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Many people don’t realize that real estate listing site Zillow also buys homes with the intention of repairing and returning them. The platform’s Zillow Offers unit uses its sophisticated AI software algorithms to come up with a asking price and make an offer to the home owner. If the owner agrees, Zillow buys the house, repairs and updates it, then puts it back on the market.
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But KeyBanc analyst Edward Yruma pointed out a flaw in the strategy on Monday. Two-thirds of the homes Zillow owns and listings for sale are underwater, reports MarketWatch.com.
When the Yruma rating was released, Zillow stock fell 6.2%. On Tuesday morning, the stock hovers just above the $ 90 mark, down from Monday’s close of $ 96.61. However, it is still above its 13-month low of $ 86 in mid-October, when Zillow said he would stop buying homes as he resolves a backlog.
However, Yruma’s analysis of 650 homes in Zillow’s inventory – around a fifth of those owned by the platform – showed that 66% were listed below the purchase price, with an average discount of 4. , 5%. Cities with the most underwater homes included San Diego with 94.3%, Phoenix with 93.4%, and Mesa, Arizona, with 92.6%. Of these cities, Phoenix had the most homes listed below purchase price, followed by Charlotte, North Carolina with 70 and Las Vegas with 52.
“Zillow may have looked into buying homes at the wrong time, and we believe its profits may be at risk due to its current home inventory ($ 1.17 billion in 2Q21),” wrote Yruma in a note to customers, reported by MarketWatch.com.
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Yruma has had a neutral rating on the share since February 2020, MarketWatch.com reported.
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