Zillow Offers are reportedly coming to the Dallas market sometime in 2019. The internet giant/real estate portal will reportedly be expanding its Zillow Offers iBuyer program to sellers in the DFW market sometime this year. Zillow’s version of the cash offer buy-your-home-at-a-discount service is already operational in several markets including Phoenix, Vegas, Atlanta, Denver and Charlotte.
Zillow reportedly has some lofty plans for their iBuyer program according to their latest investor presentation and earnings release. After posting a full-year loss of more than $119 million for 2018, Zillow founder, Rich Barton, is returning as CEO of the company. He reportedly plans on increasing Zillow’s borrowing capacity to $1 billion to support rapid growth. Zillow apparently has a long-term target to purchase 5000 homes per month during the next 3-5 years.
Apparently it wasn’t good enough that Zillow lost more than $97 million in just the latest quarter ending in December. Apparently Zillow has its sights set on losing even more money as the U.S. real estate market stagnates. Thank goodness there’s still a healthy supply of Premier Agent advertisers (aka Realtors) who are still feeding Zillow’s revenue stream as they outsource their lead generation to a competitor. On the bright side, real estate boards across the country will now be forced to admit what Zillow really is, and has been all along. Zillow, with its recent expansion plans now public, can quit pretending that it didn’t want to practice real estate brokerage.
As the real estate market continues to search for a sustainable footing, it is worth noting that Zillow’s foray into the cash offer/iBuyer platform is nothing new. Other companies like Opendoor, Offerpad and Knock are also happy to buy your home for pennies on the dollar if you are a prospective home seller with little or no patience. Investors don’t offer to buy your home unless they think they have a comfortable profit margin built in. These cash offers from iBuyers like Zillow and others usually come with some hefty fees, carrying costs and/or commissions attached. As a result, the vast majority of these offers are rejected by sellers once they read the fine print.
If you love conflicts of interest, Zillow will even hook you up with a mortgage. Zillow’s new aspirations of growth include originating more than 3000 loans per month, with an attach rate of 33% to their Homes segment. I love the smell of undue influence in the morning. Zillow admitted that its Homes segment is not yet profitable, and the company declined to give specific timing on when that might happen.
Apparently scaling a money-losing operation will solve the problem. Good luck with that Mr. Barton. Maybe Zillow will try to make up for the losses in the Homes segment by padding origination charges and fees on all of those new mortgage loans for buyers? That’s what affiliated business arrangements are good for. Zillow’s expansion into other services comes at a cost. Whether the company admits it or not, the convenience and “innovation” they are advertising comes with a lot of fine print. As they say in the business, Caveat Emptor.
There is no shortage of investors willing to snatch your home up if they think they can buy it at a significant discount to market. For sellers who still haven’t lost their minds and prefer to retain their equity during the relocation process, there are much better ways to sell a home.