In a previous post, I looked at some of Opendoor’s transactions in Florida and drew some conclusions on very limited data. Well, I got my hands on some more data, this time from Phoenix and for Zillow Offers. Because I don’t have a data analyst on my team, and I’ve got a lot of things to do, I couldn’t quite do the depth and breadth of data research and analysis for this. But I got some done, and it’s fascinating as well.
What we have here is one month’s worth of closings for Zillow: March of 2019. I’ve tried to get as much information as possible on these, and present the key numbers. I removed two closings because no data was available on Zillow’s purchase price. But let’s see if these numbers from a different market for a different company still support some of our conclusions from the previous post.
Let’s do it.
Zillow Offers: March, 2019
The following table is a list of homes sold by Zillow. I filtered the data set only to show homes that were owned by one of Zillow’s subsidiaries: SPH Property One, SPH Property Two, and Signpost Homes. Yes, this could mean I’ve missed some if they were under a different corporate name. No, that does not bother me.
What does bother me a bit is that the Gross Margin column does not include any holding costs, renovation costs, or interest costs. Those were not available. But we can look at the unit economics published by Zillow and sort of back-of-napkin those in if necessary.
The Google Sheets spreadsheet here is a bit long and you may have to scroll. Sorry about that; limitations of WordPress publishing.
The summary takeaways from this dataset:
- Zillow sold 110 homes in the Phoenix area in one month, for a total of $33.3 million.
- Zillow purchased those homes from June of 2018 to March of 2019 for a total of $32.9 million. That equates to an average profit of $3,364 per deal, or 1.4% of the purchase price (the cash Zillow paid for the house).
- 22 of the 110 homes sold were previous listed with a REALTOR, and then ultimately sold to Zillow. 3 of those 22 homes ended up selling for less than what Zillow paid.
- On average, Zillow bought a house for $298,933 and sold it for $302,297, and Zillow’s Sale to List ratio was 98.2% and it sold that property for a mere 101.4% of the purchase price.
- I wish I had better numbers for Gross Margin from the sale, but the average is 8.2%. However, that number does not include critical numbers like renovation costs, holding costs, and interest costs. Take those into account, and it’s quite likely that the overall gross margins are negative, since Zillow posted negative gross margins for Q1 of 2019.
- Zillow used one team from one company for all of its listings; conservatively speaking, that team made $332K in commissions from Zillow at the institutional commission rate of 1% (common with large institutional clients like hedge funds).
- Zillow paid full 3% cooperating compensation on every deal, and paid almost $1 million to buyer agents in one month.
Seller Net Comparison
In terms of comparing how a seller might have done by going the traditional route instead of selling to Zillow, we have this:
The average seller according to these numbers would have made an additional $6,152 by going the traditional route instead of selling to Zillow, but spend an additional 3.2 months on the market with all that entails. In 19 of the 110 deals, the seller would have made less money for sure selling with a REALTOR than to Zillow.
Now, once again, these numbers are likely to be incorrect as they do not take into account holding costs, renovation costs, and interest costs. But three months of still owning a home while waiting for it to sell definitely has holding costs to the seller, such as property taxes and mortgage payments. Plus, as I’ve mentioned in the previous post about Opendoor, we can ask whether $6K is worth saving 3 months of the uncertainty and inconvenience of selling a home.
So this is far-from-perfect data. But it does give us something to go on.
These numbers do indeed support my conclusions from the Opendoor post:
- Zillow pays market price for its acquisitions: the difference is 1.4% on average. This reinforces the point I made and keep making that the iBuyer/Market Maker model is not to be confused with investor/home flipper models.
- Zillow is making a tiny profit on each transaction, prior to renovation costs, holding costs, and interest costs — assuming that Zillow charges the seller a 7% fee.
- The seller, on these numbers, loses money selling to Zillow, but as in the Opendoor scenario analysis, we’re looking at $6K to save 3 months of Fear, Uncertainty, Doubt and Inconvenience that is the modern home selling experience.
- Zillow’s pricing algorithm is even more accurate than Opendoors, clocking in at 98.2% Sale-to-List ratio. However, since Zillow is represented on its sales by an experienced agent team, it isn’t as clear as in the Opendoor case how much of the listing pricing is Zillow’s algorithms, and how much is the human local expert on the ground, or a mix of the two. Nonetheless, 98.2% is excellent performance.
In addition, we can now say with some degree of certainty that Zillow is making one team very rich, and making 110 buyer agents a lot of money: $997,581 in one month, to be exact. I expect that to be the same for any other iBuyer using real estate agents for buying and selling properties and paying out full cooperating compensation.
I ran these numbers because the Opendoor analysis only used ~30 transactions. This one has 110. It still isn’t a huge sample size, and it is from one market, but I do think it’s a bit more confidence-inspiring in terms of drawing conclusions from imperfect numbers.
Question for You
Now that I’ve done two of these, I have a question for you, the reader. Post below or drop me a line.
Is this useful? This kind of sales analysis? Or have I made the point and now it’s just beating a dead horse? It does take a lot of work to look up the information, so I wouldn’t do it unless you people found it useful and interesting.
Let me know. Thank you!
This post doesn’t deserve a music video… maybe next one will.