## *We're operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces.*

 

## *We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.*

 

says Zillow's Chief Operating Officer. And so goes Zillow's [iBuying](https://www.offermarket.us/real-estate-glossary/ibuying) momentum. 

 

Do you really buy the reasoning? Sure, it's likely Zillow is experiencing delays renovating and closing sales for their Zillow-owned homes. 

 

## Why would Zillow stop iBuying completely?

 

What do they see from their vantage point? Is the housing market softening and turning concerningly bearish faster that the rest of us realize?

 

Or is Zillow telling us that iBuying is really hard, and really dangerous if you don't execute at a world-class level? 

 

**Step 1:** provide a competitive offer in an already overheated market (iBuyers operate in overlapping markets).

 

**Step 2:** close the initial transaction which incurs transfer taxes and recordation fees (closing costs).

 

**Step 3:** renovate the property.

 

**Step 4:** list the property and facilitate showings.

 

**Step 5:** close the sale, bear carrying costs (interest) of credit facility, and risks of buyer falling through.

 

When all is said and done, iBuyers have shown how hard it is to make a profit on a per unit basis. If the market cools off, you can lose tens of thousands of dollars per property, and that appears to be happening to Zillow, at least in some of their markets.

 

From our own research across multiple markets, we see Zillow may have done quite a bit of buying high and now they're in a tough spot where they need to sell low.

 

## Take [621 Kings Ct in Dickinson, TX](https://www.zillow.com/homedetails/621-Kings-Ct-Dickinson-TX-77539/27695643_zpid/)

 

- June 29, 2021: Zillow purchased this property for an estimated $270,000
- August 6, 2021: Zillow lists for sale at $290,000
- August 20, 2021: price drop to $279,200 (-3.8%)
- September 3, 2021: price drop to $264,200 (-5.4%, -8.9% from initial asking price)
- September 16, 2021: pending sale
- October 15, 2021: buyer fell though, re-listed for sale at $254,200 (-3.8%, -12.3% from initial asking price)

 

As you can see from this example, Zillow bought a property, renovated it, and is currently struggling to sell it for 5.8% less than what it bought it for. After closing costs, Zillow will lose tens of thousands of dollars on this particular sale.

 

## Blame it on the AVM?

 

[AVM](https://www.offermarket.us/real-estate-glossary/avm) means Automated Valuation Model and it's the computer algorithm that determines how much Zillow should offer for a given property. Our guess is that Zillow is taking a pause to improve the accuracy of its pricing models and quality of its operational execution against this challenging business model. 

 

It's less likely Zillow predicts such dangerous market conditions that it would entirely stop its iBuying operations. If market deterioration were predicted, it would simply provide lower offers to build in a larger margin of safety to protect profits. That said, we did see all iBuying come to a stand still in late Q1 and Q2 2020 due to pandemic concerns.

 

## Another market observation

<blockquote class="twitter-tweet">House Zillow bought right up the road from a rental we bought 2 months ago Listed for $269k Zillow bought for $305k. Ours has one more bed and one more bath We bought for $160k. Comps I ran was $250k at time Zillow is screwing up values everywhere. <a href="https://t.co/WOPMTKI2ee">pic.twitter.com/WOPMTKI2ee</a>&mdash; Joe Cassandra (@JoeCassandra) <a href="https://twitter.com/JoeCassandra/status/1450234520779771906?ref_src=twsrc%5Etfw">October 18, 2021</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

 

## Related reading

 

- [Opendoor](https://www.offermarket.us/blog/opendoor-competitors)
- [Offerpad](https://www.offermarket.us/blog/offerpad-competitors)
- [Zillow Offers](https://www.offermarket.us/blog/zillow-offers-competitors)
- [RedfinNow](https://www.offermarket.us/blog/redfinnow-competitors)

Zillow abruptly stops iBuying citing operational challenges. Let's read between the lines and see what's really going on at the residential real estate platform. 

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Reading Between The Lines: What Zillow's iBuying Pause Really Means - OfferMarket Blog

Reading Between The Lines: What Zillow's iBuying Pause Really Means

## *Off-market real estate is more attractive than ever before.*

 

With record low interest rates, the surge in home buying in Baltimore is creating a challenging environment for homebuyers. Properties are going under contract before hitting the [MLS](https://offermarket.us/real-estate-glossary/multiple-listing-service) (multiple listing service, a broker listing syndication system that feeds listings to Zillow, Redfin, etc.) or receiving multiple offers within days of being listed.

 

## According to data from the Federal Reserve, we are at an all-time low in housing inventory housing inventory in the United States.

 

<iframe src="https://fred.stlouisfed.org/graph/graph-landing.php?g=x7u6&width=670&height=475" scrolling="no" frameborder="0"style="overflow:hidden; width:670px; height:525px;" allowTransparency="true" loading="lazy"></iframe>

 

This shortage is certainly the case in Greater Baltimore where the Maryland Association of Realtors reports that active inventory is down 60% to 10,117 housing units, driving the average sales price up 16% from this time last year. ​

 

## Off-market real estate is more attractive than ever before.

 

Off-market real estate is perhaps more attractive than ever before. Most home buyers think off-market real estate transactions are reserved for professional real estate investors and developers but it's also a great way for primary residence buyers to get a great deal, avoid excessive competition and save money. 

 

There are currently hundreds of off-market properties available for purchase in Baltimore City, Baltimore County, Harford County, Carroll County and Anne Arundel County. One service to find these deals is OfferMarket -- a marketplace for off-market real estate. There are currently over 20 single family houses available on OfferMarket in the Greater Baltimore market.

With housing inventory at record lows, savvy real estate buyers are looking off-market. Learn more about off-market housing inventory in Greater Baltimore. Real our real estate blogs.

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Off-Market Housing Inventory In Greater Baltimore

Small houses are not necessarily hard to sell, though it depends on a few factors:

 

## Is it priced to sell?

 

The #1 home selling mistake we see is when a home is not priced appropriately. Listing too high will result in many would-be-buyers not even inquiring. Many will wait for possible price drops or keep looking at other options. What's more, many buyers have firm maximum price limits and won't even consider or be altered to your listing. 

 

To sell your house fast, you need to price it at an attractive point to draw in as many buyers as possible. This means carefully analyzing [comps](https://www.offermarket.us/real-estate-glossary/comps).

 

## How small are we talking?

 

In your local there are likely many people looking for houses for sale with 1 to 2 bedrooms and 1 bathroom. But if we're talking about a tiny house (100 to 400 square feet), then the market of prospective home buyers is probably also tiny.

 

### How unique is the house?

 

If your house is designed in a manner that very few people find appealing, then you would need to reduce your asking price in order to sell in a timely manner.

Are small houses hard to sell? Not necessarily, it depends on a few factors. There's more to learn at OfferMarket. 

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Are small houses hard to sell? - OfferMarket

Are small houses hard to sell?

Grow your real estate investing business with the most competitive DSCR loan product. OfferMarket also provides DSCR rental loans, bridge loans, hard money, fix & flip, rehab, ground up construction loans.

DSCR Loan Information

<img load="lazy" src="https://cms.offermarket.us/uploads/fons_heijnsbroek_PC_3_UDO_5_Nh_g_unsplash_CLIMB_16f0f94b15.jpeg" alt="picture of make shift stairs at a consturction site with each step spray painted, climb">

 

Sometimes, the need for money can force you to sign documents hastily without careful consideration. Your focus is spending the the money as soon as it lands in your account. The worst-case scenario is when you start paying the money back and realize that things
aren&#39;t always as they seem. Whether you&#39;re borrowing from a bank or a private lender, there are crucial things you
should know. So, what are the questions to ask your private lender? Follow through the discussion.

 

<h2>
How Are You Capitalized?
</h2>

 

The question of capitalization is probably one of the most important questions to ask your
private lender. Capitalization is a money question that covers all the aspects of the level of
financial stability of the lender.

 

If you&#39;re taking out a secured loan such as a mortgage or auto loan, the lender will have to
hold your titles up until you complete your payments. Therefore, you&#39;ll feel more
confident dealing with a financially sound company whose books are in order.

 

If it's a mortgage lender, do they have warehouse lines of credit from financial institutions? Have they taken out a collateralized loan obligation(CLO) or leveraged loans? Will they need a partner? 

 

If they're lending you money for a project, they'll get a share of the returns and thus, are a partner. You should be aware of the probable risks for loans where you must make a deposit or contribution to the loan facility. In this situation, the lender uses the Loan-to-Value (LTV) ratio to determine your down payment. Most mainstream banks have an 80% LTV, whereby your contribution is about 20%. The LTV may be lower for private lenders, so you'll contribute more to the facility. 

 

So, the private lender must be financially stable in matters to do with capitalization for your deposit is not at risk. You can also ask if they are investment managers with funding from insurance companies, hedges, or pensions. These are more stable, especially for mortgage facilities. You can also look at their licensing to determine whether they are state compliant. They must also successfully pass thorough background checks. 

 

Notably, all lenders must originate loans, secure them with collateral like real estate, complete compliance training, and pass licensing exams under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008(SAFE). Typically, a lender that complies with regulations will not have trouble getting capitalization to fund business operations.

 

<h2>
How Are You Capitalized?
</h2>

 

The question of capitalization is probably one of the most important questions to ask your private lender. Capitalization is a money question that covers all the aspects of the level of financial stability of the lender. 

 

If you're taking out a secured loan such as a mortgage or auto loan, the lender will have to hold your titles up until you complete your payments. Therefore, you'll feel more confident dealing with a financially sound company whose books are in order.

 

If it's a mortgage lender, do they have warehouse lines of credit from financial institutions? Have they taken out a collateralized loan obligation(CLO) or leveraged loans? Will they need a partner? If they're lending you money for a project, they'll get a share of the returns and thus, are a partner.

 

You should be aware of the probable risks for loans where you must make a deposit or contribution to the loan facility.

 

In this situation, the lender uses the Loan-to-Value (LTV) ratio to determine your down payment. Most mainstream banks have an 80% LTV, whereby your contribution is about 20%. 

 

The LTV may be lower for private lenders, so you'll contribute more to the facility. So, the private lender must be financially stable in matters to do with capitalization for your deposit is not at risk.

 

You can also ask if they are investment managers with funding from insurance companies, hedges, or pensions. These are more stable, especially for mortgage facilities.

 

You can also look at their licensing to determine whether they are state compliant. They must also successfully pass thorough background checks.

 

Notably, all lenders must originate loans, secure them with collateral like real estate, complete compliance training, and pass licensing exams under the [Secure and Fair Enforcement for Mortgage Licensing Act of 2008(SAFE)](https://www.consumerfinance.gov/compliance/supervision-examinations/secure-and-fair-enforcement-for-mortgage-licensing-safe-act-examination-procedures). 

 

Typically, a lender that complies with regulations will not have trouble getting capitalization to fund business operations. 

 

<h2>
What is Your Approval Process?
</h2>

 

The approval process commences from when you fill out an application, through appraisal to approval. You can ask if they'll give you a term sheet to update you on the behind-the-scenes process. 

 

Even though the term sheet is not a binding contract, it shows that the process is moving well and helps you understand the lender's terms.

 

After the appraisal process, your loan is approved. Ask if there's a commitment letter that binds both you and the lender to the loan contract. 

 

The length of time it takes to fund a loan is known as the loan tenure or term. When you sign the commitment letter, your lender will specify the loan term, along with the approved amount and interest rate.

 

Depending on the type of loan, the period may vary. For instance, mortgages can last up to 20 years, while [personal installment loans](https://www.creditninja.com/installment-loans/) have a maximum term of 12 months.

 

Short-term loan interest rates are greater than long-term ones. However, for long-term loan facilities, the total cost of the loan is higher.

 

The terms and conditions may be lengthy; however, it's essential to read everything and ask questions where you need clarification. 

 

<h2>
What's Your Sweet Spot?
</h2>

 

Finding a sweet spot is the ultimate goal of closing the deal. You can ask this question to your private lender, which is the common ground between the amount you're borrowing and the repayment amount. 

 

Lenders are in the lending business to make money, so they have their sweet spot. One of these parameters is what was mentioned earlier, the LTV or how much they're willing to deposit to your account versus your down payment.

 

Asking your lender about the cost of borrowing before accepting the loan offer is crucial. Most often, borrowers are duped into agreeing to the terms and conditions without being aware of hidden fees.

 

In order to entice customers, a lender may advertise cheaper interest rates. Even so, there may also be other fees, such as application fees, late payment fees, and early settlement fees.

 

Full disclosure is crucial in financial matters since it enables you to evaluate whether taking out the loan is justified in terms of costs and benefits. 

 

Additionally, you can use the cost structure to compare many lenders and pick the one with the lowest fees.

 

Find out if the loan's interest rate is fixed or floating. Loans with fixed interest rates typically cost more when repaid early than those with fluctuating interest rates.

 

<h2>
Conclusion
</h2>

 

Notably, these are some of the questions you should ask your private lender when borrowing. Each borrower has unique needs, and the questions may vary depending on the type of loan product you are pursuing. Most importantly, don't accept a loan facility if you have any doubts. Inquire first because the devil is often in the details of the contract.

Essential questions that you must ask your private lender or hard money lender

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Questions to Ask Your Private Lender