Zillow’s fall from grace just got a little messier — now the government’s involved.
To recap: Recently, Zillow announced its plans to sunset its massive home buying operation, Zillow Offers, and lay off 25% of its workforce. This announcement caused its stock to plunge after reporting a $381 million dollar loss for Q3 of this year.
But the company still has 18,000 homes in its inventory, all of which were overvalued by its very own algorithm. This week, The Wall Street Journal reported that the company is in the process of selling some of these homes to an investment firm, Pretium Partners, for a loss of between 5% and 7%.
Here’s where it gets ugly. Pretium Partners plans to rent the properties (and is, apparently, notorious for its slumlord reputation). This got the attention of three U.S. senators sitting on committees on housing and banking, who sent Zillow CEO Rich Barton a letter last week, asking him to provide details on, among other things,
“the number of properties Zillow has sold to institutional investors since the beginning of 2020, compared to the number sold to individual buyers or community-focused non-profits, and whether Zillow intends to allow local buyers a ‘first look’ opportunity to purchase a home.”
This is nothing new — and Zillow is not alone. Ever since the iBuyer model emerged in 2014, companies like Zillow, Opendoor, and others have allowed Wall Street investment firms to buy homes — in bulk — before they hit the open market. And they’re not slowing down: Bloomberg reported last week that “the number of homes investors purchase from iBuyers is poised to increase as both groups seek to accelerate growth. It’s also likely to attract greater scrutiny.”
As a Realtor, I am alarmed. After all, in the very first paragraph of the NAR Code of Ethics, we commit to recognizing that the “interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership.”
As Americans, we should be angry. Wall Street firms buying up houses and renting them is a giant blow to the cornerstone of the American dream of homeownership — and a slap in the face to the financial security of hardworking Americans. The Federal Reserve found the difference in net worth of homeowners vs renters to be staggering: “In 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That's a 40x difference!
It will be interesting to watch this unfold: Will we see attempts to regulate these kinds of transactions? Or will we increasingly become a nation of renters?
In the meantime, let’s double-down on our Code of Ethics, and commit to helping “eliminate practices which may damage the public or which might discredit or bring dishonor to the real estate profession.”
In our profession, integrity is everything.
