Gary Byrd had no idea Zillow bought houses until he noticed a pop-up box in the corner of a page on the site. "We buy homes," it said, and out of curiosity he clicked it. A few weeks later, the popular real estate business owned his house.
Byrd, a 59-year-old campus facilities supervisor at a community college, was one of thousands of homeowners who sold houses at or above market prices to Zillow just before the iBuying arm of the company, Zillow Offers, shut down. iBuyers are companies that run mostly automated home-flipping business at a large scale. The collapse of Zillow Offers was due in large part to the failure of Zillow's algorithms to accurately predict home values, or make what the website calls "Zestimates." As the COVID-19 pandemic threw the US housing market into chaos, Zillow's own technology was telling the company to buy homes at prices that were too high to successfully turn a profit if the houses were flipped. Those pricing mistakes ultimately led to the shuttering of Zillow's iBuying business in November 2021. But not before some homeowners received sweet deals from Zillow's overzealous algorithms.
After Zillow's prompt led Byrd to consider selling his three-bedroom property, he did entertain other offers, but he received underwhelming bids from two of Zillow's iBuying rivals, Opendoor and Offerpad. Though iBuyers typically offer less money for homes than individual buyers as a trade-off for the convenience of their services, both offers came in at under $200,000, which still seemed low to Byrd.
Selling to Zillow: Simple, fast and lucrative
"Zillow was actually giving me a fair market value for the house, not trying to lowball me like some of the other ones," Byrd told CNET. The weaker offers he received from Zillow's competitors to buy his Tampa, Florida, home, which he purchased for $155,900 in 2017, "were ridiculous." Byrd had spent time working in real estate as a loan officer earlier in his career, so when he saw that Zillow was willing to pay $235,172 for his house, he jumped at the chance. The median sale price for a Tampa home is currently around $340,000, up almost 20% from this time last year.
"If I wasn't educated enough to know and check the market, I might've said 'OK' to the other [lower] offers," Byrd said. He understood the business model of iBuyers and knew he might encounter lowball offers. But after shopping multiple companies, he found a hands-down winner in Zillow.
Once he had an initial conversation with Zillow about how the iBuying process would unfold, the company sent an agent to his home for a walk-through. The representative evaluated the condition of his house by shooting videos and taking measurements of the entire property. Zillow came back with an offer shortly after that. Byrd never had a single open house. The only part of the home-selling process he had to manage himself was finding and paying his movers.
"We cleaned the house Wednesday, the inspector came Thursday, I signed the documents Friday, and I had my money on Friday," Byrd said. It took around six weeks total to close the deal, all things considered. Meanwhile, the median number of days on the market alone was 46.5 as of November 2021, according to FRED, the Federal Reserve's data tracker. With the additional 30 to 60 days it typically takes to close on a home once it's under contract, that puts the time frame for the traditional sale of a home at roughly 11 to 15 weeks.
Selling at the top of the algorithm
Zillow's instant cash offer was what finally enticed Byrd -- and tens of thousands of other sellers across the country -- to sign on the dotted line. Selling your home to an iBuyer like Zillow is an appealing proposition because you receive an all-cash offer coupled with the convenience of a streamlined selling process. If you sell your home to an iBuyer, the company takes care of every aspect of selling the home for you. You don't have to worry about listing it or showing it or dealing with a demanding buyer who wants repairs. Plus, having that cash in hand can put you in a position to buy a new home without having to wait for your current home to sell.
But the convenience and liquidity come at a price: iBuyers are historically known for making lowball offers. You don't have to lift a finger, but you'll likely be accepting a lower price than you would've received from listing on the open market.
And that's why Byrd and the other homeowners who sold to Zillow may have hit the jackpot. They didn't have to make any trade-offs because Zillow purchased their homes at or above fair market value, and still took care of every step of the process.
Are other iBuyers likely to make such fruitful offers? "Typically, it doesn't work that way," said Linda McCoy, board president of the National Association of Mortgage Brokers. "I would say that those people were very lucky. For the average person, most of the time you're getting a reduced amount."