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Zillow's Approach to iBuying

By Motley Fool Staff - Updated Sep 17, 2019 at 7:23AM

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Zillow's iBuying business now has the company flipping homes. Here's how it works.

Zillow's (Z -3.86%) (ZG -3.39%) Offers business is the company's foray into iBuying, which critics label as home flipping. For homeowners in markets where Zillow Offers is present, it is possible to sell a home directly to Zillow in exchange for a transaction fee.

In this clip from Industry Focus: Energy, Motley Fool contributor Luis Sanchez and Industry Focus host Nick Sciple break down how Zillow's iBuying product works.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Sept. 5, 2019.

Nick Sciple: Luis, this iBuying trend, some folks might criticize it and say, this is a fancy form of home flipping. But Zillow, many people argue it's a little bit different. How is Zillow's approach to this iBuying or home flipping transaction different from the way things have been done in the past?

Luis Sanchez: Technically, Zillow is flipping homes. But I think Zillow the company characterizes it a bit differently. Their goal is to provide liquidity to the housing market. It's a liquidity service. Clearly, buying a home is a huge transaction. It's one of the biggest, if not the biggest, transaction an individual will make. That's a very complicated process. It usually takes a while to flow through. Zillow's thinking is, let's add technology to this, and through the process, make it run more smoothly.

The way it actually works in practice is, if you're looking to sell your home, you go on Zillow's website, you might already be going on Zillow's website just to see what your home could be worth. Now, off to the side, they have this little ad that says, "Click here to see if you qualify for an instant cash offer." And you basically fill out a quick survey. It might take five or 10 minutes. It's just a questionnaire about some basics of your home. Zillow will turn around and email you maybe a day or two later with a range of what they might be willing to pay you -- so, actually a cash offer. If you want to proceed, they'll actually send an inspector to your home within a couple of days to make sure that everything is as described. If you choose to accept that offer, you can actually get a 100% cash offer from Zillow within 90 days. In exchange, Zillow will charge a transaction fee between 6% to 9%. That fee will vary depending on a few factors. At the end of the day, Zillow needs to sell the home on the other side, so they're probably going to do some renovations. There might be an estimate of how long they think it'll take to sell your home. Paying 6% to 9% sell your home is definitely a little bit pricier than going through a traditional real estate agent process. A real estate agent might charge you 3%. But the service that you're getting as someone who's selling your home is a quick close and that certainty of that all-cash offer.

Sciple: Right, it's that idea that, when you own a house and you're moving to another house, you have a lot of cash tied up in that property. If you could get cash quick from Zillow or another one of these iBuyers, it makes the ability to move into your new property a lot easier and less stressful. Then, as well, as you mentioned, with Zillow being such a popular platform for finding homes, you can see where they can bubble up the homes on their balance sheet up to the top of the list and start promoting those.

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Stocks Mentioned

Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
ZG
$34.48 (-3.39%) $-1.21
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
Z
$34.09 (-3.86%) $-1.37

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