>If they used competitive offers, they’d never have the winning bid.
Why do you assume that, seems like a cash buyout would be a great deal for many sellers if it was at the appropriate price. Issue is I think that Zillow's information was less granular than what the buyers/sellers had. Let's say Zillow priced two houses near each other at 1million each. However one was close to a busy road so would only sell for $900k while the other could sell for $1.1. Zillow made the right average offer of $1million to both but the buyers/sellers actually had more information. So the 1.1m seller didn't take Zillow's offer while the 900k seller did. Now Zillow was out $100k essentially not counting fees.
Not sure I follow. They buy for 1m so they're out 1m. Market value is irrelevant when bought. They sell for 900k, optimally, so they then get back 900k. In total they're out 100k (900k minus 1m). Not counting fees, market movement and assuming they sell optimally.
The spread kind of can be counted twice: if you tell management “we’re going to make $100k (10% return) in profit this year” and you end up paying $1000k and selling for $900k instead of $1100k like you planned … management is going to be less than pleased.
They fronted you $1M with the expectation they would make $100k. Now they are losing $100k. So their own projections are screwed by $200k.
Why do you assume that, seems like a cash buyout would be a great deal for many sellers if it was at the appropriate price. Issue is I think that Zillow's information was less granular than what the buyers/sellers had. Let's say Zillow priced two houses near each other at 1million each. However one was close to a busy road so would only sell for $900k while the other could sell for $1.1. Zillow made the right average offer of $1million to both but the buyers/sellers actually had more information. So the 1.1m seller didn't take Zillow's offer while the 900k seller did. Now Zillow was out $100k essentially not counting fees.