In a nutshell: Real estate listing aggregator Zillow reportedly has a surplus home and wants to sell up to 7,000 homes in bulk. He expects to raise about $ 2.8 billion after reportedly buying too much property over the summer.
Zillow’s main form of business allows users to search for affordable housing to rent or buy. Most people are unaware of the fact that the company has a division called “Home”, which, in fact, handles the distribution of houses. His program “Zillow Offers” buys real estate, in exchange for an advance payment, makes repairs, and then again puts up for sale in order to make a profit.
Several tech companies, including Zillow, bought properties over the summer as US home prices began to rise. Vice reported in August that the company participated in a housing “arms race” with other tech companies such as iBuyers and Opendoor. The company told investors that it plans to expand its home sales division to a billion dollar business and will buy thousands of homes during 2021, despite the fact that the company’s shares have been on a sharp decline since February.
By the end of the summer, the housing market had slowed and Zillow froze purchases. Last month it told investors that the reason for the stop was the lack of labor in construction and repair. However, insiders told Bloomberg that the company pitching real estate for “institutional investors” in apartment buildings. He hopes to raise at least $ 2.8 billion from the sale of some 7,000 homes, which is estimated to be about seven-eighths of the value of real estate acquired in the third quarter of 2021.
It remains unclear whether wholesale sales will result in an overall profit or loss. According to Zillow, the current house value index is $ 308,220. The average asking price for the packages will be $ 400,000 per unit. This is a mark-up of almost 30 percent. However, there is no guarantee that Zillow will pay off as much as it expects. As real estate investors turn bearish, it is unlikely that the company will receive its initial asking prices for the packages.
KeyBanc Capital Markets said an analysis of 650 properties owned by Zillow showed that two-thirds of them were billed two-thirds at a asking price lower than what the company paid.
“I think they were leaning towards raising house prices at the worst possible time,” KeyBanc analyst Ed Yuma told Bloomberg.
Analysts at YipitData noted that the company put up a record number of homes for sale in September with the lowest markups since 2018. In addition, Zillow cut prices by almost half of the properties listed for sale in the third quarter. Analysts suggest the surplus is causing Zillow to ask for less.
Image Credit: Benjamin Mellish