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How iBuyers lost millions on Valley homes despite hot housing market prices

Zillow lost more than $100,000 on more than a dozen homes in the Valley since 2020.

PHOENIX — On the surface, it doesn't make sense.

Home prices have skyrocketed in Phoenix climbing hundreds of thousands of dollars. However, some of the companies buying and selling home after home lost millions.

iBuyers, like Offerpad, OpenDoor and Zillow, used millions of dollars to buy up homes in the Valley with the hope of selling them later for a profit.

At their height, iBuyers controlled nearly 12% of the market.

However, Zillow and Offerpad lost millions nationwide and the Phoenix market was no exception.

According to data provided to 12 News, iBuyers lost money on around 1,900 homes since 2020.

Zillow lost at least $100,000 on more than a dozen homes in the Phoenix area over that time.

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The biggest loss was $192,612 on a home on North 50th Way in Scottsdale.

“It’s mind-blowing right?” Robert Miller said.

Robert Miller used to own the house on North 50th Way. However, it all changed after he got a call from a friend to see what Zillow would offer.

“It was an offer online of $585,000 which was $60,000 more than a realtor said it was at the time,” Miller said.

Miller said Zillow then sent an employee out to take pictures of the home for around 15 minutes.

A few days later, Zillow bumped up its offer to $662,000.

"I love the house, I love the neighborhood, but I don’t think it was worth that,” Miller said.

Miller decided to sell. He said the process was easy, he took the money and now rents a house in the same neighborhood.

“The move was easy, and the money is in the bank," he said.

Just 74 days later, Zillow sold the property for $470,000.

"It kinda made me sick,” Miller said. "My first thought was I wish I had the chance to buy it back for $470,000."

“How did they become such a big company doing things how they did?” Miller added.

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What happened

In essence, the models and algorithms some companies used were wrong.

“The problem with using an algorithm and not using a human being is that algorithms can't gauge nuances in the marketplace,” Tina Tamboer, a senior analyst at the Cromford Report, said

Zillow, in a November Shareholder letter, told investors they could not accurately project future home prices by, "much more than we modeled as possible."

Zillow blamed market volatility for its failure. Nationwide, Zillow reported a write-down of more than $400 million dollars on its Zillow Offers program in the second half of 2021.

According to the housing wire, Opendoor lost even more.

“Because they are buying in bulk, they build up to riskiness,” Deirdre Pfeiffer, an associate professor of urban planning at Arizona State University said.

In a statement, Zillow CEO Rich Barton said the volatility in the market made the company "far more like leveraged housing traders than the market makers we set out to be."

In November, Zillow said it would get out of the iBuying business and would lay off around 25% of its workforce.

“I think I was one of the last ones to sell before they just collapsed,” Miller said.

While bad algorithms and models cost some iBuyers millions, would-be home buyers lost out on homes.

“Who is our market for? And what is our market becoming?” Pfeiffer said.

Some iBuyers are still out in the market and have reported profits. However, analysts wonder if the strategy would work if the market wasn't booming the way it has over the last few years.

"We've seen 50 to 60% appreciation in two years, which is highly unusual," Tamboer said. "They don’t work in anything other than a seller's market."

Tamboer said as long as the Phoenix area stays in a seller's market, iBuyers and investors like them will be there trying to take advantage.

“I think there is a sense that our housing market is about becoming more and more of a place for building wealth and not for the people who live here,” Pfeiffer said.

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