I caught some news last night that Zillow’s stock was popping some 20% after reporting earnings. But that’s not the interesting part. Zillow is doubling down on their “Zillow Offers” product, a service where they buy homes for cash, fix them up, and sell them.
Yep, Zillow is flipping houses just like you see on HGTV.
The company announced that they’ll be expanding from 9 markets to 20. I admittedly didn’t really know about this program, and definitely didn’t know about OpenDoor, a company that has been building their business around this model.
I see a couple implications for Zillow Offers and competitors like OpenDoor.
First, it’s going to make wholesaling tougher for the little guy. What advantage will you have over a household name that’s more trustworthy and potentially able to offer better terms than you? Seriously think about that, because if you wish to remain competitive as a wholesaler you’re going to need an answer.
Second, this is just another factor that will continue to drive home prices higher. Programs like these provide more liquidity and competition. Margins for these players, and others in the wholesaling and flipping business, will compress as it becomes more difficult to find and acquire properties.
And if you’re an investor in Detroit or another large market that these players haven’t started operating in yet (neither Zillow nor OpenDoor are in Detroit yet), chances are it won’t stay that way. I find it fascinating that a publicly traded company is firmly in this space, because we’ll have some transparency into markets their targeting and, once we have more data, we can look at how home prices are affected by their entrance into different cities.
I’m excited to continue watching this unfold. At what point will the market start becoming saturated? What then? Will Zillow start offering on properties that have been sitting on the market for a certain number of days? Will they get into the buy and hold space?
I believe those are a long ways off if they happen at all. But it seems clear that big players are now in the wholesaling and flipping business for good.