Goodbye. Zillow sold their last house in Sacramento. After announcing failure as an iBuyer in late 2021, they recently got rid of their final unit. And the cherry on top is they sold this property to Opendoor.
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HOUSING GENIUS OR FLOP?
It’s easy to look at Zillow like some sort of real estate savant because their exit was announced months before the hot housing market began to turn. But let’s not revise history because Zillow’s failure had nothing to do with market conditions. This was about a lack of effective strategy. Zillow basically went on a purchasing rampage in a handful of markets across the country, and they lost a ton of money. I wrote about their failure here. In short, with hindsight their timing looks really good, but this was a flop instead of foresight in terms of actually making money.
Anyway, I announced the news of their last sale about two weeks ago on my socials, and it created a ton of conversation.
ZILLOW’S LAST HOME IN SACRAMENTO
In September 2022 Zillow sold their last unit to Opendoor. This home in the Natomas area of Sacramento was originally purchased for $700,500 in November 2021, and it was listed for sale in February 2022 for $694,100. There were multiple price reductions until the listing was eventually cancelled on 9/13/2022 at $624,900. There were two pending statuses, but for whatever reason it didn’t close.
DID ZILLOW GIVE OPENDOOR A DISCOUNT?
You be the judge. The sale to Opendoor at $354,500 was far lower than literally any competitive sale on MLS (blue dots), and much lower than any model match sale (red dots). A model match sale hasn’t sold this low since before 2016. When looking at this visual, do you think there was a reduced price?
ZILLOW SOLD LOWER THAN ANYTHING IN THE NEIGHBORHOOD
Here’s a different way to look at it. The orange dots represent every MLS sale in the neighborhood, and the off-market price to Opendoor was lower than literally all neighborhood sales (of any size). Also, Opendoor typically gets about a 5% credit from the seller, and if that’s what happened here, Opendoor got an even better deal.
THE VERDICT: YES, THEY SOLD AT A DISCOUNT
Unless there was something that went seriously wrong with the condition of this property within the two-week period of this home being pulled from the market and sold to Opendoor, it’s pretty obvious this unit sold at a discount. Why did Zillow sell it so low when buyers would have been lining up at that price? Will Zillow get a better tax write-off for their loss? Or does this have anything to do with Zillow and Opendoor recently establishing a multi-year partnership? Does this benefit Opendoor’s profit on paper so they can show higher numbers from buying low and selling high?
NOTE: I’ll follow up when this house does sell again.
iBUYERS RIGHT NOW
I’ve noticed Opendoor has seemed to slow their acquisitions lately in response to the market changing so quickly. This makes sense as a way to pause and pivot in a different market. Locally, Opendoor is the largest iBuyer as they have about 280 units, while OfferPad only has 11, and Redfin owns 24. Opendoor normally has about 330 homes in the region, but now it’s closer to 280, which is why I’m saying they’ve been slowing their acquisitions. Opendoor was struggling in Sacramento when I wrote about them in August, but they’ve seemed to get more of their units into contract in recent months. I’m not sure if it was strategic price reductions or the $3,500 incentive they offered (maybe both). Still, only 25.6% of everything Opendoor has listed for sale is pending, so most of their stuff is sitting instead of selling. Ultimately, if we continue to see prices drop it’ll be key for iBuyers and any flippers to acquire properties for lower amounts to anticipate future declines. I’ve said all along there is room in real estate for multiple models to exist, but no matter what the model, the numbers need to work to make profit. Anyway, iBuyers are still here, and they’re trying to pivot. Will they be successful? Only time will tell.
UPDATE (NEW STATS): I pushed out Redfin iBuyer stats on Twitter yesterday to help show how much lower most of their listings are compared to the acquisition price. This sums up the dynamic out there right now with iBuyers.
Thanks for being here.
MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.
Questions: What stands out to you most above? How does Zillow selling to Opendoor sit with you? I’d love to hear your take.
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I may have asked this but are days on market for Opendoor the same as the market or are they high or low?
(yeah, I know, I could pull this if I had the time but I suspect you have the data handy)
I have a (higher) prediction.
Do you have a link to anything about the partnership between Opendoor and Zillow? I don’t remember hearing about that. As for one transaction, I feel for the folks trying to buy homes but otherwise I don’t have any energy to get worked up about one transaction.
Hey Joe, last time I checked in August, Opendoor listings had been taking longer to sell. I published some stats in August. I didn’t compare days on market to the region as a whole, but they were on the market for an average of 69 days back then, which was far above the local trend by literally 40 days. https://sacramentoappraisalblog.com/2022/08/22/opendoor-is-struggling-in-sacramento/
Here’s a piece by Mike DelPrete about “Zopendoor,” and there’s a ton of stuff out there. I don’t know that we perfectly understand what this partnership will be like yet entirely. https://www.mikedp.com/articles/2022/8/10/the-zillow-amp-opendoor-partnership
I’m not worked up either about this home. It is what it is. But I think it’s striking to see tech buyers trading real estate and trying to work the system. Moreover, this does sound like a crescendo in some regards because of Zillow selling at a discount. I will say, what will be the kicker here is if Opendoor sells to an investment fund. Then it will be a real estate tech/investor hat trick… 🙂
Thanks Ryan. I think I was on vacation when the partnership came out.
Or a Rammstein concert. Haha. 🙂
In truth, the news of the partnership didn’t really seem to make a big splash. It seemed like it was short-lived as part of the housing narrative.
When you say that 25.6% of Opendoor listings are pending, that doesn’t seem that bad when I hear it but it begs the following questions. Do Opendoor homes stay pending the same amount of time as the market and if they do do, how does their number of pendings compare to the overall market listings versus pendings?
I appreciate your critical mind. The ratio of pendings to listings in the entire region is 30.4%, so Opendoor is not keeping up with the entire regional market at 25.6%. Granted, this isn’t that different, but I find most of their metrics are consistently worse than the market as a whole. I’m hesitant to compare Opendoor to the entire region though because they are an entity that owns all these properties and needs to sell them to make a profit (as opposed to some sellers who are simply overpriced and they don’t really need to sell if they don’t want to). Opendoor has seemed to overprice as a strategy for whatever reason. My statistical observation is they tend to stay longer on the market, and they have more price reductions compared to the rest of the market also. And like you said, this doesn’t sound that bad, but for one company to have over 200 active listings right now, which represents 5.1% of active listings, it’s critical for success to find ways to do better than the market (or at least keep pace).
Interesting. I think you’re right. Opendoor should outperform the market because they need to sell as opposed to many of the market participants who just want to sell.
I’d love to hear any different perspective here if any onlookers have a take. This isn’t a gripe session against the iBuyer model either. My observation is this model has been slower in most of the stats and it likely needs to be more efficient.
Not sure that efficiency actually plays much of a roll in the success of the iBuyer model. For me this situation is very reminiscent of the tech boom and resulting crash of of the late 90’s early 2000’s. Lots of angel investors floating their money for 3 to 5 years. Win Win scenario – tax advantage with losses or hit it big golden parachute time advantages. I call this “using the Maytag Playbook”.
Thanks Patty. I appreciate your take. When I think of efficiency, I think of reasonable pricing and cutting the time between acquisition and listing (as well as listing and closing). So in this regard, efficiency helps yield a higher return on the investment. The iBuyer model is backed by billions of dollars, which could lead to less urgency. Thus, if they don’t need to price more reasonably because they can handle the losses, then that’s the way it is. So be it. But from a math perspective, the numbers have to work eventually, so at some point these companies have to figure out how to crack the code in real time with each individual escrow.
I’ve noticed the large number of Opendoor transactions which didn’t make much business sense, and I’ve experienced the frustration at trying to appraise their sales. Because of this I decided to short their stock. My investment is up 43% and growing. Wish I had shorted more shares.
Thanks for sharing Dan. Interesting to hear you say that about their stock. Tech companies such as Zillow, Opendoor, and Redfin have all taken a real beating over the past year especially. Seems like Wall Street isn’t excited about this effort. We shall see.
The next homeowner that tells an appraiser the Zillow says my house is worth $X should be made aware of the Big Z’s algorithm and the nearly $1 Billion (WITH A B!!!) in losses they incurred. The buy high, sell low business model was not sustainable. Ive seen Opendoor buy a property, do nothing with it, and three months later try to sell it for a 20% gain. Well Opendoor got market reaction that resulted in closed doors. OD & The Big Z should stay in their lane, selling ads and leads. Venturing into lending, sales and who knows what’s next, maybe Z-coin crypto??; will likely be another epic fail. I cant decide what my favorite moniker for Zillow is going to be now, “Zirro” (the amount of profit they have made flipping homes-$0), or “Billow” (for the $1Bil they lost with that nifty algorithm) Buh bye Z, dont let the (Open) door hit ya where the Good Lord split ya.
Ha. Thanks Mark B in the OC. I appreciate your take. These companies are trying to forge a new lane. They have billions of dollars at their disposal in this game of trial and error.
For any onlookers, I just crunched some Redfin stats in the Sacramento area. Redfin is also an iBuyer, though they only have twenty properties on the market right now (while they own 24). Anyway, if you want to see the difference between their acquisition price and the current list / pending price, here you go. In short, the market changing in recent months has been brutal for the iBuyer model, so lots of these companies are going to post dismal third quarter earnings. They are currently going to be trying to pivot after losses from market change (and in some cases blatantly overpaying for properties). We’ll see what they do. My Redfin stats: https://twitter.com/SacAppraiser/status/1582501177945530368