Antonio Pellegrini was stunned.
In May the real estate agent listed a two-bedroom home in Fountain Hills, Arizona, 30 miles north of Phoenix, for $342,000. After 25 days on the market, there were no takers for the 1,400-square-foot home and Pellegrini counseled his client about potentially lowering the listing price.
Then Zillow came along.
The company’s Zillow Offers instant homebuying – or iBuying – division offered $406,000 for the house, 16% above listing price. Pellegrini told his client to take the offer right away.
Today, Zillow has listed the house on North Saguaro Boulevard for $364,000, which is $42,000 less than what they bought it for.
“There was no bidding war,” recalled Pellegrini of Pellegrini & DeGeorge Partners, an affiliate of Sotheby’s International Realty. “It was from an online algorithm, and Zillow must be so naïve and understaffed that they couldn’t take the time to look at the property history.”
Last week, Zillow paused home purchases made under Zillow Offers, a division of the widely recognizable Seattle-based company that makes up 60% of its operating revenue and expenses.
Zillow’s primary iBuying competitors – Opendoor, Offerpad and to a lesser extent, Redfin – pounced on the announcement, making clear that they are open for business.
“Offerpad is continuing to expand our reach,” company founder and CEO Brian Bair told HousingWire. “With one of only a few companies that provide an iBuying offering halting business, it does present an opportunity to us as customer demand for streamlined, on-demand real estate solutions remain high.”
Zillow has declined to comment on its decision beyond an Oct. 18 press release that cited labor and supply chain constraints and said its home purchase program hit “operational capacity.” The company said it would complete purchases that are under contract but not closed, and will continue to work on reselling existing inventory. More will be known Nov. 2 when Zillow has its third-quarter earnings call.
From what we know now, Zillow accumulated significant debt to grow its iBuying division, while perhaps not being fully sensitive to the nuances of real estate.
“It may be difficult for algorithms and folks who are making a value assessment,” said Pasadena, California-based Compass agent Tracy Do, who has been encountering iBuyers in her deals in the past months, “particularly when they don’t know that specific market and buyer preferences.”