The plan was to identify properties that are rapidly appreciating and that have motivated sellers willing to pay Zillow's 5% to 9% service fee; buy the homes; and turn them around for a profit. It reached an agreement to sell nearly 2,000 homes from its unfortunate home exchange program, the company's largest wholesale, as it begins to unload thousands of homes and ends the business. When it comes down to it, Zillow is changing its mind because it sees an opportunity for growth that is synergistic with its existing web platform. And, in fact, news of what Zillow has been doing has caused a backlash on social media, largely fueled by a viral TikTok from a Nevada real estate agent named Sean Gotcher who claimed that iBuyers manipulate the housing market.
It's too early to know if Zillow's deals will finally pay off, but if any company can make it, it's Zillow. For example, if a homeowner sells their home on Zillow, they will likely still need to buy a home, and they can also use Zillow to research or hire an agent. Zillow announced in October that it would stop the program for the rest of this year, and at the time, the company said the problem was “an economy with labor and supply constraints that held back its ability to competitively change homes in a hot market. In exchange for offering an immediate cash offer to buy a home, Zillow charges a transaction fee in the range of 6% to 9% of the value of the home, depending on several factors, including how much it would cost to fix the home and how quickly Zillow estimates the property can be sold.
Some observers worry that the company is taking the risk of home prices falling during the few months that Zillow owns a home. Zillow's transaction fee is higher than a typical real estate agent fee, but it allows the homeowner to avoid a potentially lengthy negotiation process with buyers and close the sale quickly. Each housing transaction creates the opportunity for Zillow to generate revenue in its traditional business of selling advertising on its website and selling potential customers to real estate agents. There are more formalities involved than just this, but the idea of iBuying is that a company makes an offer for a house without even going out to visit it, based on what an algorithm, in this case Zillow's Zestimate, says it should cost and the seller accepts or rejects.
The chief operating officer called it “an operational delay for renovations and closures of homes he had purchased and hoped to invest for a profit. Zillow Group (Z 0.55%) (ZG 0.29%) is no longer content with just hosting the online platform where home buyers and sellers interact; it has recently entered the transaction process with a company called Zillow Deals. However, the company is heading in this direction and, without a doubt, it is a way to sell more services around the process of changing a home. Zillow reportedly has around 7,000 homes that it now needs to unload, many of them at lower prices than what it originally paid for.
However, Zillow's Deals unit doesn't need to make a large profit margin for the company to pay off.