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Zillow Offers’ Downfall in Dallas
November 22, 2021

Zillow Offers’ Downfall in Dallas

by The CE Shop Team

Should Buyers in Dallas Rejoice?

On 11/2/21, Zillow announced that they're shutting down their iBuying program, Zillow Offers, citing the unpredictability in forecasting home prices had exceeded what the company anticipated, and scaling Zillow Offers would result in too much volatility — resulting in the company taking a $304 million write-down in the third quarter.

The company also announced that it will report additional losses of between $240 million and $265 million in the fourth quarter, mainly through the sale of its remaining homes. The end of Zillow Offers may bring relief to Dallas homebuyers and real estate agents, who’ve been strained through a chaotic housing market for the last two years. While it’s not clear who these homes will be sold to, this shift will bring about good news regarding housing prices in the short term.

What Was Zillow’s Effect on the U.S. Real Estate Market?

In 2018, popular MLS service Zillow launched their iBuyer program, Zillow Offers. Its premise was simple, according to The Wall Street Journal: “Zillow would use an algorithm to predict what a home would be worth in a few months and offer a cash sum to the seller that would account for a small profit and the costs of repairs.”

Multi-billion-dollar companies like Zillow have the tech resources to purchase houses quickly via iBuying, which has gained significant traction in recent years. 

For those who aren’t familiar with the process of iBuying, homeowners disclose information about their property to an iBuyer program, which uses an algorithm to estimate the value of the home and generate an offer in 24 hours or less. (Zillow Offers relied heavily on their Zestimate feature, which led to thousands of above-market offers being made to homeowners, according to CNET.)

While the convenience of iBuying appeals to many sellers, it comes at a cost.

iBuyers cost home sellers about 13%-15% of the home’s sale price, while an agent costs 5%-7%, according to a 2019 research report from real estate data firm Collateral Analytics

In a 2018 Forbes article, Zillow Chief Marketing Officer Jeremy Wacksman admitted that “the discount the seller may take [from selling with Zillow] could be anywhere between 10-15% or even higher. It depends on the home, market conditions, and other factors. For some people it’s worth taking less, not worrying if the sale will close and being able to move quickly."

While sellers reveled in the convenience and, toward the end of Zillow Offers, the inflated offers made on their properties, real estate agents and prospective homebuyers were decidedly less enthused. In an already scorching market, many buyers saw iBuyers as near-bullies who used their institutional wealth to steal the American Dream of homeownership out from under them.

Zillow Offers targeted affordable homes with an average home price of $320,000, which is why cities like Dallas saw such high rates of iBuying home purchases. 

It should be said that while homebuyers and real estate agents are concerned, the iBuying market only accounted for 1% of all residential home sales in Q2 of 2021. Compare this to the $36 trillion residential market, and iBuying’s market share seems insignificant — even though the impact is very real.

Now that we have a grasp of Zillow’s impact on a national scale, let’s explore how Zillow Offers operated within Dallas’ real estate market.

Zillow Offers’ Downfall in Dallas

What Was iBuying’s Impact on Dallas’ Real Estate Market?

On a national scale, the iBuying market doesn’t raise concerns, but when you take a closer look at key markets like Dallas, the iBuying market accounts for a total of nearly 5% or more of residential transactions. In Q1 of 2021, Zillow purchases accounted for 645 Dallas-Fort Worth home purchases (3% of the market), and they accounted for 1,321 DFW home purchases in Q2 of 2021 (4.3% of market). Currently, the Dallas housing inventory consists of 8,209 active listings.

Additionally, hedge funds are also competing in housing markets like Dallas, adding competition to an already ultra-competitive market.

Given that the median home price in Dallas is $382,000, it’s no surprise that iBuyer programs like Zillow have been so active in the market. Additionally, the area’s population growth tantalizes investors; the Dallas-Fort Worth area has welcomed more than 1.2 million residents since 2010, growing its population by 20%. And the sting of investor attention in conjunction with the lack of affordable housing has been painful for prospective buyers.

Nathan Sanders, a Dallas area homebuyer, talked about the difficulties of finding a home against rich competition.

"In the current neighborhood, I've been surprised at how many homes have sold recently and sold to investment groups,” he said in an interview with NBC News. "My wife and I have been looking for a house for roughly the past year," he said, adding that they have made multiple offers. "On each of those, we had contractors or investment groups outbidding us on the properties."

Cash offers for homes are typically 25% of the market, but in the past year, that number has soared to nearly one in three offers, or around 33%.

Jami Mumley, a REALTOR® with North Texas Top Team REALTORS®, also spoke with NBC News and said, "In addition to competing with investors, who are often cash buyers, people are competing against individuals who are moving from markets where real estate may be more expensive. Those folks who are coming can often pay cash for a house... Right now, it's just very disheartening for buyers."

This sentiment can be felt throughout the state as Zillow Offers was also operating in Houston, San Antonio, and Austin. However, there may be a short-term bright spot on the horizon. 

Zillow will sell 81% of its Dallas homes for a loss, marking this housing market as one of the most problematic markets for the former iBuyer. One company’s loss could be your buyers’ gain as Zillow will be selling its homes for an average of $16,000 less than they paid, according to WFAA in the video below: 

How has iBuying impacted your market? Are you a fan of the programs, or are you relieved that Zillow Offers is closing? Let us know in the comments below!

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