The popular real estate website Zillow was criticized on social media after a TikTok video decrying an unnamed real estate company’s potentially nefarious business strategies went viral.
Las Vegas-based real estate agent Sean Gotcher (@seangotcher) posted a two-and-a-half minute video to TikTok earlier this month, describing a scenario where a so-called iBuyer uses its massive, user-generated database to scheme the local housing market. An iBuyer, according to Zillow, is “a company that buys homes almost instantly by relying on technology to determine a market-based cash offer.”
“Let’s say that that company buys 30 homes within a two-mile radius, and let’s say the price is $300,000. So, they buy all of these homes for $300,000,” Gotcher says in the video. “Then on the 31st home, they buy it for $340,000.”
In his video, Gotcher suggests the unnamed company is purposefully driving up home values in order to drastically increase its own profits and thus manipulate market value.
While Gotcher never names Zillow, social media users have suggested the company might be his target because of its size, popularity, and the fact that the company has created its own real estate program called Zillow Offers that buys and sells single-family homes.
Commenters quickly pointed the finger at Zillow and two other real estate services, Redfin and Opendoor, and the video was quickly given a second life on Twitter.
I've never linked a TikTok in my life but here we go. pic.twitter.com/J7oMvXISkW
— 🦹🏾♀️ (@Gladvillain) September 22, 2021
Redfin CEO Glenn Kelman responded to the twitter thread and called Gotcher’s hypothetical “untrue.”
1 of 6: Where Redfin's concerned, this is untrue. We offer every homeowner a choice of a cash offer or a brokered sale, sharing the data we use to price the home. We tell the owner he or she will net more money via a brokered sale. We would rather sell the home without owning it.
— Glenn Kelman (@glennkelman) September 18, 2021
“There is a conspiracy between iBuyers, but it's to pay lower commissions to the brokers representing the buyers of the homes we sell, by about 60 basis points so far. This may be one reason some brokers dislike iBuyers,” Kelman tweeted in the thread.
Zillow: 'We pay market value'
In an emailed statement to Yahoo Finance, Zillow said while the internet has often been a powerful tool for the business and consumers, it is full of “misinformation and falsehoods.”
“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,” the statement read.
Redfin also shared a statement with Yahoo Finance, arguing that Gotcher’s theory isn’t plausible because under their iBuyer program RedfinNow, the company only sold 292 homes in its second quarter.
“We don’t have the share to manipulate the market nor do we have any desire to,” Redfin’s statement read. “Intentionally overpaying for homes would be a terrible business model. 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. We’re honest with sellers that they’ll likely net more by listing on the market with an agent. 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. Of all the homes sold by Redfin in the second quarter, 99% were sold via our listing service and 1% were RedfinNow sales."
Yahoo Finance also reached out to Opendoor for this story, but did not hear back before publication.
Tweets continued to call out the company and place blame on it for making a difficult process even harder.
“How am I supposed to buy a house to live in when I’m competing against a multi-billion dollar corporation that’s doing it for profit?” @CMCabrera_ tweeted.
How am I supposed to buy a house to live in when I’m competing against a multi-billion dollar corporation that’s doing it for profit?
— c.c (@CMCabrera_) September 24, 2021
Twitter user @MrDys linked to a YouTube video published this summer by Reventure Consulting called “Zillow is manipulating the housing market. They need to stop.”
Others responded directly to Kelman, essentially doubling down on Gotcher’s ideas.
Name an industry where the entrance of a middleman benefits consumer.
I will never believe that Redfin as an intermediary on housing transaction is a positive for average residential buyers.
— Nick Miller (@Hashtaggiting) September 25, 2021
“I will never believe that Redfin as an intermediary on housing transaction is a positive for average residential buyers,” @Hastaggiting tweeted.
In a Bloomberg Wealth story, reporter Patrick Clark wrote that while Gotcher’s idea is “possibly brilliant,” Zillow probably isn’t up to what Gotcher thinks.
Instead, Clark points the finger back at an incredibly active real estate market.
“A much more likely explanation is that Zillow sometimes overpays for homes, because the market has been really hot, and at times prices in certain markets have been moving so fast that it’s hard to know what a property is worth.”