If they outbid everyone who actually wanted to live there, who were they planning to sell to? :P
Buying things you think are underpriced and reselling them is not frontrunning. (Ever since GME, a lot of people learned the word frontrunning and started using it in every possible situation.)
Zillow's plan was to act as a market maker. Market makers make a profit by buying things and then reselling them for slightly more. The difference is called the spread, and it's how market makers make money. Another example of a market makers is used car dealerships. Despite maybe seeming like a useless middleman, the reason market makers can exist is because they provide a valuable service to the buyer and the seller. They provide liquidity: you can go to a used car dealership and buy or sell a car today, instead of having to find someone to trade with directly. (If finding someone without a middleman were just as easy, the buyer and the seller would both benefit from just trading with each other directly. But they don't, which indicates that used car dealerships are actually providing a useful service.)
Zillow wanted to be a market maker for homes. They have a lot of data and thought they could use it to find homes that were underpriced, make a cash offer (benefiting the purchaser by giving them more liquidity via the faster sale), then quickly resell it. Their pricing algorithm didn't work, though, and they lost money. C'est la vie.
When a lower middle class guy in your town does this, he’s called a scalper and seen as a villain.
When rich elites do this with life essentials, they’re market makers doing a useful service.
The same set of people who would move their price points up after a few months and get larger mortgages. This worked for all of 2020 and most of 2021 and only the past quarter did it fail as a strategy.
>Buying things you think are underpriced and reselling them is not frontrunning. (Ever since GME, a lot of people learned the word frontrunning and started using it in every possible situation.)
You're missing that this is Zillow, not a neutral market actor. They have unique information about demand for houses and even get to influence prices upward through Zestimates.
I mean, exactly - they lost $550 million. Didn't stop them from burning massive capital reserves to outbid tons of people and fuck up the market a bit for them on a bad bet.
Well, and also because it's illegal in some states to buy directly from a car manufacturer, so you're forced to go to a dealership whether they provide value or not.
Would eBay and Amazon be considered market makers, as they pair up buyers and sellers?
other investors. housing is only "underpriced" because it's become a commodity market that investors play in. the people who want to live in the houses have no hope of affording them when they have to compete with all the various capital funds that are buying houses and hoping to flip them to other capital funds using a slightly different algorithm to calculate value.
Granted plenty of mom and pop flippers are doing cheap flips in this market as well. Zillow was just jumping in on the action at a much larger scale. But if I was king for a day, I think I would pass a law that required inspection contingencies on all residential real estate transactions. And maybe some sort of escrow for undisclosed maintenance issues that occur in the first year or two after the sale.
Hell, just last weekend I read a home inspection that specifically cited inability to assess interior and exterior wall cracking due to recent paint.
artificially driving up the prices of basic human needs is literally Bond villain behaviour.
