As companies like Zillow and Redfin continue to enter and dominate local real estate markets there is growing concern that they are seeking to manipulate these markets. There is nothing new to large companies creating monopolies and manipulating markets to the detriment of consumers. This has occurred in almost every industry in America and now the real estate industry is in danger of falling into the hands of the billionaire class.
The new business model, referred to as “iBuying” poses many risks to the value of your home. Companies like Zillow and Redfin has access to user data which gives them inside insights into which properties to buy. They just sit back and see where people search and which zip codes are most popular and use that information, not available to anyone else, to purchase homes in those areas.
Even more disturbing, some believe that iBuyers purchase homes at a certain price and then will overpay on some transactions just to create a false comparable value that will allow them to resell their homes for higher prices. By manipulating prices through their purchasing model they can get appraisers information they need to inflate the value of the homes they purchase so they can realize profits on the resale.
Spokespeople for Zillow and Redfin deny these claims, but the writing is on the wall. Without more scrutiny this type of behavior will collapse values for everyday consumers and the next crash will allow iBuyers to snap up bigger shares of residential real estate at even lower prices.