Seems Like a Bad Idea: iBuying

Zillow, Redfin, etc… are all chasing after iBuying like it’s the next big thing. It seems like a bad idea. But… it also is a good idea. Real estate is a terrible industry for the customer. Fees all over the place, onerous processes, etc… A company taking on that pain from the customer is a huge opportunity. iBuying is making it easy for the customer. Essentially, right now Zillow is flipping homes. Yeah, margins might be low, but the TAM is huge.

My hope as a Zillow holder is that iBuying isn’t the final form for Zillow. Zillow was a data company, then iBuying and hopefully eventually a marketplace. Having massive amounts of housing inventory seems like a bad idea and it probably is! But it’s a temporary form of distribution. Much like Netflix temporarily mailed DVDs, Zillow is temporarily buying homes in hopes of developing a new distribution model. Zillow needs a real estate marketplace with vendors (homeowners?) who own the inventory! Zillow can own some houses, but owning too many could lead to problems (housing crisis didn’t turn out well for flippers). Zillow can give the option to list your house on the marketplace or sell your house to Zillow (easy buttons cost more). On top of being a marketplace, Zillow can still offer services to help homeowners, etc… iBuying might be an eye sore on the P&L, but it also might be the sweet spot for real estate.

PS for anyone interested in why I choose Zillow over Redfin, Opendoor, etc… see below. Marketplaces are two sided and Zillow is the first stop.