House-flipping algorithms are coming to your neighborhood— despite the losses

House-flipping algorithms are coming to your neighborhood— despite the losses

In 2021, iBuyers’ purchases jumped to double prepandemic levels, accounting for tens of billions of dollars in home sales. Las Vegas was among the top 10 markets where startups concentrated their investments. In a feverish summer, Maxson had already been outmuscled on two bids by cash offers from Zillow and Opendoor. On Dancing Ave., Zillow now acted as seller, having listed the home on June 24 for $470,000, nearly $60,000 more than it had paid less than two weeks before. But Maxson wanted it and agreed to close at just under asking price.

A Zillow listing for Maxson's dream home on Dancing Avenue.
A Zillow listing for Maxson’s dream home on Dancing Avenue.

When he went to take a look at the property, however, he discovered a 37,000-gallon water leak that had eroded garden walls and flooded the neighbors’ yard. Seattle-based Zillow, which owned the home, was oblivious, but the city authorities weren’t—Maxson found a notice stuck to the garage door, threatening a fine for allowing green water to pool, attracting mosquitos carrying West Nile virus. This is one downside of having homes owned by “faceless” corporations, Maxson says: “The [owners] were disconnected from it, because it’s just a number on a spreadsheet.” Though he offered to handle the estimated $30,000 of repairs himself, and take it off Zillow’s books for $30,000 less than the list price, they said no. Maxson discovered soon after that the house had sold to another family, at the same price he had offeredHe estimates that he lost about $2,000 on inspections and other costs—the closest he came to securing a home in 22 attempts that summer.

But at the very same time, the startup that had profited from his dream home was discovering cracks in its own foundation. As it turned out, Zillow Offers had lost more than $420 million in three months of erratic house buying and unprofitable sales. As Zillow Offers shut down, analysts questioned whether other iBuyers were at risk or whether the entire tech-driven model is even viable. For the rest of us—neighbors, renters, or prospective buyers—the bigger question remains: Does the arrival of Silicon Valley tech point to a better future for housing or an industry disruption to fear?


By summer 2021, the US housing market had almost run out of records to break. The Washington Post reported house prices at all-time highs (with a median of $386,000 in June) as the number of homes listed hit record lows (1.38 million nationwide). The average home sold in 15 days that summer—half the time taken a year earlier—as cash-rich investors and second-home buyers bought more than ever before. By November, a New York Times headline asked: “Will Real Estate Ever Be Normal Again?”

Despite making just under 2% of home purchases nationwide during this period, iBuyers began to play a larger, and more unpredictable, role than most, leading to calls from city leaders in Los Angeles to ban the platforms. iBuyers grow city by city; investment is tightly concentrated in a handful of locations across the Sun Belt, where the top five—Phoenix, Atlanta, Dallas, Charlotte, and Houston—accounted for more than half the total activity. Through 2021, iBuyers bought 70,400 houses nationwide. Nascent iBuyers are raising fundraising rounds in the United Kingdom, Europe, and Canada—but all are looking to the successes and failures of the stateside front-runners.

These cities form a neat growth pattern, following a “strikingly similar” trend to one seen in the trailblazer, Phoenix, according to a National Bureau of Economic Research (NBER) working paper from researchers at Stanford, Columbia and Kellogg, who analyzed iBuying by Zillow, Opendoor, Knock, Redfin, and Offerpad between 2013 and 2018. iBuyers had roughly 1% market share in Phoenix in 2015, growing to 6% in 2018. In the frantic summer of 2021, iBuyers accounted for 10% of home buys in Phoenix. “In certain neighborhoods, 25 to 30% of current listings right now are owned by iBuyers,” says real estate tech strategist Mike DelPrete.

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