When Jed (not his real name) sold his house in Central Florida to Zillow, the real estate website, the whole process seemed strange.
Prior to the sale, the Zestimate — the value Zillow assigned to the property — dropped significantly below the level it had previously sat. But Jed wasn’t too worried by that when Zillow offered him a price for the property: It was slightly higher than the Zestimate, and Jed thought it was a good deal.
But once the sale was complete, something odd happened. The Zestimate on the property immediately rose 14 percent. Within two days, it was up for sale at the new, higher price.
Jed also thought it was unusual that the listing received thousands of views within a day of being listed — a sign, he thought, that it had been internally promoted by Zillow. One of those browsers ended up buying the house, and once Zillow accepted their offer, Jed noticed the price rose by another three percent.
Listen to the representatives from the range of real estate websites snapping houses up, and that’s just the way the market works. But to an increasing number of skeptical homeowners and those locked out of the property market, it’s another sign of manipulation by iBuyers: websites that use data to price and lodge offers on properties for resale in a quick flip. To the naysayers, it’s an unfounded conspiracy theory. But who’s right?
“This is something every real estate agent in every office has been discussing for years,” says Sean Gotcher, a Las Vegas–based realtor. In mid-September, he posted a TikTok in which he alleged an unnamed “billion-dollar” real estate company used the data it collected from users to buy up houses to manipulate the price of real estate in areas that are known to be of high interest.
That video’s been seen three million times on TikTok, while a repost on Twitter has a further 2.1 million views. Gotcher says he’s been “very, very surprised” at the attention the video got.
In the clip, Gotcher offers a hypothetical situation in which a real estate tech company could buy up 30 houses in an area of high buyer interest at $300,000, then buy a 31st home at $340,000. Doing so would reset the going price for homes in a given area at a higher level — including the 30 previously bought — potentially netting the company an additional $1.2 million.
The video is coy, but tries to get a point across. The housing market is at a tipping point — and real estate websites hold the power to move markets to their benefit and buyers’ detriment. “In our world, we’ve been screaming about this — and the possibility of this becoming a reality — for years,” Gotcher tells Input. “And nobody’s done anything about it.”
“Intentionally overpaying for homes would be a terrible business model.”
The realtor first noticed iBuyers entering the Las Vegas market a few years ago, before the pandemic hit. They then begin offering incentives in certain zip codes that they’ve deemed hot areas. “They use all the data they’ve accumulated to hyper-focus on an area,” he says. “In any negotiation, the person with the most data is always going to win the negotiation.”
Gotcher is eager to sound the alarm before the market spirals out of control, he says. “They know off of their data how many people can potentially purchase that house, how many offers they can get, and how they can maximize their profit,” he says. “That’s too much power.”
But those companies he’s hinting at being behind the practice, even if he’s not directly naming them, say the long con isn’t on.
“We don’t have the share to manipulate the market nor do we have any desire to,” says Alina Ptaszynski, communications manager at Redfin, a full-service real estate brokerage. “Intentionally overpaying for homes would be a terrible business model.”
Ptaszynski points to the fact that RedfinNow, Redfin’s iBuyer arm, sold just 292 homes in the second quarter of 2021 — 0.01 percent of all homes sold in the U.S. during that time. (The company declined to share how many houses it bought.) “As a brokerage that employs local real estate agents who help consumers buy and sell homes, we offer homeowners a transparent choice: list with one of our agents for a low fee or take a cash offer from RedfinNow,” she says.
“We’re honest with sellers that they’ll likely net more by listing on the market with an agent,” she adds. “Sometimes they prefer to take the convenience and certainty of the cash offer and let us take the risk of getting it sold to the ultimate buyer.”
“I do not think the stories on TikTok are an accurate representation of the current business model.”
Zillow too denied the allegations made by Gotcher. “We pay market value for every home we purchase,” a Zillow spokesperson tells Input. Sellers who turned down a bid from Zillow Offer, Zillow’s iBuyer arm, and then sold through traditional means reportedly got just 0.09 percent more than the Zillow offer. “With Zillow Offers, our goal is to buy at market rate, then sell quickly at market rate. The business model is designed to generate our profit margins from the convenience fees we charge sellers — typically around five percent today,” the spokesperson says.
That’s something industry analysts also believe is more likely. “I do not think the stories on TikTok are an accurate representation of the current business model and what we should be worried about,” says Tomasz Piskorski, a real estate professor at Columbia Business School who has analyzed millions of data points on housing transactions in the U.S. with colleagues from Stanford and Northwestern universities. (Piskorski is also a member of the National Bureau of Economic Research.) “iBuyers still have a fairly small market share of transactions in the U.S.,” he says, estimating around one percent of all transactions are intermediated by them.
Piskorski does admit that market share can fluctuate wildly depending on where you are in the world. In Phoenix, not terribly far from where Gotcher operates his real estate business, the share is significantly higher — but still less than 10 percent of the market. “They do not yet have as big of an influence on the housing market as some of the stories allege,” Pikorski says.
Yet. And that’s the keyword.
Piskorski draws a parallel between where iBuyers are now and where Amazon was years ago. “I’m old enough to remember when Amazon started as a bookstore and was losing money for several years at the beginning of their operations,” he says. “It’s a very similar situation for iBuyers right now. They’re still losing money.” Zillow has lost hundreds of millions of dollars through their iBuyer business, Piskorski believes.
But the goal for the companies is to build enough scale over time to become sustainable, significant businesses. “It’s a very tight-margin business, but it can be made profitable only if you operate at a certain scale — which they haven’t achieved yet,” says Piskorski.
The researcher also estimates that there’s a natural ceiling for such iBuyers at around 20 percent of the total housing market in the U.S. because of the challenges presented by which homes can be bought and sold through the sites’ iBuyer services. (Unlike traditional realtors, iBuyer services never actually see a home before they put down an offer. Instead, they use automatic valuation models that consider the house’s resaleability back into the market within three to six months max. They’re interested in conventional, boring homes. They want cookie-cutter properties they can market simply.)
“Why do we have to wait until something is so completely out of control that we can’t fix it?”
“Contrary to the allegations that this is such a profitable business that manipulates the market, that’s simply not the case right now,” says Piskorski. “But that being said, once this becomes sufficiently big, the kind of issues people talk about might become more pertinent.”
That too is what Gotcher is worried about. “Why do we have to wait until something is so completely out of control that we can’t fix it?” he asks. “Why don’t we try and fix something before this is a big issue? I don’t think this is the cause of the housing crisis right now, but I think we are headed in that direction if we don’t start paying attention to what is happening.”
As for the fact that the iBuyers are losing money, Gotcher believes that’s a blip. “We’re the test,” he says. “We’re the test to see how they can make this profitable.”