higher, but still below 10% of the market. âThey don’t yet have as big an influence on the housing market as some stories claim,â Pikorski said.
Still. And that’s the key word.
Piskorski draws a parallel between the current situation of iBuyers and that of Amazon years ago. âI’m old enough to remember when Amazon started out as a bookstore and was losing money for several years when it started out,â he says. âIt’s a very similar situation for iBuyers right now. They are still losing money. Zillow has lost hundreds of millions of dollars through its iBuyer business, Piskorski believes.
But the goal for businesses is to build enough scale over time to grow into large, sustainable businesses. âIt’s a very narrow margin business, but it can only be profitable if you operate on a certain scale, which they haven’t achieved yet,â says Piskorski.
The researcher also estimates that there is a natural cap for these iBuyers at around 20% of the total US housing market due to the challenges of buying and selling homes through the sites’ iBuyers services. (Unlike traditional real estate agents, iBuyer services never actually see a home before placing an offer. Instead, they use automatic valuation models that take into account the home’s resale on the market within a timeframe. three to six months maximum. They are interested in They want cookie-cutter properties that they can simply market.)
“Why do we have to wait until something is so completely out of control that we can’t fix it? “
âContrary to claims that this is such a profitable company that is manipulating the market, that is just not the case right now,â Piskorski said. “But that being said, once it gets big enough, the kinds of issues people are talking about might become more relevant.”
This is also what worries Gotcher. “Why do we have to wait until something is so completely out of control that we can’t fix it?” ” he asks. “Why don’t we try to fix something before it becomes a big problem?” I don’t think that’s the cause of the housing crisis right now, but I think we’re headed in that direction if we don’t start paying attention to what’s going on.
As for the iBuyers losing money, Gotcher thinks that’s a blip. âWe are the test,â he said. âWe are the test to see how they can monetize this. “