Homebuying Hustlers

Economics Housing
Facebooktwitterredditpinterestlinkedinmail

            New Orleans        Crawling deeper and deeper down the dark hole of cash and corporate home-buying practices recently, one of the big players, previously unknown to me, was Opendoor.  When I looked, it seemed like less a source where a prospective buyer would be fronted the cash to make an offer on a house to increase their chances of winning a bid, and more of a middle-man practicing algorithm-based purchases, putting on a coat of paint, making some repairs and reselling.  I’m still not sure they are in the cash-offers for consumers business, but the more I look, they are definitely big players in the corporate homebuying and resell hustle.  Their biggest competitor is, or at least was, Zillow, the giant property and technology firm.  We all know Zillow, right?  If you’ve ever even been curious about a piece of property, you will get emails from them for months touting similar houses that their algorithms think might tempt you to buy or move.

            I stumbled onto a piece that was really more about Zillow than Opendoor in an Economist column.  The piece was entitled “Home-icide.”  How could I not read that?  Anyway, the impetus for the column was the sudden collapse of Zillow’s home-buying, fix-up spree where they had established a business to compete with their own customers to buy houses.  They had so much confidence in the effectiveness of their algorithms in estimating the market-value on a house that they made offers on thousands of them, assuming they could flip them easily in the overheated market and make a killing.

            You can tell where this is going.  Pride cometh before a fall, right?

            Zillow’s tech estimated that they would win 40% of their offers and take them to closing.  Instead, sellers accepted 74% of their offers and before they seemed to have gotten the message, they had bought 10,000 houses in one three-month period.  Their algorithm may have been pricing at the top of the market and being artificial intelligence, rather than common sense, may have been sweetening the deal too much, which is why sellers were jumping in their laps.  The boss says AI couldn’t foresee the future “three-to-six months ahead.”  Frankly, who can?  Zillow is expecting to lose half-a-billion, and has now exited the re-selling business.  Some of the other internet estimating and buying outfits, like Opendoor, didn’t get burned as badly, supposedly because they were slower to expand, which made their algorithm smarter, if you’re ready for that.

            Let’s summarize.  All of this is starting to sound like science fiction, not real estate and home buying.  We do know more surely that Opendoor does not seem to be a cash-upfront company.  We have found out that the internet can’t predict the future, though some people and companies will continue to think so.  As mere humans, we’re still perhaps one step ahead, because we’re several steps slower.  Worst, this kind of crazed corporate homebuying is a huge issue for regular families trying to buy a house, because their pockets are deeper, even if they aren’t that much smarter.  Whether competing against big companies and private equity or other families, none of this seems all that fair or advantageous to wannabe homeowners.