Recently Zillow announced that it had determined to get out of the iBuying program business model. This resulted in the company taking a significant loss on the homes that it had purchased. It then announced, according to a Wall Street Journal article, that it had sold 2,000 homes that it had purchased to a New York-based investment firm, Pretium Partners, and was officially terminating its home-buying business. These homes are located in 20 different markets.
This is only the beginning of its closeout sale of purchased homes. Right now according to the story published, Zillow is planning on selling 9,800 homes that it owns outright in addition to the 8,200 homes that it was in process of purchasing. The company, according to the story, is projecting a loss between 5 and 7% on these 18,000 home sales.
The company’s business model was based upon Zillow doing quick renovations, and selling them into a very frothy market, hopefully making money on transaction fees and the month-to-month appreciation of homes in this historic bull market.
Pretium isn’t the only Wall Street firm getting into rental real estate – it is reported that Blackrock and Amherst Capital are doing the same thing.
Pretium is reported to own 70,000 homes that it rents. The growth in new household formation continues to drive its business as affordability becomes a more significant hurdle for first-time buyers to overcome.
The rental investment model continues to prove more and more profitable as single-family rentals have risen by 8.5% year-over-year.
The monkey wrench that appeared to block Zillow from executing on this model was Zillow’s inability to accurately forecast future home prices. Zillow on its website typically gives visitors an estimate of the value of homes in the area of their search. Buyers and sellers have learned that such estimates are often inaccurate, so it doesn’t surprise anyone that Zillow’s iBuying program fell flat as it has.
If you have any questions about this information or title insurance, please contact Ralph Aponte: 732.914.1400.
Counsellors Title Agency, www.counsellorstitle.net, founded in 1996, is one of New Jersey’s most respected title agencies, serving all 21 New Jersey counties with title insurance, clearing title, escrow, tidelands searches, and closing and settlement services for commercial or industrial properties, waterfront properties and marinas, condominiums, townhouses or residential single family homes. Counsellors Title also features its own Attorney Settlement Assistance Program™ [ASAP], which is an individual resource customized to fit the needs specifically of real estate attorneys, including, Documentation, Preparation, Disbursement of Funds, Attendance at Closing, HUD Preparation or Post-Closing Matters.
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