How Zillow Cash Offers Will Affect the Real Estate Wholesaling Industry
Zillow is a billion-dollar company that has caused so much frustration in the real estate industry over the years. Although they have improved significantly, they used to provide the public with out-of-date listing information and horribly inaccurate home values, they have gained the public’s confidence and have become the go-to online real estate website. Zillow has since expanded its online platform to include lending, title, and even a moving company. Their latest venture is one that is not going to sit well with real estate investors or wholesalers. They have started buying homes, and all the seller has to do is answer a couple of questions and click a button to get the process started.
Zillow is Not Afraid to Lose
As real estate investors, we look at the bottom line – how much money will this deal make. We have to negotiate the purchase price down to an amount that will give us room to cover any unexpected expenses, or else we will see our profits dwindle away to nothing. Zillow doesn’t have those concerns. They have no problem operating on small margins. In the 4th quarter of 2020, Zillow flipped 900 homes for a 67 million dollar loss. That ends up being about a $75,000 loss per home. How can we possibly compete with someone who isn’t afraid of losing that much money?
Something else that is worrisome is that Zillow’s “zestimates” have been getting more and more accurate. It used to be where Zillow’s value estimates were based on months-old data, so the value would either be tens of thousands of dollars lower than the actual list price or way too high. Now, they have the numbers dialed in and are only off about 2% of the fair market value based on homes listed on the market and are willing to back that estimate up with a cash offer. This means that with Zillow’s newfound ability to accurately price homes combined with the public’s positive perception of Zillow, their offer will be chosen over ours every single time.
Since Zillow is losing so much money on their instant cash offers, it would be logical to think that this venture will not last long.
Unfortunately, that is not true. Zillow is a huge corporation with many different divisions. The homes they are losing money on bring revenue to other parts of their business. They have their own title company, their own lenders, and even a moving company. All of these cash deals are utilizing the other areas of service, which is bringing in money to offset the losses they see on their flips.
Zillow is currently only offering its instant cash offers in a select few markets. Their home buying criteria are also extremely limited.
It appears they are sticking to homes in the $300,000 area, which only need about $10,000 worth of repairs or remodeling. They choose to do business in the hottest, fastest-moving real estate markets in the country. If this new venture is well received, we can bet that they will soon move on to other areas where they can afford to hold on to properties a little longer.
How Can We Compete?
Since Zillow is only making cash offers in a very small section of the market, we may not have to compete with them as much as we think. We can look for homes outside of their $300,000 price point or homes in that price point that requires more extensive repairs. We can also focus our attention on smaller, more remote markets where we don’t have to worry about Zillow coming in and taking our deals.
Many people needing to sell their homes will pay more money for amazing, personalized service. Providing amazing service is an area where Zillow is unable to perform and an area where many of our peers fall short. To be successful in any industry, you need to be able to set yourself apart.
In the real estate industry, it is pretty easy to do.
How To Set Yourself Apart
One of the easiest ways to set yourself apart is by getting a state real estate license and joining a brokerage. As of now, Illinois is the only state that requires wholesalers to have a real estate license, but we can expect that to change in the upcoming years.
Why not be ahead of the game? Getting a real estate license will increase your expertise and make you appear to be more legit than your unlicensed peers.
Once you have a license, you will have to join a brokerage. While there are many options out there, eXp is your best option. Exp Realty offers the industry’s best training, support and marketing services in the industry. Your business will truly be taken to the next level. EXP also provides a first-of-its-kind real estate platform called “Express Offers.” This platform allows agents and brokers from all over the US to bring wholesale sellers and investors together. Express Offers intends to disrupt the “z-offers” and “Buyers” that are hurting wholesalers and investors.
Through the use of Express Offers and as an eXp agent, you will be compensated based on a set percentage when you represent a wholesale seller who sells on the platform. You also have the opportunity to be paid when investment buyers you introduced to the platform purchase a property. This means you can get all of your investor connections on the platform, and you could potentially bring in money on each of their transactions.
Express Offers also offer home sellers all of the disclosures necessary to comply with local real estate regulations while giving them the peace of mind of working with a licensed real estate agent. If you want to compete with Zillow, this is the way to go. You will not only offer the personalized service that many home sellers desire but also have a major brokerage backing you up.
If getting licensed and joining eXp sounds like something you would like to consider, contact us. We would love to give you all the information you need to decide if getting licensed and joining the fastest growing agent-owned brokerage in the country is the right choice for you. We are in all 50 states, so you can take advantage of all we have to offer no matter where you are.