Local

Inside the collapse of Zillow: hundreds of homes to hit Orlando market

ORLANDO, Fla. — The yellow five-bedroom house on East Harding Street sits empty and unassuming, attracting little attention in the middle of Orlando’s Hourglass District. Though the windows are dark, the lot is maintained. The lawn is cut, and the paint is clean. A basketball hoop hangs over the driveway, dripping in the late autumn rain.

For months, though, this home has been the talk of the neighborhood. A sign outside the front door offers the first clue.

>>> STREAM CHANNEL 9 EYEWITNESS NEWS LIVE <<<

“Owned by Zillow,” it reads, in the company’s signature blue-and-white color scheme, displaying phone numbers and additional information to would-be buyers.

No one is interested in the home. In fact, the East Harding Street house signifies the collapse of the budding real estate empire and offers a warning lesson to those who would try to use computer code to predict a future established by humans.

READ: Zillow to sell off hundreds of Orlando homes after homebuying division crumbles

Cash is king

For years, Zillow has been a household name in the real estate world. The website has become a go-to place to check a property’s value, compare it against neighbors and find potential candidates to tour with a real estate agent.

A few years ago, the company entered the business known as iBuying. Companies, rather than individuals, placed offers on properties by using an algorithm to predict what the home was worth and what it could sell for.

The offers are enticing — all cash, and quick, in exchange for a slightly lower offer than normal. A seller wouldn’t have to deal with buyers, tours, agents or renovations. Homes sold as-is for as little effort as a click of a button.

Read: This new roof trap could cost you thousands

“They don’t buy old, they don’t rent for the most part,” Keller Williams real estate agent Ray Lopez explained. ‘They’re going to flip your house. They’re going to buy it today, put some paint, carpet, fix this and fix that, not a lot of money, and then put it back on the market a month, two, or three later and sell it.”

Zillow was not the first. Other companies like Offerpad, Redfin and Open Door also compete against ordinary real estate agents every day. However, the company’s scale set it apart, Lopez said. Backed by billions of dollars and a desire to become the biggest player in the game, Zillow pushed the limits, offering better deals to sellers in an effort to acquire as many homes as possible.

“Zillow came on like gangbusters because they were paying top, top dollar,” Lopez recalled, adding that the homes could sometimes be priced 5% to 10% above the seller’s listing.

Read: Tiger Woods’ PopStroke breaks ground on Orlando location

Sometimes, the numbers were eye-popping.

The East Harding Street home was originally listed by its owner for $285,000, neighbor John Miller recalled. Miller had looked at the property when moving to the Orlando area, but decided the layout wasn’t ideal. He bought the property next door.

The chatter in his community began after the Zillow sign appeared at the end of the driveway. The website listed the price of the sale: $445,000, 56% above the asking price.

Read: Frontier to launch these 16 nonstop Orlando routes

“The house was still pretty much the same as when I looked at it online,” Miller said.

He remembered crews coming in to touch up the paint and replace a few ceiling fans after the sale went through, but nothing major. Then, Zillow relisted the house for $510,000.

“It’s also kind of disgusting,” Miller said. “For them to buy a property at the price that they did and not really do anything in the way to increase the value of the home, and then list it for that price.”

The process worked, though, because of the market frenzy. With homes getting 10 or more offers on their first day and prices increasing 12% annually, the company could afford to pay, knowing it would make it back and push nearby comparisons higher.

Until it didn’t.

UPDATE: Crew-2 targeting return to Earth Monday, Crew-3 now eyeing Wednesday launch

Billion-dollar mistake

Toward the end of the summer, Orlando’s real estate market slows down as kids return to school and tourists head home. real estate agents like Lopez know this, telling clients it’s the best time to start thinking about buying a home because they’ll face less competition.

Other companies also know this. Data Lopez provided shows iBuying competitors lowered their offers to sellers as the market peaked.

Zillow didn’t.

LIVE UPDATES: Heavy rain, winds to continue overnight into Saturday, flood threat remains

“They projected that the market would keep going up at the rate that it’s been going up for the last 12 months,” he said. “Zillow kept paying top dollar over asking. So, they ended up getting these houses, trying to put them back on the market. They couldn’t sell them at anything close to what they bought them for.”

Zillow executives have also blamed the global supply chain shortages for expensive lumber and materials, as well as the labor shortage that drove up contractor prices. Both ate into the company’s profits as they bought, renovated and sold homes.

Lopez’s data shows Zillow listed 994 Orlando-area homes over the past year. They sold 331 of those properties, and another 356 have offers pending. Including the home at East Harding Street, 299 are still on the market, accounting for almost 10% of all homes available to buyers this month.

READ: Buy a day, get a second day free ticket for Universal Orlando returns for Florida residents

Lopez and other agents believe that’s just the tip of the iceberg. The common estimation is that the company has another 500 or so homes in its inventory that are not currently listed. Many of those homes are expected to be sold at a loss when the company offloads them.

However, he said Zillow is expected to hold onto them until the seasonal market begins picking up in early 2022 to cut its losses. That, and the continued low inventory of available homes, means prices for buyers won’t fall dramatically as some would hope as Zillow dumps its stock.

“We need about 5,000 homes to hit the market for us to balance [the sellers],” Lopez explained.

READ: Theft of French bulldog leads detectives to unravel dog trafficking ring; microchips cut out of dogs

Everybody else wins

The home on East Harding Street may continue to sit empty, but agents say shockwaves are being felt across the industry. Most people, they said, will gain from the titan’s exit.

Lopez said other iBuying companies will have more wiggle room when cutting deals with sellers, no longer needing to match the company’s 9% margins, far below the rest of the competition.

Agents like himself will have more breathing space as well.

READ: Police: 16-year-old girl among 3 found dead inside Orlando condo

“What’s nice is we can go in and tell you, instead of them making your equity, why don’t we paint, carpet,” he said. “As a realtor, I can show my value, and the seller can make the money that Zillow, Open Door, Offerpad were going to make.”

Finally, buyers benefit by not paying the enormous markups Zillow was trying to charge for relatively little work. Nor will they move in and find a major problem that may have been covered up.

“People have been using the Zestimate for years,” Lopez said. “People have to realize that the most accurate valuation is from a local realtor that knows your subdivision, knows your houses, knows what’s in them, and what’s the projection at different times of the market.”

WATCH: Foster mother accused of killing child says she asked agency for help multiple times

The collapse is causing industry insiders to reevaluate the market over the long run. Some are saying the iBuying model doesn’t work, while others argue that it can be done as long as experienced humans are involved in the process.

In a recent interview, the CEO of Offerpad told MarketWatch that the ease of the model is hard to beat for people looking to offload their properties in a hurry.

Lopez said there was a lesson to learn from the crumbling empire for all technology companies, even those outside real estate.

“That whole guestimation of value just happened to bite them,” he said. “If they wouldn’t have done that, they would still be King Zillow.”

Click here to download the free WFTV news and weather apps, click here to download the WFTV Now app for your smart TV and click here to stream Channel 9 Eyewitness News live.

0