ORANGE COUNTY, Calif. — Zillow Group's home flipping business flopped.
But are homebuyers going to get a good deal buying a Zillow-owned home in the Los Angeles and Orange County area?
A month after Zillow abandoned its homebuying business model, local real estate agents said they haven't seen home prices go down despite the company liquidating thousands of homes nationwide — and more than 120 in the LA and OC area.
"It's not making a big dent in the region's housing inventory," said Mohamed Hassan, broker and owner of Viceroy Realty in Woodland Hills. "There's still a shortage of homes and a lot of demand. It's still tough to be a buyer. It's survival of the fittest out there."
In October, Zillow — an online real estate marketing site — quit its so-called iBuying home flipping business after suffering more than $380 million in losses. Zillow was among a new crop of tech companies that used tech and algorithms to buy, fix and flip homes in recent years.
The iBuying trend is part of a broader effort by these companies such as REX, Opendoor, and Redfin to cut out and undercut the middleman or woman (brokers and sales agents) and disrupt the traditional home buying and selling experience.
According to reports, Zillow purchased more than 13,000 homes nationwide in the past two quarters and only sold about 3,000 or so. The company has an additional 8,100 homes under contract that they plan to honor.
Zillow officials said the global coronavirus pandemic, housing market volatility, and inability to forecast home prices led to the decision to exit their iBuying business called Zillow Offers.
"Put simply, our observed error rate has been far more volatile than we ever expected possible and makes us look far more like a leveraged housing trader than the market maker we set out to be," said Rich Barton, chief executive officer at Zillow, during their most recent conference call.
"We could blame this outsized volatility on exogenous black swan events, tweak our models based on what we've learned and press on," Barton added. "But based on our experience to-date, it would be naïve to assume unpredictable price forecasting and disruption events will not happen in the future."
Josh Stech, co-founder of Sundae, which invests in distressed homes, explained that Zillow overestimated the housing market's appreciation rate and got home values wrong.
"They bought more properties than they wanted, creating a backlog," said Stech. "I think as they were beginning to plan to buy more, someone in their boardroom asked, 'Are we making money?' and that momentary pause allowed them to all question the model and decide that this is not their business model. This [home flipping] is a lot harder than they expected."
The biggest winners from this fiasco are the homeowners that sold their home, above market price, to Zillow, Stech added.
Zillow is laying off 25% of its workforce and now liquidating its housing assets, putting thousands of homes for sale when housing inventory is low and demand is high.
Bloomberg reported that Zillow has already agreed to sell 2,000 homes to New York-based investment and single-family home rental firm Pretium Partners. It is unclear how many of those homes are in the LA and Southern California area.
According to the California Regional Multiple Listing Service, a home search engine for realtors, there are more than 135 active and pending Zillow-owned homes from LA, OC and San Diego as of Nov. 30.
An agent listed in a few Zillow-owned homes in OC did not return a Spectrum News call and text message.
Despite the flood of homes in the market and a very motivated seller, local real estate agents said they hadn't seen significant price reductions in Zillow's housing inventory.
The problem, Newport Beach-based Residential Agent salesperson Edwin Baloloy, said is during Zillow's buying spree, they often overpaid for homes because of the highly competitive marketplace and are trying to recoup as much as they can.
Even though there have been price reductions on some of their listings, Zillow's Zestimates — their estimated home price — is off, Baloloy explained. The estimate of the home is higher than the current market price.
"There are no bargains yet," said Baloloy, who kept track of Zillow-owned homes for sale in the region. "They've come out of the gate pricing them high."
Since Zillow made that announcement, Baloloy has seen a few homes his clients might be interested in and tried reaching Zillow's listing agent but have had no luck.
"It's tough to negotiate with them," said Baloloy. "They use a nontraditional way of communicating. I have been trying to get a hold of their agent. It goes straight to voicemail. No callback. It's like you have to throw an offer out there before they get back to you. Starting to get the sense that they are minimizing communication because it cost them money. We have legitimate questions [about certain properties for sale] with no answers."
The lack of communication has also rubbed other agents the wrong way.
"With these digital companies, there's a lot of issues," said Hassan. "You have to call a 1-800 number and speak to a customer service rep, who knows nothing about the home or the property."
Hassan, who has represented a few clients who bought a Zillow-owned home, said he wasn't impressed by the tech company's renovation of homes.
"Some professional home flippers are fixing up the house and putting in nice finishes and custom kitchens," said Hassan. "But Zillow, because of how quickly they want to flip it, they put in cheap finishes. It was just very Mickey Mouse jobs. It was lipstick on a pig."
Still, despite Zillow's iBuying issues, the agents and experts believe Zillow will sell their owned homes in the region. The housing market, driven by historically low-interest rates and low inventory, is still hot, especially in Southern California.
"Zillow is fire selling their homes right now," said Stech. "It's in their best interest to wrap it up."
Baloloy said Zillow's housing inventory is going to move one way or another.
"They will keep reducing the price of a home until they find their market," said Baloloy. "For home buyers, if you come across a Zillow-owned home out of your price range, you can wait, and there's a good chance Zillow will reduce it or try to make an aggressive offer and hope they get back to you."