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Zillow partners with home builders to expand home-buying business

Zillow partners with home builders to expand home-buying business thumbnail

Zillow

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 wants to make buying a new home and selling an existing one as easy as trading in a car.

The real-estate listing website has inked partnerships with multiple home builders that will allow home buyers who buy a newly constructed home from one of the builders to sell their current house directly to Zillow’s iBuying arm, Zillow Offers.

This program will only be available in the markets where Zillow Offers operates. By mid-2020, Zillow expects to have launched Zillow Offers in 26 cities across the U.S. Right now it’s available in Phoenix, Atlanta and Dallas, among many cities.

People who take advantage of this option will have the ability to choose an extended closing time, between seven days and eight months. This feature was designed to make it easier for buyers as they manage overseeing the construction of a new home while still living in their old one. Zillow said it also eliminates the possibility of needing to move twice or carry two mortgages simultaneously.

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“One of the last things buyers want to deal with when searching for a new home is the stress and hassle that comes along with selling their existing home,” said Zillow brand president Jeremy Wacksman.

Read more: Home-building activity soars 12% to the fastest pace in more than a decade

There are some noteworthy caveats for people who sell their homes to Zillow. Zillow deducts a service fee and estimated repair and closing costs from the purchase price. The fee comes to 7.5% on average, when including repair and closing costs, compared to the standard real-estate agent commission that’s typically around 6%.

A recent MarketWatch investigation of two other “iBuyer” firms, Opendoor and Offerpad, showed that home sellers who go this route are potentially leaving thousands of dollars on the table. On average, customers who sold their homes to an iBuyer netted 11% less than people who sold their homes on the open market, MarketWatch’s analysis found. (Zillow Offers was not included in this analysis.) When Zillow buys a home, the company says it aims “to present an offer that reflects the current market value” of the property.

Buyers’ need to sell an existing home also poses a risk for home builders. A report from John Burns Real Estate Consulting found that in the last 12 months, publicly-traded builders experienced cancellation rates — where the buyer pulls out of a deal to buy a newly built home — of 16% on average. One of the major drivers of cancelled projects was people not being able to sell their existing home in time.

Also see: Home-builder confidence rises, despite growing concerns about the economy

Zillow has partnered with more than 10 home builders across the country, including Brookfield Residential

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M/I Homes

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 and PulteGroup

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Instant offer or iBuying programs like Zillow Offers have gained a foothold among people who find the process of selling a home stressful.

Shares of Zillow are down roughly 30% over the past three months, whereas the Dow Jones Industrial Average

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 and S&P 500

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 are up around 1.5% and 2.6% respectively.

This story was updated on Sept. 24, 2019.

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