Calculated Risk by Bill McBride
Here is an example flop from Zillow.
This home is at 271 Capella Ave in La Habra California. It is listed by Active Realty (that seems to be associated with Zillow). This is a single story home in a decent area (California prices are always crazy compared to most of the US).
Lovely 2 bedroom, 2 bathroom, single story home on a large corner lot in the community of La Habra! Enjoy an open floor plan with lots of natural light, tile and carpet flooring, and an inviting fireplace. The kitchen offers granite countertops and backsplash, elegant light wood cabinetry, and stainless steel appliances. The primary bedroom features spacious closets, carpet flooring, and a ceiling fan. Sliding doors lead to the covered outdoor patio and back yard. Additional property highlights include recessed lighting, a 2 car attached garage, and no HOA. Convenient to area schools, markets, parks, and major freeways!
Zillow purchased the home for $768,000 in April 2021, and then listed the home for $815,900 in May. No takers in a hot market.
Zillow then reduced the price four times:
1. $799,900 on June 11th
2. $787,900 on June 25th
3. $772,900 on July 9th
4. $749,900 on August 6th.
We don’t know the final sale price, but the house went pending on September 20th (should close soon).
If it sold at list price, then Zillow lost $18,100 plus costs. They were offering a buyer’s brokerage commission of 2.25% – so that would be an additional $16,873. Other costs would include escrow, title insurance, a county transfer tax and a few miscellaneous expenses. That would probably be another 2% of the selling price, although Zillow probably has reduced costs (but not for the transfer tax). So that is around $15,000.
And they probably did some minor work on the property, although they listed it very quickly, so this might be minimal. And they paid for regular cleaning and yard maintenance (not included below).
Here is a summary:
Sales Price (estimated) $749,900
Purchase Price $768,000
Buyer’s Agent Fee (estimated at 2.25%): $16,873
Escrow, Title, Transfer (estimated) $15,000
Repairs (Unknown) $0
Estimated Gain or (Loss) ($49,973)
Although borrowing costs are low, Zillow held the house for about 7 months (from April to November).
So my guess is Zillow lost north of $50,000 on this one flop.