I’m terrible at suspense – waiting is the job I do worst – so I’m just going to cut to the chase: Among the Phoenix iBuyers, Zillow is by far the worst, at least so far.
◊◊◊ Spanking the Phoenix iBuyers: OpenDoor, OfferPad, Zillow, The Bottom Line.
It pains me to say that, because until lately I worked with The Laughton Team, Zillow’s feet-on-the-ground in The Valley of the Ever-Fecund Sun. I did buy-side pricing and one-off research projects, work that was provided for Zillow at Laughton’s expense, and I moved on when I finally worked out – dim bulb that I am – that none of my work was making it to the resale side. The joke was on me: I was proving a pricing engine, patiently awaiting results that could never come.
So that much leaves me with some meta issues: Zillow’s message discipline is weak. I overheard way more then ever I should have, and I am NDA’d on nothing. I had no access to any Zillow IP, but my take is they can keep it, anyway. My end-user experience of their vertical tools is that they overpay for hand-waving. (Taking account of the fudge-factor list price markups – entirely spreadsheetable – this may be the case for all of the iBuyers.) In any case, while I am at liberty to tell you all I heard and saw, I’m not that kind of guy. Everything you’ll read here parallels my discussions of OpenDoor and OfferPad: Inferences from tax records and MLS listings.
But: At the same time, I want to lay the blame for the debacle we will document today and tomorrow directly at Zillow’s door. George Laughton and The Laughton Team are kick-ass Realtors – year after year. They will have provided priceless real estate advice to Zillow, which Zillow seems to have ignored in its entirety. I know I will be creating turmoil by writing this, but I hope it will be brief – and conducive, I can hope, of a greater reliance by Zillow on The Laughton Team’s demonstrated expertise.
Zillow’s praxis as a Phoenix real estate retailer seems to be to make every mistake that could be possible to a brand-new licensee, if that brand-new licensee had unlimited funding. They have bought some astoundingly stupid properties – though not as many as I had once feared. They bought a huge number of 5+ bedroom homes without pools before they became acquainted with the facts of demography. Like the teenage daughter of too-old parents, Zillow can’t get enough of big, ugly bad-boy risks, with the result that their target market is huge compared to OpenDoor and OfferPad – as seen here in side-by-side-by-side sorted comparisons of the Original List Prices of each iBuyer’s 15 listings:
Both of the others look relatively sane, and Zillow will go much lower and much higher – and older and farther and sketchy additions and whatever it takes to wrest Marvin Gardens away from those other kids…
Wait, they’re not actually playing Monopoly… I don’t think…
Zillow has said they are juggling houses in order to originate loans. I think that’s bullshit. There is a huge amount of money to be skimmed off the purchase and resale of a home, and yet it turns out Zillow is doing all that work to collect no income (quite a bit less than none, actually), with its putative upside to be found in an ancillary transaction, one with much smaller commissions.
Whatever. I think what they are actually doing, for now, is playing. I think they think they can learn real estate by making every possible mistake, and they’re doing a fine job of undertaking those mistakes, at least – comprehensively and with maximum financial devastation. I think playing with housing (risking the collapse of the economy, as we have only just seen) is irresponsible, but I think it is still worse to turn the freehold – the bedrock of Western Civilization – into yet another tokenized freemium for taking on debt.
All of the iBuyerish realty models are built around the idea of a proud homeowner who is simultaneously a completely helpless baby. The enwebbed world infantilizes you in exchange for micropayments – all the way up to a micropayment of 15% of the Fair Market Value of your home. And that’s still not enough money for Zillow to buy itself some black ink…
Behold the worst performance we have seen so far:
Look at the DOM column. Big Z’s got the yips. As before, these are the 15 most-recent closings ending July 18th. You can see the listings here for the next 30 days. If you open that link, then click on Detail, then History, then click on the listing history, you can see what the yips looks like in real estate. A good listing – well presented and priced to market – should sell at or near FMV in 10 days or fewer. Its listing history should be five or six lines long. Zillow achieves different results.
Look at the SP/PP column: The old sales are the further consequences of the yips – slow-leaking an over-priced listing until it ends up going for less than FMV after a very long time on market. The newer sales are agents calling Zillow’s bluff, with Zillow caving reliably every time.
How do you spank Zillow on price? Same schtick as OpenDoor: The markup seems to be twice the rehab costs, so PP + (Markup / 2) is likely to be the Listing Day cave-now price. Later in the listing PP + ((LP – PP) / 2) is plausible – or just FMV if that’s still lower than their crazy, divorced-from-reality resale prices.
As to the listings, meh. Turned like OfferPad, marketed a little better. Some of the listing copy is dialed right in – benefits, not features – but some is strictly a wrong number. Photos are adequate and as homey as they can be with no staging. Unlike OpenDoor and OfferPad, Zillow’s listings in Phoenix sell the lifestyle and not just the catalog of amenities. Same grim colors, but monkey-see, monkey-do, monkey-who-are-you-to-argue?
The Original List Price column is wrong in both of the ways we’ve talked about: It frequently misses known buyer and lender pricing tiers while using nothing but aggressively-deceptive numbers. The one brand-new licensee mistake Zillow is getting down perfectly is making listings last forever. They’re so good at it that some of their houses have failed to find a buyer through more than one MLS listing. Their idiotic pricing strategy – all Zillow’s doing – is the reason their houses don’t sell.
I could go on and on, so I won’t. Zillow got into iBuying for a poor reason – to defend its mind-share on the web, not to deliver value in the marketplace. It claims to be buying two halves of a full-course meal (the house and its resale) in order to graze on the appetizer (the loan origination fee). It doesn’t always make awful choices on the buy side, but it almost never makes wise choices on the sell side.
If you laugh when you see their results, there’s a reason for that:
As an iBuyer, Zillow is a joke.