By now, you may have seen or heard about the viral TikTok video claiming a company is buying up properties in a calculated effort to drive up home values. Nevada real estate agent and TikTok user Sean Gotcher took to the popular video-sharing app to accuse an unnamed business of pulling off some convoluted scheme to manipulate housing prices. That unnamed business is now rumored to be Zillow.com, owned by Zillow Group Inc. The website has grown wildly popular amongst Millennials, many of whom flock to the site to both laugh at the often zany home listings and lament over beautiful properties out of their budget.
The site functions similarly to MLS, the local database of all homes for sale by all real estate brokers. But Zillow is not always highly regarded by realtors because, unlike MLS, it can show outdated home values and listings, leading to a ton of frustration between potential home buyers and agents. But that mess aside, Zillow found itself in some hot water last month after being accused by Gotcher of manipulating values in an already unattainable and volatile market.
The company has spent the past three years building out a home-flipping operation they claim simplifies the selling and buying process. And while Zillow doesn’t tout itself as a home-flipping business, that is essentially what this new feature is aiming to do. A homeowner can seek an offer for their property, Zillow’s software calculates a bid, and from there, the owner can choose to accept. Zillow would then make some light updates and repairs and put the home back on the market.
But Zillow’s newest feature doesn’t quite sit well with agent Sean Gotcher. In his TikTok video, which has now amassed over 2.4 million views, Gotcher gives viewers a hypothetical where an “iBuyer” uses cash to buy 30 homes in a given neighborhood, all for the price of $300,000. Then, the iBuyer would purchase an additional home for $340,000 in a bid to drive up the value of those first 30 homes. Gotcher doesn’t give out any names in his video, but social media users quickly commented they believed the company in question is Zillow due to its size, popularity, and newest feature Zillow Offers. Other commenters accused Redfin and Opendoor of being the mysterious iBuyer in Gotcher’s video.
In the wacky world of viral conspiracy theories, this one isn’t all that crazy or unbelievable. Hopeful home buyers can practically see the value of homes rising with each passing day, and countless people have had their dreams dashed in the last year after being outbid by contractors paying cash. So it seems only natural that someone would want to place some blame here, and Zillow Offers is an ideal scapegoat.
But before we break out the pitchforks and torches and make demands for Zillow’s hypothetical bloody head, it’s probably important to discuss why it wouldn’t make much sense for a company such as Zillow, Redfin, or Opendoor to manipulate home values.
In an email to MarketWatch, a Redfin spokesperson explained the company doesn’t “have the share to manipulate the market nor do we have any desire to, because intentionally overpaying for homes would be a terrible business model.”
Zillow has, of course, responded by saying they pay market value for their homes. In an emailed statement to Yahoo Finance, a rep for Zillow explained:
“Zillow’s home buying and selling program, Zillow Offers, empowers movers with the ability to sell on their timeline, limiting the stress involved in a traditional home-selling process. We pay market value for every home we purchase. When we looked at homes that sold traditionally after they declined a Zillow Offer, we learned that on average, those selling traditionally sold for only .09% more than the Zillow Offer. And on every home that Zillow buys and sells, we are transparent: the purchase and re-sale prices are publicly displayed on the property page on Zillow.com. 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 5% today.
“Because our margins are so thin, it’s critical that we price a home accurately. If we overpay — we’ll lose money on the resale. If we make too low of an offer — homeowners won’t use us.”
Redfin responded by telling Yahoo Finance, “We don’t have the share to manipulate the market nor do we have any desire to. Intentionally overpaying for homes would be a terrible business model.” The rep went on to explain that Redfin is honest and transparent with sellers, and that of all the homes sold by Redfin in the second quarter, “99% were sold via our listing service and 1% were RedfinNow sales.”
It’s far more likely that companies such as Zillow sometimes overpay for homes due to the red, hot market we are all currently boiling in (major corporations— they’re just like us!). And at times, values in specific markets are growing so quickly that it’s difficult to pinpoint what a property is worth.
A recent report showed that the four largest iBuyers— Zillow Offers, RedfinNow, Offerpad, and Opendoor— accounted for just 1% of all home purchases nationwide. Of course, it’s a lot easier to scroll through social media and believe a theory like the one in question than to do some research on your own and pull from the data. The truth is Americans are strung out right now for several reasons. The rising cost to rent or buy a home only adds to national anxiety levels, which makes viral videos such as Gotcher’s that much easier to believe.
So, if Zillow, Redfin, and Opendoor, etc. aren’t a bunch of deviant monsters driving up the cost of living in America, why are we experiencing this housing-affordability crisis? The short answer is that the country has a major housing shortage at the moment, and the 2008 financial meltdown is largely to blame. Back then, home builders created entire neighborhoods of homes without first selling a single property. Cue the market crash, and now we have millions of vacant homes on the market all over the country. It has taken years for builders to recover and scale back up.
Fast-forward to 2020, and the COVID-19 pandemic hits, prompting millions to rethink their housing situations. And now, we have a supply and demand issue here. So many people were suddenly out looking to purchase homes and inadvertently created competition that has driven prices up to unfathomable levels. Homebuilders can’t even keep up at this current pace as they’re all facing shortages of building materials and laborers.
But it is possible iBuyers have played somewhat of a role in pushing prices even higher. In order to secure their offer, cash buyers are paying a premium above the estimated market value to be first in line to secure the very limited inventory. That in itself can absolutely contribute to rapid price appreciation— but this situation wouldn’t even exist in the first place without the current severe supply-demand imbalance.
So, are we in a bit of a pickle here? Yep, I’d say so. On the one hand, we can’t fully place blame on these iBuyers for driving up home values when so many other factors are contributing to that issue. But, on the other hand, for every home these cash-paying corporations snatch up, that’s one less home on the market for the standard buyer to consider, leading to even more competition. And while iBuyers have yet to influence the market in a significant way, it’s not outlandish to assume we could be in a scenario similar to what Gotcher’s viral video expressed in the future