In case you missed the big conspiracy theory a few weeks ago. A Las Vegas-based real estate agent Sean Gotcher posted a two-and-a-half minute video to TikTok in which he described a scenario where an unnamed real estate website juggernaut (aka Zillow) was using its massive, user-generated database to scheme the local housing market…(Yahoo News)
- “Let’s say that that company buys 30 homes within a two-mile radius, and let’s say the price is $300,000. So, they buy all of these homes for $300,000,” Gotcher says in the video. “Then on the 31st home, they buy it for $340,000.”
Gotcher went on to suggest that the the unnamed company (aka Zillow) is purposefully driving up home values in order to drastically increase its own profits and thus manipulate market value.
Fast forward to Monday. Zillow announced that it will stop buying and flipping new houses for the remainder of this year and instead focus on closing existing purchase contracts and selling the homes it has on hand….(Wall Street Journal) So why the sudden change of heart? Zillow argued they were experiencing backlogs related to renovating the homes and that it faces constraints for on-the-ground workers.
Duh! When I first heard about Zillow wanting to do this it seemed difficult during normal times in housing. Why? Because you can’t scale home-flipping. The only benefit to being a behemoth of a company is it allows you to scale operations. You can buy supplies in bulk to help lower costs and you can centralize production. While Zillow might be able to get a break on some supplies the one thing they can’t do is centralize production. A plumber in Arizona can’t also work in New Jersey and Florida. Sure, maybe Zillow could fly teams different places, but this isn’t highly skilled work where that would make economic sense. Zillow, therefore, has to compete like everyone else in local labor pool. You need a solid understanding of what is happening in particular and what its labor capacity is. This is something that Opendoor seems to be doing well, Zillow less so…(WSJ)
Reminder, my issue with Zillow succeeding was based on normal economic times. Currently housing is in extraordinary times which makes their likelihood of succeeding even smaller. Gotcher’s whole premise in his Tik Tok video is that Zillow was buying homes UNDERMARKET and doing so in bulk. This would be difficult in a regular market it is 100% impossible in a hot housing market with zero inventory. I’m sure conspiracy theorists will claim Zillow is shuttering a program because the online tinfoil hat wearers were on to them. Instead, Zillow took a shot, it didn’t work, and now they are packing it in before they lose more money. Or are they…