What Zillow leaving the Triangle means for the housing market

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A Zillow-owned home for sale in Raleigh on Tuesday, November 2, 2021. The online real estate company has announced that it is ending its home buying division, Zillow Offers, due to large losses in the last quarter.

News & Observer

Zillow announced this week that it is no longer making cash offers on homes, ending the quick home buy and flip operation of the well-known real estate company known as Zillow Offers.

In a letter to shareholders, Zillow lamented the consequences of the decision – it is laying off 25% of its employees – but concluded that the financial costs were too great; the company lost $ 380 million in the last quarter of Zillow Offers.

By shutting down its Triangle operations, Zillow is leaving one of the hottest housing markets in the country. Here’s what that means for buyers and sellers in the area.

What the data says

One of the defining features of Zillow is its Zestimate, an online tool that the company has offered since its inception and that many people use to estimate the value of their home.

Before closing the deal, Zillow used this algorithm to inform its cash offers on houses, although it also contracted an independent analysis from a local broker. But Zillow ended up paying too much for the homes and inaccurately forecasting future sale prices, the company said.

“We have experienced a series of extraordinary events: a global pandemic, a temporary freeze in the housing market, then a supply-demand imbalance that has caused house prices to rise at an unprecedented rate. We have not been able to accurately predict future home prices, ”the company wrote in the letter to shareholders.

According to Raleigh Realtor Jim Allen, the Triangle Multiple Listing Service shows that Zillow has listed homes in the area for higher prices than he was able to sell them. Triangle MLS data is only accessible by brokers.

Over the past year, Zillow has sold on average below its asking price in most areas of the Triangle. In Wake, it was $ 6,000 less. In Durham, $ 3,000. And at Orange, it was $ 18,000.

This is not the case in the general market. The Triangle’s lowest average rate is Apex at 7% above asking price.

Zillow homes have also been on the market longer than average. Over the past year, the typical Zillow house has been on the market for 22 days compared to the Triangle average of 13.

“All of this normally indicates an overpriced list,” Allen said.

And while Zillow lost money nationwide in his house flip operation, he did not experience such losses in Wake County.

Since Zillow entered the market in 2019, the company and its subsidiaries have bought and sold approximately 500 homes in Wake County with a typical sale price of almost $ 9,000 for the amount they paid, according to county data through the end of October. This does not include any closing and service fees that Zillow charged sellers.

And although Zillow lost money in Wake in three out of four quarters last year, it had its best sales numbers in the past two quarters, typically selling properties for over $ 20,000 a year. compared to what he paid.

Even that, however, is far below what average salespeople earn, according to recent data analysis from ATTOM Data Solutions.

In the last quarter in the Raleigh area, the median capital gain for a home seller was over $ 143,000. This is an increase of 104.6% from a year ago when the seller’s median earning was $ 70,000.

N&O reporter Ben Sessoms talks to his press partner ABC11 WTVD about Zillow’s shutdown of his house flipping business.

The future of iBuying

Zillow Offers was part of the larger iBuying business, which includes companies such as Offerpad and Opendoor, Zillow’s main competitor.

Opendoor made a wave of buying in Wake County, seizing more than 500 homes from early 2020 until last summer, The News & Observer reported.

Part of the appeal of iBuying for sellers is getting cash offers on their homes without having to go through the process of contracting an agent and setting up open houses. For buyers, it’s convenient to virtually tour homes on a smartphone app or schedule in-person tours with no guide needed.

But some real estate agents in the Triangle are skeptical about the future of the industry.

“I’m just not sold on iBuying,” said Johnny Chappell, a local real estate agent. “They are selling too much, or selling the industry too much.”

Buying and selling with companies like Opendoor is easy, he said, but there are better ways to maximize a home’s value.

“We’ve proven time and time again to our clients that they make more money when they work with a professional who knows the market,” said Chappell.

In August, Opendoor was negotiating a legal settlement with the Federal Trade Commission, according to public documents. In its March filing with the Securities and Exchange Commission, Opendoor said the FTC believed the company’s claims regarding the bid amounts, repair costs charged to home sellers, and price comparisons with the sale of homes on the open market were “inaccurate and / or insufficiently substantiated”.

But Opendoor has shown no signs of slowing down in Wake County. Since July, it has sold about 250 homes, according to Wake County data.

“Obviously, the iBuying industry is responding to a market need. Otherwise, they wouldn’t develop as they are, ”said Roberto Quercia, a professor who studies low-income homeownership at the University of North Carolina in the Department of Urban and Regional Planning at Chapel Hill. .

But Quercia said Zillow’s exit may reflect the volatility of the industry in terms of supply chain and labor shortages.

“The amount they invest in the renovations, depending on the materials and the cost,” Quercia said, “I think they are pricing above the market because they have to renovate these homes.”

Supply is no longer a problem

Zillow exits the Triangle market as home values ​​continue to soar.

The median real estate selling price in Wake County has increased in the first six months of 2021, The N&O reported. It hit a record in September.

Zillow’s effect on this is minimal, however, Allen said.

As of Wednesday, Zillow had 101 homes listed on the Triangle Marketplace, according to data from Triangle MLS. This is just over 6% of the more than 1,600 houses listed.

“In our local market, this will have no impact. They really haven’t bought that many houses in the Triangle, ”Allen said.

He said that the low supply of housing is the main cause of the increase in prices.

In the past year, nearly 44,000 homes have been sold in Wake, Durham, Orange and Johnston counties, according to Allen’s reading of Triangle MLS data.

“Supply and demand. Scarcity creates higher prices. If demand is high and supply is low, prices will go up,” Allen said. “I don’t see a way out until five to five. seven years, and if people keep coming at the rate they’re coming in right now, it still won’t be healed during that time. “

He said it is up to the municipalities to increase the supply.

“Each of the municipalities needs to start authorizing the construction of more townhouses in different types of zoning. Townhouses are going to become the first and second option to buy a home, ”Allen said.

What will happen to the current Zillow ads?

Zillow said he would continue to sell the supply of homes he currently has. He will also honor contracts, closing homes he has already agreed to buy.

But he won’t buy any more houses.

Help us cover your community through The News & Observer’s partnership with Report For America. Contribute now to help fund stories about housing affordability in the Triangle and to support new journalists.

This story was originally published 6 November 2021 6.30 a.m.

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Ben Sessoms is covering housing and COVID-19 in the Triangle for the News & Observer via Report for America. He grew up in Kinston and graduated from Appalachian State University in 2019.

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