Let’s talk about Zillow. I’ve been getting a TON of questions every week about what Zillow is doing and whether appraisers can use their purchases as comps.
YouTube Live TONIGHT (10/19/21): Hey, I’m doing a YouTube Live at 6:30pm PST on Jason Walter’s channel. We’ll talk shop for probably 60-90 minutes.
Big news: First off, yesterday news broke that Zillow would be suspending buying anything else until 2022. Based on articles and a few conversations with locals in the know, it sounds like their rapid pace of buying has become backlogged, so they needed to hit the pause button to catch up. In the Sacramento region they own 372 properties right now and they’ve been on a buying spree over the past few months especially. Look, there could be more to this story, but all we have right now is what Zillow says.
Assumptions: I’ve heard some people think Zillow pulling back must mean the top of the market is here. Or maybe this shows the model isn’t working. Or it’s possible other iBuyers would soon follow in backing off. But here’s the thing. These are assumptions and it sounds like Zillow is going to be buying again in about two months. If this is true, it means these assumptions are misplaced. Of course Zillow is very likely losing money, but that may not be the reason they pulled back.
WILL APPRAISERS USE ZILLOW PURCHASES AS COMPS?
Yes and no. It depends. So many people are talking about what appraisers can and can’t do, but there’s so much misinformation. I hope this helps.
NO:
When Zillow buys properties directly from owners these are very likely NOT going to be used as comps. Frankly, appraisers might not even know about these sales since they don’t show up in the MLS where appraisers typically look for comps. But even if an appraiser knew about a few Zillow purchases, here’s the important part. If an appraiser cannot verify the nature of a sale that Zillow bought directly from an owner, then it’s not good appraisal practice to use the sale as a comp. If an appraiser has no clue about condition, quality of upgrades, or any sales concessions, for instance, using a private “comp” would essentially be a blind comparison. So if someone hands me a private Zillow purchase to consider as a comp, I’m going to say, “Thank you, but I don’t know anything about this transaction. But what I do have is 10-15 MLS sales to consider.”
Technically appraisers CAN use non-MLS sales as “comps” in an appraisal report, but only if the sales can be verified with someone principle to the transaction. In other words, the appraiser needs to be able to understand the nature of the transaction from someone like an agent, attorney, title company, buyer or seller. Yet being that Zillow is seemingly buying in suburban markets where the vast bulk of sales happen on MLS, there isn’t really much of a good reason for appraisers to use these private purchases as comps.
YES:
When Zillow buys on MLS, these sales are something an appraiser can consider just the same as any other comp because the details are transparent and it’s likely easy to talk with someone in the transaction. However, just because a property closes at a certain level doesn’t mean appraisers are going to automatically use the sale without consideration of whether it represents the market or not. In other words, if Zillow paid too much for a property they bought, it doesn’t all of a sudden represent the market or set a new price level for the neighborhood. As an example, a property sold for about $50,000 higher than any other similar sale. This sale was a clear outlier and it closed so high because the buyer likely bid too much out of desperation (Zillow wasn’t the buyer). I still used it as a comp, but I gave it far less weight because it simply sold for too much.
Keep in mind Zillow flips homes and appraisers can use the homes they re-list on MLS also. This is just the same as any other sale and appraisers simply have to weigh each potential comparable.
Is Zillow manipulating the market?
There have been quite a number of accusations about Zillow manipulating the market and I’m not here to defend Zillow, but so far I haven’t seen data to back up the accusations. I’m being careful about flippantly making such a serious accusation, but if anything comes to light I’ll be first to yell from the rooftops.
You may have seen the viral TikTok video below and this guy seems really cool. It’s just having one higher sale doesn’t all of the sudden make the market higher just like one lower sale doesn’t break the market. I get what this guy is saying, but I think we need data to substantiate such a claim.
For what it’s worth, this viral video helped put Zillow under the microscope and that’s a good thing. My observation is tech companies often get a pass from the public, but their activity and motives should absolutely be kept in check.
How many homes do iBuyers own in the region?
In the Sacramento region iBuyers own 747 homes (two weeks ago they owned 690). Zillow owns 372 units, Opendoor owns 350 homes, and Redfin owns 25 units. For reference, two weeks ago Invitation Homes had 77 units (since May) and now they have 91 units.
UPDATE: I should clarify too that my stats for all of these companies are for Sacramento, Placer, Yolo, and El Dorado.
Is Zillow temporarily exiting good news for buyers?
I’ve had a few people ask if Zillow backing off for a couple of months is good for buyers. Well, it’s good in the sense of having one less cash buyer to compete with (for the MLS acquisitions at least). But realistically Zillow’s activity is not a significant chunk of the market, so it’s not like pausing operations is going to change the trajectory of prices or the feel of things in the trenches.
Where does Zillow own homes?
Here is a look at a few neighborhoods. The pins are different colors depending on whether properties are active (green), pending (yellow), purchased and not active yet (red), black (no MLS activity yet), or expired (purple).
Anyway, I hope this was helpful or interesting.
Thanks for being here.
Questions: Anything to add regarding comp selection? What do you think of Zillow exciting the market? Is the iBuyer model a good thing for the public?
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Hey Ryan, timely comments. I would add to your reasons for not using Zillow purchases not in MLS as comps: these sales were not exposed to the market so there’s uncertainty whether they represent market value or not. It’s very rare that I use a sale not exposed to the market through MLS because of this uncertainty.
Thank you Joe. My inbox has been blowing up with these questions, so I hope this post will be useful. And yes, I completely agree with your language. The struggle of course sometimes is big companies even overpay on MLS. So at the end of the day we still have to weigh each comparable. But not being exposed to the open market is a really big deal. When a property gets listed we get to see if it’s really worth what it was purchased for previously.
That is a great point that Joe made but are any homes really getting exposed to the market for a significant amount of time these days? As soon as a sign goes up in my area it is under contract. I know agents have buyer lists that they use so they call their clients when they see a listing coming. It’s not like it was before where there was more exposure time which could test the price against the market.
Thanks Tom. That’s a good thought. On average homes in the region spent 16 days on the market last month and 8 median days. So at the very least half of all homes spent slightly more than a week listed for sale. This is lightning fast, but it’s better than nothing. My struggle with Zillow purchases is this buyer with millions of dollars has been less sensitive about price and some of the offers just don’t reflect the market. In the media Zillow has been saying they are paying fair market value, but I’m not sure that’s what the trenches look like.
But to be totally fair, it’s been lopsided for everyone as buyers have been offering over asking price in the resale market too in so many cases.
No matter what our new normal for now is very quick sales and the market is still vetting properties. Very quickly of course.
Great information Ryan. Similar things happening in the Portland, Oregon area. I certainly want to keep an eye on what Zillow is doing. I have several antidotal stories, but no real data other than Zillow owns 413 homes in the Greater Portland area including Vancouver Washington and almost nothing in rural areas. One could study all of the properties that Zillow owns and pull comps independently to see if they tend to be high or low, but that would be a lot of work. Fun if someone wants to pay us for it.
Thank you Gary. I appreciate hearing the number of what they own. And yes,I agree about being paid for intense research like that. Maybe Abdur has a quick spreadsheet though to do all the work… 🙂
Great info and perspective Ryan. Thanks for all you do. And a great reminder to keep our cool, stick to verifiable numbers not to go all chicken little, the sky may not be falling.
Thank you Michael. I appreciate it. Agreed. It’s too easy to embrace doom and gloom narratives. There’s a new one each day it seems like. It’s almost like we need to have a filter to sift that stuff out. It’s like a junk folder that needs to capture sensational narratives…
Wow. I just analyzed the Zillow Purchase Agreement. CAR Legal said “caveat omnus” which means beware EVERYONE. CAR can’t go there for anti-trust reasons. This is what I determined for my buyers consider a Zillow listing.
Zillow Contract
When a change is introduced that has NEVER been attempted BUT is accepted and obeyed, that change becomes permanent and, if frequently accepted, becomes the new “norm”. This change, then, makes all precedents abnormal except in hindsight.
Zillow has been offering prospective sellers a quick exit with short visits and, sometimes, a purchase price that exceeds the market. Sellers want a quick exit especially if the market is inserting overwhelming and exhausting requirements on a “normal”, market sale. But Zillow, in all their wisdom, considers theirs the “normal”, market sale. This will cause a permanent change to the residential, real estate market. REALTORs as a collective aren’t much smarter than the buyers and sellers they represent. REALTORs, therefore, will gladly accept and obey Zillow’s rules.
Zillow is even using their own Purchase Agreement (PSA). Because C.A.R. doesn’t have a monopoly on the written agreement used in a sale (RPA) and doesn’t want to be sued, they can’t tell Zillow anything about the PSA. Our professional union (C.A.R.) won’t even review it for legality.
This means Zillow has ‘free reign’ on changing the market thru the frequent use of their PSA. Thanks to our professional union, we have again made permanent ‘caveat omnus’ (all beware). The PSA may get adjudicated when disputes arise from its use. Then again, Zillow has a plan for this: Counter-sue. That action will delay ANY lawsuit.
(PROOF Zillow is clueless about contract law: Section 1.5 – … (ii) the date that the fully executed Agreement… If contract law is followed, an Agreement isn’t “executed” until the transaction closes and the sale is recorded. But today’s REALTOR is also clueless as the word and convention has been adopted.
Section 1.6 – implied is that breach entitles seller to deposit WITH NO MENTION of contingency removals.
Section 6.1 – Zillow took away a Buyer’s right to sue for specific performance if Seller breaches.
Section 8.1 – Zillow owns the property and has never occupied it. Therefore, like an REO or Probate sale, the buyer cannot expect disclosures from Zillow. That’s dandy. And the time to review ‘updated’ seller disclosures shortened to 2 days.
There is no Mediation or Arbitration section in the PSA. How does the C.A.R. RPA sections carry thru?
Zillow advises hiring a lawyer to review their contract. Will Zillow pay for that?
Did Zillow’s seller avoid submitting disclosures to Zillow? Zillow is avoiding it.
Thanks Jay. For the longest time The Big Z denied their endgame of selling homes, but here we are in the midst of their trend. It feels very unnatural for iBuyers to come to the market with so many millions of dollars in a war chest. But unnatural and illegal can be two different things. I’m anxious to see how this pans out.
So Blackstone came into our area roughly a decade ago and bought thousands of homes at depressed prices, then rented nearly all of them. And now we see these IBuyers coming in, trying to flip homes when prices have been reaching/exceeding all time highs. Wonder how all this will work out for Zillow, Redfin and Opendoor? Too early to tell, but it’s an easy comparison to long term stock investing vs daytrading.
Thanks Jeff. This is a wild thing to watch. On a side note I did mention activity by Invitation Homes in today’s market. Invitation Homes was the company Blackstone used to purchase so many homes back in the day. Granted, Blackstone is no longer affiliated with Invitation Homes, but it’s amazing to see Invitation Homes is back and they’ve bought just over 90 homes since May 2021. They are holding instead of flipping though.
No, Invitation Homes the management/leasing end of the operation. The houses are owned by the securitization operations. But Blackstone still makes money. They take 5% of the revenue as management fees for the securitization, and they attached mortgages to the houses they securitized and those mortgages are paid back to Blackstone.
Blackstone doesn’t want to be associated with the rental end, but they make a lot of money from it.
Thanks Alison. I did read Blackstone sold all their interest in Invitation Homes. I suppose there could still be some sort of income. I won’t pretend to know all the details. I will say Invitation Homes is not Blackstone though. That’s a key distinction. Thanks for your two cents. I appreciate it.
So….when the appraiser looks at….REALIST or First American to see who purchased the home……does the Buyer’s name show up as ZILLOW or some other name, LLC, corporation, subsidiary, etc? In other words, how do we know Zillow or Redfin or Opendoor was the Buyer?
Hi Scott. Excellent question. It’s all about knowing the names by which they are buying. In this case it’s actually quite easy right now as here is what they are buying as:
* Zillow: “Zillow Homes Property Trust”
* Redin: “Redfinnow Borrower LLC”
* Opendoor: “Opendoor Property Trust”
Sometimes there are slight variations, but typically when typing just Zillow, Redfin, or Opendoor I’m able to get results. When Zillow first started buying they had some random names like SPH One, SPH Two, etc… On a related note it’s not always so easy to track big companies because they change the names they are buying under. This was especially true for Invitation Homes back in the day. It makes it super challenging to track their activity for certain.
On that note, if anyone has other information, speak up. This will be a moving target most likely.
Zillow Homes Property Trust
4343 N Scottsdale Road Ste 390
You da man. Thanks Jay.
And on a side note searching the address in Arizona would also be a backdoor way to discover ownership (if that type of search is possible). For instance, I see Zillow still has one property under SPH Two Lllp in the Sacramento area and it has this address. I’ve not been paying attention to the SPH name because Zillow basically stopped using it quite a number of months ago.
“We don’t know what we don’t know.” I think I heard Steve Smith say that !!
I’m concerned about the builders who are owned by China – e.g., Lincoln builder “Jen California 14 LLC” links back to Hong Kong.
Are you seeing any activity locally from this LLC?
This LLC is building now in Lincoln at Gladding and East.
Interesting. Something to watch. I will say “ties to China” sounds ambiguous. I’d love to hear more.
True. It’s important to admit that too when talking about real estate activity – especially the future.
Love this post thank you for sharing knowledge. Curious how were you able to pull the data on Zillow-owned properties in those areas? I would like to capture the same data for my area in the Pacific Nortwest.
Hi Marc. Thanks so much. Check out a response in this thread to Scott. Or at this link directly. https://sacramentoappraisalblog.com/2021/10/18/will-appraisers-use-zillow-purchases-as-comps/#comment-275328
I have only reviewed a couple of Zillow-owned homes in areas my buyers have looked, and I found it odd that Zillow seemed to have overpaid (according to the property history in the MLS) when they bought. I would expect ibuyers to pay on the low end of comps. I wondered if the nominal price they’re listing for their purchase of the property is not disclosing some large fees they charged the seller or other concessions that would have made their net purchase price lower. Do you have any info on that?
Zillow doesn’t own the market on “smarts”.
Thanks Steve. There is no way I know of to understand their fees. This is exactly why using a private purchase is so dangerous as a comp. I know Mike Delprete sometimes talks about this. I highly recommend checking out his blog at http://www.mikedp.com. Otherwise I don’t think we’ll ever know on the local level without insider information. My observation has been similar in that the original acquisition price can sometimes be higher than the sale when it actually takes place when re-listed.
Thank you Scott R for asking the question I wanted to ask, and both Ryan and Jay for responding. I checked Realist for San Joaquin, and Stanislaus County where I operate, and found only one Redfin in San Joaquin, and four each for Opendoor in San Joaquin and Stanislaus. Not much activity here, but good to know and keep vigilant.
Thank you Joseph. Do keep me posted if you see anything interesting. For reference I should clarify my stats for all of these companies are for Sacramento, Placer, Yolo, and El Dorado (MLS areas (does not include Tahoe)).
Hi, Ryan. This info may have already been covered. How long is Zillow typically holding onto properties before selling?
Hi Cullen. I don’t have those stats. I may pull some stats at some point to do a deeper dive, but I don’t have that at my disposal. I will say 42.7% of what they own is currently on the market (active or pending).
Great Information Ryan. In your chart of actives, pending and expireds, i see alot of expireds…hmmmm.. interesting. I’m sure that may have something to do with their decision to hold off on buying for a few months, if not longer. I personally think they are losing money with the ibuyer program. their model is not working.
Thanks. Definitely something to watch Derek. Zillow is claiming it’s basically a worker / labor issue. I mean, earlier in the year they owned about 1/3 of what they own now. Did they increase their staff, agents, and construction workers by that much? I very much doubt it – especially in light of the labor shortage with skilled workers. We’ll know more at some point. I suspect big tech companies are going to have to pay good money to keep crews around who could be making a ton of money on other jobs. Or they will attract less-skilled laborers too.
Crooked smile
Deep blue fade
Staggered stance
Glazed eyes
It’s a trip to think
Life slips like this
I’m really alone now
And it makes me think
Interesting read. One thing to mention, I think there is a general sense of ambiguity about the whole appraisal process to begin with. It’s almost like the MLS gods created this arena and we all play in it. I am not a real estate agent or associated with the industry directly, but I do work in another industry that closely follows it. I’ve found sellers are concerned about commissions, fees, and industry relationships that exist, whether it’s ‘legal’ or otherwise. I think instead of discrediting Zillow as a foreign or private sale, maybe there should be more insight into how and why the traditional market works how it does. I know of clients who are frustrated with the lack of clarity
Hi D. Thank you. To clarify, I’m not discrediting Zillow just in case that comment was regarding something I wrote. It is a fact Zillow is purchasing some properties privately without being offered to the public. This is by definition a private acquisition and there are complications with using these properties as comps.
I concur this is a good opportunity for the traditional model to answer questions and prove its worth also. Tech is here to make the process more efficient and we’ll see how much they succeed. This is a very relational business. I have had some conversations with some folks working with the iBuyer model and one thing they talk about is how much hand-holding they still do with sellers who are selling to them. It’s a big financial decision to sell a home and the human element tends to show up. We’ll see what happens over time.
Please excuse the first part of my comment.
I don’t necessarily think Zillow in real estate is good for the record, and I am not affiliated. I do think open markets and transparency is important. I question what is more damaging; influential realtors with desirable pocket listings matching buyers and sellers, or Zillow buying homes on the open market.
Thanks D. We should ask questions like this. We need to critique the system and keep making it better where possible. I am for that with all systems. On a different note, Apple, if you are listening, why do we not have the ability to make text messages unread? 🙂
By the way, please pitch in your two cents anytime. You now have an approved comment so you can comment without moderation (unless you share a link, which is moderated due to spammers)).
I hope realtors can get off their high horse soon and realize they are a byproduct of the new technological revolution, as are any other easy data driven forte ie appraisals
Play nice please. That’s my one rule here.