[cs702]

Buying homes for subsequent resale is a capital-intensive, old-economy, bricks-and-mortar business.

Zillow will borrow money to buy the homes, which means that (a) the clock will start ticking the instant each new home is purchased, and (b) this endeavor can be profitable only if proceeds from resales/rentals are sufficiently high to cover cumulative debt service costs -- in addition to all property taxes and ongoing maintenance expenditures associated with home ownership.

Why would a heretofore capital-light SaaS business like Zillow want to do this?

The only sensible explanation I can think of is that Zillow's current business is no longer growing quickly, i.e., Zillow is now a boring, mature company.

The stock dropped 7% on the news last Friday.

[mjfern]

Or Zillow has access or insight to data that general property investors do not, thus driving abnormal returns.

[caseysoftware]

That's my guess also. If they have details on the specific aspects in the specific markets that drives prices, being able to "jump on a deal" could work out well.

The question becomes if there are enough opportunities like that to move the needle for them.

If I had to guess, I would have guessed moving into Lending Tree's matchmaking area would be easier and have a better ROI.

[ssharp]

What specific details would they have that other's don't. I don't know how prevalent FSBO is on Zillow in some markets, but in mine it's extremely limited. I'd be shocked if it made up 5% of the residential market, probably closer to 1%.

The rest of the listings are from MLS systems and they pull housing data from county systems. For that, I'd assume there is a data broker and Zillow isn't integrating with thousands of counties. If that's the case, then both the MLS and county data can be had by anyone. With that information, you'd get lot details, house details, listing history, county tax valuations and sales history.

What other data do you need?

A lot of house flippers are agents because they get the MLS listings ahead of the public and can move faster on them. I don't know when Zillow gets their MLS data, but listings almost always hit Realtor.com a day before they hit Zillow, so I don't see that as an advantage either.

[jonknee]

> The rest of the listings are from MLS systems and they pull housing data from county systems. For that, I'd assume there is a data broker and Zillow isn't integrating with thousands of counties.

That's not the case, MLS is a giant mess and the reason why Zillow was/is amazing is that it aggregated and normalized lots of different unconnected systems. They still have gaps and it's common for an individual MLS to play hard ball and not give out their data, but it's still a large competitive advantage.

[avemg]

What's FSOB? Was it just a typo of FSBO (as in for sale by owner)?

[ssharp]

Yes, corrected.

[cma]

They even know unlisted data, like which buyers are currently looking. If they combine it with data from social network partners and other providers they can know the school-friend networks of the buyer's kids, church affiliations, how racist they are, etc.

[eli]

Social networks don't sell data like that

[nathanm412]

Wouldn't a place like Zillow have first hand knowledge? You can sign in with your facebook account, for example. Linking your account will give them your public profile, friend list and email address.

[Declanomous]

Do they have to sell the data for Zillow to figure it out? I assume at a certain point you get enough data from enough sources to make those inferences yourself.

[hobofan]

You can sign up to Zillow via Facebook, where they get permission to pull the most relevant data points. They can then make additional inferences based on that.

[rock_hard]

What do you think are the most relevant data points that you believe can be pulled from that API?

[hobofan]

Among other things they get access to "age range, gender, language", which in combination can often already be a good starting point. They also get access to the email address which can be used to pull more info via other APIs, if you have used that email much in the past. They also get access to "other public info", which I'm not 100% sure about, but I think that should be equivalent to what you see when you go on someones public profile page, and includes Page likes for a lot of people.

[TylerE]

Facebook offers targeting. They don't sell "data points".

[hobofan]

"Sign up via Facebook" != "Facebook Ads"

[chrischen]

Or Zillow simply has a lot of data and can scale it up.

[dawhizkid]

I suspect part of the reason is that SV "unicorn" Opendoor (https://www.opendoor.com/) is doing this and it wants a piece of the pie.

Question I have is if whatever "pie" Opendoor is grabbing is actually sustainable in a recession/down market...seems like the worse case scenario is that they are left holding a bunch of illiquid inventory of declining value they can't get rid of.

[subpixel]

The risk is in sitting on a lot of properties and getting overextended during a downturn. I think that can be mitigated because Zillow/Opendoor's model is not to buy and hold, but to:

1. buy at a discount (essentially a fee for the service of selling your house with a click)

2. sell at a markup (we're talking a small one in most cases, but the fact is in a good market you can reliably print small amounts of money with some paint, some minimal landscaping, and new kitchen appliances. Zillow will not be using a high-interest loan for the purchase or repair, so they will not be sweating like your typical flipper on TV.)

Assume for the sake of argument that Zillow has data to decide where these bets are safest based on comparables and key economic indicators. And they will say no to sellers as often as the data suggests they should.

I don't think this has much to do with finding super-profitable deals with data, but with reliably shaving points off a large pipeline of deals.

If it doesn't work in a healthy economy, they stand to lose the difference between the discounted price they paid for a house and the market value they can sell it for. In a recession, they can probably stay afloat by renting properties they can't sell at a decent price.

[toomuchtodo]

With regards to your point about expensive financing, this moves Zillow from tech company to REIT; a dangerous shift in a rising interest rate environment depending on how long they end up having to hold inventory for.

We are very far along in the current economic cycle, and a downturn is inevitable. It would be unwise to be sitting on a large real estate portfolio you can’t quickly unload when that occurs.

Will be interesting to see if this Hail Mary pays off.

[rejschaap]

It is interesting they even choose the same cities to start in.

[dawhizkid]

Vegas makes sense...the best markets for something like this are ones where there's a good amount of inventory, median prices are not very high, avg time on market is on higher side (giving a reason for sellers to use Opendoor to trade value for liquidity) and there's a good balance between buyers/sellers.

[vincentmarle]

Improving liquidity in the market, aka being a market maker, can provide an interesting advantage.

[ethbro]

Agreed. The surprisingly bespoke nature of home translations definitely provides an opportunity for this to be a win/win.

Zillow wins by buying an asset it has more information on the true market value of, then providing an easier, economies of scale on the associated services (inspection, legal, repair, etc), then being able to offer a standardized product to home buyers.

Buyers win from taking a lot of the uncertainty out of a transaction. And from possibly lower fees if Zillow decides to rebate a portion.

Let's not forget there's a standard 6% commission in US real estate transactions... most retail would kill to start with a 3% margin.

If Zillow has high confidence a home is underpriced, it makes sense to time arb that into profit when it can match with a buyer.

[tonyedgecombe]

Let's not forget there's a standard 6% commission in US real estate transactions

I never really understood this, the last time I sold a house in the UK the fee was 1.5% and only on my side, the buyer pays nothing.

[mbesto]

1) The 6% commission is negotiable.

2) In the UK, the buyer pays stamp duty (tax) on the purchase.[0]

3) You can put a bid on a property in the UK and it's non-binding (until exchange)[1]

In other words - very different markets with very different dynamics.

[0] - I forget the percent, but it's material. This effectively disincentives people from buying, making the market less liquid.

[1] - This is frankly ridiculous.

(I've bought and sold in both US&UK markets)

[gm-conspiracy]

Did you know that "realtor" is a registered trademark?

[Declanomous]

What is the generic mark? Real estate agent?

[oh_sigh]

You don't need to pay it, but people feel that it is worth it/ You can definitely get a broker who works by the hour for you.

[zirpderp]

or flat fee - which will crush every realtor going fwd.

[aidaman]

Welcome to the US.

[raintrees]

Real Estate is one of the older investment games in town - It is what I am basing my retirement on.

I wonder how this will impact disclosure rules versus sales advertising? Existing model to use, or adopt another industry's? Will this cause fears of LIBOR-style manipulation?

This will be interesting to watch...

edit: p.s. Maybe another chance to make a Carfax-like system for homes? In the US market, I find there is not a lot of opacity, especially when one gets into larger/commercial deals.

[gm-conspiracy]

What do you envision for this Carfax-like system for real estate?

What info would be available that you could not see via Zillow or the MLS listing?

[subpixel]

I think you mean not a lot of transparency.

[chrischen]

All businesses can be framed as “old economy” but cheaper. Lyft is just “taxis” done better. An algorithmic hedge fund is just old-style investing automated.

[justonepost]

What's peculiar is that they don't use OPM for this. There are literally a million of these flippers out there. Why not just work with them to buy it and sell it, and Zillow gets a percentage for providing the lead? It's like zero risk for Zillow, all upside.

They must be making a lot of money from this if they're going it alone. The 7% drop is probably not because of riks here but because it signals lack of growth.

[nol13]

Because they think they have some competitive advantage in the space?