Zillow Cash Offers: Pros, Cons and How It Works

Zillow Offers was a service from Zillow where they made cash offers to directly buy and resell homes from sellers as an “iBuyer”. It launched in 2018 under the name Zillow Instant Offers. The service provided a fast and convenient way for homeowners to sell their property without needing to list the home, make repairs, or deal with showings and open houses. In exchange, Zillow would charge service fees averaging 7.5% of the sale price.

On November 2, 2021, Zillow announced that Zillow Offers would be permanently shut down. The company admitted its proprietary algorithm caused it to overpay for thousands of homes, losing over $420 million from July to September 2021. Zillow stopped making new offers and focused on helping existing customers under contract close their sales. Approximately 8,172 contracts were slated to close in 2022. Although Zillow initially promised to honor these sales, 400 contracts were cancelled in late 2021 through a termination program offering compensation to sellers.

Alternatives for Home Sellers

With the discontinuation of Zillow Offers, home sellers had to pursue other options like:

• Listing with a traditional real estate agent 
• Selling to other iBuyers like Opendoor
• Working with real estate investors and cash home buyers

Working directly with cash home buyers has emerged as one of the top alternatives for sellers needing a fast sale. By selling to real estate investors or companies that purchase homes with cash, homeowners can avoid the delays and uncertainty inherent in traditional listings.

Cash buyers have funds readily available and can close sales in as little as a week in some cases. This accelerated timeline allows sellers requiring urgent liquidity to monetize their most valuable asset quickly.

Cash buyers may pay moderately below market rates. However, their speed and fewer restrictions around property condition even this tradeoff for many motivated sellers against potential gains from open market bids.

Especially with market downturns expected to persist through 2023, leveraging cash buyers enables homeowners to capitalize on remaining equity efficiently. Hence for those prioritizing expediency over maximizing profits, this swiftly converts housing asset value into usable cash.

Criticism

Zillow Offers faced critique for:

• High service fees averaging 7.5% compared to competitors
• Lowball offers below open market value 
• Limited geographic availability
• Contributing to housing market volatility 

Some analysts argued the availability of fast cash offers later distorted seller expectations around home values. Others blamed business failures like Zillow Offers for spooking buyer confidence.

Impact

At its peak, Zillow Offers received over 5% of U.S. home purchase requests. The company completed approximately 6,000 transactions in 2019 prior to winding down operations in 2021 and 2022. While some industry veterans saw the model as the future of real estate, Zillow struggled to make iBuying profitable over the long run. Legacy listing approaches proved more resilient than expected despite the promise of tech-enabled convenience. However, other iBuyers like Opendoor continue to operate and evolve the model for select motivated sellers.

According to Zillow, over 41% of real estate agents say that cash offers are the most effective strategy for winning bids in competitive housing markets. With 77% of agents submitting all-cash bids for clients in some cases, it’s become an increasingly popular option. However, nationally only 7% of homes are purchased in cash.

How Does Zillow Cash Offers Work?

The process of selling your home to Zillow through their cash offer program is straightforward:

1. Submit Your Home Information

To get started, you simply provide some basic details about your property through Zillow’s website or app. This includes your address, an estimate of your home’s value, and information on the condition of the home.

2. Receive a No-Obligation Offer

Within 1-2 days, Zillow will provide you with a cash offer to purchase your home. This offer takes into account their estimates for resale value as well as the costs involved with buying, repairing, holding, and reselling the home. The initial offer is non-binding, so you can take some time to think it over without any obligation to sell.

3. Choose Your Closing Date

If you decide to accept Zillow’s offer, you can select a closing date that works for your schedule – typically 7-90 days out. This allows time to prepare for the move.

4. Move Out and Get Paid

Once the closing date arrives, vacate the property and complete the sale to receive your payout from Zillow quickly. You don’t need to do any cleaning, maintenance, staging, or showings.

Pros of Using Zillow Cash Offers

There are some clear benefits to selling your home directly to Zillow through their cash offer program:

1. Quick Sale Process

You can get an initial offer very rapidly, close on your own timeline, and avoid the work and uncertainty of listing on the open market. At one point, Zillow received offers on 5.6% of U.S. homes, showing the demand for convenience.

2. No Need for Home Repairs or Staging

Unlike selling traditionally, you don’t have to spend time or money making updates, repairs, or preparing your home for showings and open houses.

3. Flexible Closing Date

Zillow allows you to choose a closing date between 7 and 90 days from the time of the sale to best fit your needs. 

Cons of Using Zillow Cash Offers

However, there are also some potential downsides for sellers to consider:

1. Lower Than Market Value Offer

Zillow’s cash offers may be lower than what you could get on the open market. Their discounts reportedly ranged from 0.7% to 3.7% on average compared to Zestimates. Critics argued this also contributed to housing volatility.

2. Fees and Service Charges

While specific fees vary, you will typically pay between 7-10% of the home’s value to Zillow. This includes their profit margin plus costs for buying, repairing, holding, and reselling.

3. Limited Availability in Certain Areas

The program was only available in certain metro areas and states, restricting access for many homeowners.

Is Zillow Cash Offers Worth It?

Whether or not selling directly to Zillow makes sense depends largely on your personal situation and priorities. 

It can be a fast, convenient way to sell without hassles, making it appealing if you need to move quickly. Those with homes requiring major repairs may also benefit. 

However, for sellers focused strictly on maximizing sale price or limiting costs, listing on the open market may be preferable despite added effort and uncertainty.

Much depends on the spread between Zillow’s offer and estimated value. In areas like Miami – where 43.2% of sales are cash – competition can make the difference negligible. But in softer markets like California, more gap may emerge.

Who Should Use Zillow Cash Offers?

Zillow Cash Offers suits homeowners who:

• Need flexibility on close date
• Want a quick and simple sales process 
• Own properties requiring major fixes upfront 
• Are moving within 7-90 days
• Prioritize convenience over maximizing price

It tends to appeal less to sellers who: 

• Do not need to sell urgently
• Wish to leverage bidding wars for top dollar 
• Have recently renovated or updated homes
• Are concerned about maximizing profit

What are the Alternatives to Zillow Cash Offers?

For those considering Zillow’s program but want to weigh options, alternatives include:

Traditional Real Estate Listings – Hire an agent and list on MLS for maximum visibility and potential buyers. More work but higher likelihood of top sale price. 

Other iBuyers – Companies like Opendoor, Offerpad, and RedfinNow who make similar cash offers. Compare to find best deal.

Investors – Cash home buyers and real estate investors may buy properties directly, as is. Quick but lower profits.

Bridge Loans – Borrow against your home’s equity to get cash quickly while still selling traditionally later. Added fees/interest apply.

How to Get the Most from Zillow Cash Offers?

If selling to Zillow for cash, these tips can help maximize your payout:

• Get multiple estimates of your home’s value from Zillow, agents, and other sources to assess offer accuracy. 
• Consider doing some minor troubleshooting repairs Zillow may require to avoid deeper discounting.
• Research recent neighborhood sales to benchmark against Zillow’s offer terms.
• Negotiate politely with Zillow by highlighting competition, improved market forecasts, etc. 
• Sell additional assets separately that Zillow excludes from offers like furniture.

What Do Real Estate Experts Say About Zillow Cash Offers?

Agent and investor opinions on the Zillow Cash Offers program vary:

Supporters point to the value for older homes requiring renovations, fast sales, and household transitions. They see it as an additional tool benefiting certain sellers.

Critics argue it promotes lowball pricing while disrupting markets in ways that deprive sellers of potential upside during shortages. Some also blame the strategy for lost revenue given lower commissions.

In softer markets like 2023, cash offers hold less appeal with reduced competition and bidding wars. But others argue cash remains key for guaranteeing deals, especially on riskier properties.

Overall, most experts feel Zillow Cash Offers and iBuyers create useful optionality for some sellers but shouldn’t displace conventional listings as the default approach. Identifying the best fit given needs and market dynamics is key.