Zillow is Wholesaling - Using Other People's Money

By Jack Burns


In case there was any question about whether Opendoor, the two-year-old with a $1 billion valuation, is changing the game as the Amazon of home buying, Zillow just broke stride and tipped their hat to Opendoor's model. But Zillow is adding a twist and doing what us wholesalers and flippers have been doing for years: Using other people's money.

Why is this such a big deal? Because Zillow's Instant Offers is kind of going against their mission statement: " ... and connecting them with the best local professionals who can help."

Agents are nervous and for good reason. Not because Zillow may become a brokerage (because they won't), but because the 'golden geese' (sellers) now have another option to the traditional method of selling that doesn't include an agent on either side, giving 6% more take-home for the seller and/ or wiggle-room for the Instant Offer.

There's a plethora of professional opinions. The point of view I haven't seen yet though is how Zillow is going to handle it when a seller demands their house is worth $760,000 because that's what the Zestimate indicates. Imagine the irony when the Zillow rep says: “Yea (chuckle), everyone knows the Zestimate is never accurate." You know that scenario could happen, A LOT!

Hold that thought for a minute. Now skip over to the lawsuit Zillow is in right now, which may go class action. In a worst-case scenario for Zillow, ALL the people who have had to either pay a higher price for a home because of the Zestimare, or sold their home for less because of the Zestimate, have damages. It hurts my brain to think of the complexity and then sheer volume of complexities of all sales that fall within the three-year statute of limitations. Look what the market's done in that time and do the math as if the damages include appreciation. Now multiply that headache by however many sellers who will want their dues (if you can figure that out, please let me know: [email protected]).

Let's revisit the other scenario: Zillow must anticipate another thorn in their side when the sellers get their ''Instant Offer" and it doesn't jive with Zillow's formula they have for the 15 Wall street investors. Those sellers could sue about the Zestimate as well. Zillow almost HAS to abide by their Zestimate as a legitimate point of reference.

That may be why Zillow is opening up to help from the outside with a contest offering $1 million to anyone who gives them something that improves their Zestimate. I'm just shocked that eight floors full of developers and real estate people with virtually unlimited Zillow resources can't figure it out, but a bootstrapping startup with a handful of smart guys might be able to show them the way. Or, will that team keep their algorithm to themselves? It could be worth a lot more than $1 million.

Let's bring it on home now ... Zillow has all these things happening at the same rime. What if Zillow pivots and goes 'all-in' with wholesaling, flipping the finger at all the agents in the US and focusing all their attention on the consumers as the source of revenue, instead of the agents. They have the mind share for sure. Think of the sales calls agents are getting now. I'll bet those Zillow reps are getting the 'what -for' from agents. I think Zillow's sales are going to suffer and they anticipate lots of wholesaling revenue to compensate. Frankly, I don't see how they can't pivot, especially if things go badly with a class action. Keep an eye out for when Zillow goes from Wall Street to Main Street and any small investor can participate.

With this move, it looks like Zillow is banking on a seller's market for the foreseeable future. It's almost as if they know something. An analogy came to mind of standing next to Don King at a casino bookie and watching him bet $40 million on a fighter. Kind of makes you want to throw your hat in that ring too, doesn't it?

What's next in that case? How far will Zillow go with this if they abandon their B2B2C and go B2C? Will they possibly go as far as offering lease backs to distressed homeowners? Here's a grin and a wink to those who know the back-story there. ;-)

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