Real estate website Zillow launched an instant-buying program Monday in San Diego County that will give users quick cash offers on their homes.
The Zillow Offers program — already in 16 other markets — charges a convenience fee instead of a commission that a seller might pay a real estate agent, but Zillow will handle the cleaning and repairs and also remove the stress of open house showings.
The catch is the fee charged by Zillow averaged 7.5 percent last quarter on the sale price of a home, higher than the 5 to 6 percent a seller may pay a real estate agent.
It’s possible the seller could be leaving money on the table with Zillow. Or not. On the one hand, a smaller fee from a real estate agent and a boots-on-the-ground approach could net more cash. But Zillow’s fee will include all the cleaning and minor repairs needed on the house, something an agent would likely ask the seller to do anyway — and pay for — so it might be a wash.
The way the program works is homeowners can go on the Zillow website and then answer a few questions about the condition of their homes. Within two days, a seller could get a no-obligation offer. If it’s acceptable, the seller can pick a closing date within five to 90 days of accepting the offer.
Mark Goldman, a real estate analyst with C2 Financial Corp., said the program would work best for people who need to sell their home in a hurry, or don’t have the money for repairs. He said if a seller can’t afford to fix up the property it usually greatly reduces the price of the house, even though it might have not been a huge expense for a few repairs.
“This service isn’t for everybody,” he said. “But, I can see people in the market that would benefit from it. If the house is in poor condition, they typically sell the house at a big discount.”
However, Goldman said if a potential seller has a home in excellent condition, and the seller has the money for repairs and staging, they could net more through a traditional agent.
Zillow Offers is one of several programs that use websites and smart phone applications to make instant offers, dubbed iBuying by industry folks. Offerpad and Opendoor are two startups that do a similar program but are not yet in San Diego.
Redfin’s version of instant buying, RedfinNow, has been available for much of San Diego County since June 2017. The program, which is moving much more slowly than similar programs offered by its competitors, has so far bought very few homes across the nation. Other traditional real estate brokerages are in the process of creating new instant-buying options.
While all of this feels very 21st Century, Goldman said it isn’t that different from those signs taped to utility poles we see around town offering to buy homes for cash.
“This isn’t a totally new concept,” he said.
How Zillow makes money
Zillow says it plans to buy homes at market rate and sell at market rate. In other words, this isn’t a traditional flipping scenario where someone is planning to make a sizable profit with only a few repairs.
Instead, Zillow says it plans to make money through the convenience fee, as well as directing people to its mortgage business.
It’s unclear how well the process is working so far. Stock prices have struggled as investors have become wary of Zillow changing its business model, Bloomberg reported. Zillow’s earnings statement listed a $56.5 million loss before interest, taxes, depreciation and amortization in its Homes segment, which includes Zillow Offers, in the second quarter.
Some of the earnings from home sales still get into local hands. Zillow has partnered with San Diego-based Whissel Realty to sell the homes it buys.
Kyle Whissel, CEO of the realty group, said it’s able to offer local expertise by providing a comparative market analysis of homes to Zillow. However, deciding on how much a home is worth largely falls on Zillow and its algorithms.
Whissel said he is prepared for some backlash from other real estate agents for being the local Zillow broker. But, he said the business model isn’t that far off from a real estate agent coming up with a listing price for a home.
“The thing is, a Realtor is going to list a home at what they believe a house will sell for, but there is no guarantee, no certainty it will sell for that amount,” he said. “With a Zillow offer, there is certainty. You know exactly how much money you’re getting and if there are any repairs that need to be made to the home by Zillow, that amount is put out there up front.”
Richard Moniz, 73, recently sold a Las Vegas condo with Zillow Offers and said he was pleased with his experience. He had decided to get rid of the condo after a few years of dealing with bad renters and wanting to use proceeds from the sale to get a personal seat license in the new Las Vegas Raiders stadium.
He said the condo was in rough shape with holes in the wall and other issues, and a contractor quoted him $8,000 to fix up the place. Meanwhile, costs started to mount with new rules at his homeowners association making it harder and more costly to rent out units. Eventually, he saw an advertisement for Zillow Offers and decided to give it a shot.
Moniz said a few real estate agents had offered to sell his condo for around $120,000 to $128,000. Zillow ended up paying $152,000 for the home earlier this year. Moniz said he paid the company about 7 to 8 percent on the purchase, which included $6,000 to make repairs ($2,000 less than the contractor estimate). Zillow later put the home on the market for $163,900, and then the price was lowered a few times to $152,900. It sold for $147,500, property records show.
“It took away a lot of headaches,” he said. “This was a godsend to me.”
Other instant offer programs
Opendoor and Offerpad, two of the main instant-offer companies, are not in San Diego County yet but have been expanding at a quick pace.
Opendoor purchased the largest volume of properties among all of the companies, with nearly 10,000 homes bought in the first seven months of this year, said an analysis by real estate tech expert Mike DelPrete on Inman. That compares to around 3,000 by Zillow, nearly 2,000 by Offerpad and less than 300 by Redfin.
“Redfin is an iBuyer in the same way I’m a basketball player,” DelPrete wrote. “Both statements are technically true, but neither of us are anywhere close to the big leagues.”
Zillow spokesman Matt Kreamer said there is no set number of homes it plans to buy in San Diego County. He said, for now, it plans on buying homes around the median price while the company gets a better handle on the market.
Zillow’s decision to enter the San Diego market plays on the region’s large military population and the possibility of needing to move quickly.
“Managing the already stressful process of selling a home can be even more complicated for military personnel who are moving to a new base or on active duty, but want to sell their home before moving,” Zillow said.