Popular real estate website Zillow was criticized on social media after a TikTok video condemning the potentially nefarious business strategies of an unnamed real estate company 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 huge user-generated database to target 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 supply.”
“Let’s say that company buys 30 houses within a two-mile radius, and let’s say the price is $300,000. So they’re buying all these houses for $300,000,” Gotcher said in the video. “Then they buy it on the 31st house for $340,000.”
In his video, Gotcher suggests that the unnamed company is purposely driving up the value of its homes in order to dramatically increase its own profits and thus manipulate market value.
While Gotcher never mentions Zillow, social media users have suggested that the company could be his target due to its size, popularity and the fact that the company has created its own real estate program called Zillow Deals who buys and sells single-family homes.
Commentators quickly pointed the finger at Zillow and two other real estate services, Redfin and Opendoor, and the video quickly gained a second life on Twitter.
Redfin CEO Glenn Kelman responded to the Twitter thread, calling Gotcher’s hypothetical “false.”
“There is a conspiracy among iBuyers, but it is to pay lower commissions to the brokers who represent the buyers of the homes we sell, by about 60 basis points so far. This could be one of the reasons why some brokers don’t like iBuyers,” Kelman tweeted in the thread.
In an emailed statement to Yahoo Finance, Zillow said that while the Internet has often been a powerful resource for businesses and consumers, it is full of “misinformation and untruths.”
“Zillow’s home buying and selling program, Zillow Offers, allows movers to sell on their timeline, reducing the stress associated with a traditional home selling process. We pay market value for every house we buy. When we looked at homes that sold traditionally after they turned down a Zillow offer, we found that those who sold traditionally sold only 0.09% more than the Zillow offer, on average. And we’re transparent about every home that Zillow buys and sells: The purchase and resale prices are publicly displayed on the property page on Zillow.com. With Zillow Offers, our goal is to buy at the market rate and then sell quickly at the market rate. The business model is designed to generate our profit margins from the convenience fees we charge merchants – typically around 5% these days.
“Because our margins are so thin, it’s critical that we price a property accurately. If we pay too much, we will lose money on resale. If we under-bid, homeowners won’t use us,” the statement read.
Redfin also shared a statement with Yahoo Finance, arguing that Gotcher’s theory is implausible because the company sold just 292 homes in the second quarter under their iBuyer program RedfinNow.
“We don’t have the stock to manipulate the market, and we don’t need to,” Redfin said. “Intentionally overpaying for houses would be a terrible business model. As a brokerage that employs local brokers to help consumers buy and sell homes, we offer homeowners a transparent choice: a list of one of our brokers for a low fee or a cash offer from RedfinNow. We are honest with sellers that they are likely to make more by listing with a broker in the market. Sometimes they prefer to take the convenience and security of the cash offer and let us take the risk of selling it to the ultimate buyer. Of all the homes Redfin sold in the second quarter, 99% were sold through our listing service and 1% were RedfinNow sales.”
Yahoo Finance also contacted Opendoor about this story, but did not hear back for publication.
Tweets continued to challenge and blame the company for making a difficult process even more difficult.
“How am I supposed to buy a house to live in if I’m competing with a multi-billion dollar company doing it for profit?” @CMCabrera_ tweeted.
Twitter user @MrDys linked to a YouTube video published this summer by Reventure Consulting called “Zillow manipulates the housing market. They have to stop.”
Others responded directly to Kelman, essentially doubling down on Gotcher’s ideas.
“I will never believe that Redfin as a real estate broker is positive for average home buyers,” tweeted @Hastaggiting.
In a Bloomberg Wealth story, reporter Patrick Clark wrote that while Gotcher’s idea is “possibly brilliant,” Zillow probably doesn’t live 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 sometimes Zillow overpays for homes because the market has been very hot and sometimes prices in certain markets have moved so fast that it’s hard to know what a home is worth.”