Goodbye. Zillow has sold its last home in Sacramento. After announcing failure as an iBuyer at the end of 2021, they recently got rid of their last unit. And the icing on the cake is that they sold this property to Opendoor.
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HOUSING GENIUS OR FLOP?
It’s easy to think of Zillow as something of a real estate savant, as their exit was announced months before the boiling real estate market started to turn. But let’s not revise history because Zillow’s failure had nothing to do with market conditions. It was a lack of effective strategy. Zillow basically went wild on buying in a handful of marketplaces across the country, and they lost a ton of money. I wrote about their failure here. In short, in hindsight, their timing looks really good, but it was a flop instead of a money-making forecast.
Anyway, I broke the news of their latest sale about two weeks ago on my social media, and it created a ton of conversation.
ZILLOW’S LAST HOME IN SACRAMENTO
In September 2022, Zillow sold its last unit to Opendoor. This home in the Natomas neighborhood of Sacramento was originally purchased for $700,500 in November 2021, and it went on sale in February 2022 for $694,100. There were several price reductions until the listing was finally canceled on 9/13/2022 at $624,900. There were two pending statuses, but for some reason it didn’t close.
DID ZILLOW MAKE A DISCOUNT AT OPENDOOR?
You are the judge. The sale to Opendoor at $354,500 was far below any competitive sale on MLS (blue dots) and far below any model-matching sale (red dots). A model match sale hasn’t sold this low since before 2016. Looking at this visual, do you think there was a discounted price?
ZILLOW SOLD LOWER THAN ANYTHING IN THE NEIGHBORHOOD
Here is another way of looking at things. The orange dots represent every MLS sale in the neighborhood, and Opendoor’s out-of-market price was lower than literally every neighborhood sale (of any size). Also, Opendoor usually gets around 5% credit from the seller, and if that’s what happened here, Opendoor got an even better deal.
THE VERDICT: YES, THEY ARE SOLD AT A DISCOUNT
Unless something seriously went wrong with the condition of this property in the two weeks after this home was taken off the market and sold to Opendoor, it’s pretty obvious that this unit was sold at a discount. Why did Zillow sell it so low when buyers would have lined up at that price? Will Zillow get a better tax deduction for its loss? Or does it have something to do with the fact that Zillow and Opendoor recently established a multi-year partnership? Does this benefit Opendoor’s profit on paper so they can post higher numbers by buying low and selling high?
NOTE: I will follow up when this house sells again.
I’ve noticed that Opendoor has seemed to be slowing down its acquisitions lately in response to the market moving so quickly. It makes sense as a way to pause and pivot into a different market. Locally, Opendoor is the biggest iBuyer as they have around 280 units, while OfferPad only has 11 and Redfin has 24. Opendoor normally has around 330 homes in the area, but now it’s closer to 280, that’s why I say they slowed down their acquisitions. Opendoor was struggling in Sacramento when I wrote about them in August, but they have seemed to get more of their units under contract in recent months. Not sure if it was strategic price reductions or the $3500 incentive they were offering (maybe both). Yet only 25.6% of everything Opendoor has put up for sale is on hold, so most of their business sits around instead of being sold. Ultimately, if we continue to see prices fall, it will be essential for iBuyers and all flippers to acquire properties for lower amounts in order to anticipate future declines. I’ve always said there’s room in real estate for multiple models to exist, but regardless of the model, the numbers have to work to make a profit. Either way, the iBuyers are still here and they’re trying to pivot. Will they succeed? Only time will tell.
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Questions: What stands out to you the most above? How does Zillow sell to Opendoor with you? I would like to hear your point of view.
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